- Categories:Retail Insights
- Author: KT Wu
- Origin:Hanshow Retail Academy
Sales Channel of OTC Industry
Shoppers in China now can buy OTC (Over The Counter Medicine) through both offline and online channels. Though online sales share of OTC is only 8%, it has been expanding rapidly with YOY growth rate up to 47%. Offline pharmacy is still the dominant sales channel for OTC with share of 92%. The three main formats of offline channel include pharmacy stores, hospital, and the other point of sales (community health service centers, health centers in township, and clinics). According to the data from IQVIA and Qianzhan, pharmacy stores account for the highest sales share of 54%, then hospital 21%, and the other point of sales 17%.
Business Models of O2O Pharmacy
In the O2O pharmacy market, there are three business models as below.
Source: Internet+Medical Healthcare Whitepaper by Kantar, ELA research
The operation of O2O pharmacy generally covers four phases:
Drive traffic – Enhance conversion – Boost purchase – Encourage feedback.
The first phase is driving traffic. Pharmacy stores tend to leverage O2O platforms’ resources to increase exposure and attract more traffic to their online stores. Generally Ali Health, JD Health , Meituan, Ele.com are the top platforms that pharmacy stores would choose to work with. The second phase is enhancing conversion. Shoppers are accustomed to doing comparison on product/price/promotion/delivery speed, etc. Besides providing all the information shoppers need, pharmacy stores must seriously think about how to convince shoppers to stick with their offline or online store by offering differentiated values. The third phase is boosting purchase. Shoppers order on O2O platform, and get products delivered home from one of the nearest pharmacy stores. Both O2O platform and pharmacy stores want to increase shoppers’ basket size through different kinds of incentives and promotion, such as free delivery upon certain amount of purchase, an attractive discount for buying A and B together, etc. The fourth phase is encouraging feedback. O2O platform and pharmacy stores encourage shoppers to give likes and views on their shopping experience. In practice shoppers’ likes and views could be an effective marketing to drive more traffic for stores, meanwhile all feedback can be collected and analyzed for improving product assortment and services in the future.
O2O Pharmacy Leverage Both Public and Private Traffic
Most physical pharmacy stores/chains have been developing O2O business through building their self-run platform or cooperating with third-party platforms. In most cases, pharmacy stores prefer to leverage third-party platforms to achieve more exposure, drive more traffic, and enhance delivery efficiency. After several years of development in this area, most large pharmacy store chains can be searched on third-party platforms. Meanwhile, large pharmacy store chains never give up building their own private traffic pool. For example, the big four pharmacy store chains have their own DTC channels like wechat account, wechat mini program, etc. They encourage shoppers to register membership via offering incentives like coupons, and typically each offline pharmacy store has its own wechat group to serve members nearby through sending coupons or posting healthcare relevant tweets, which are helpful to maintain shopper loyalty and boost repeat purchases.
Internet Giants Joined In To Give A Leg Up To Physical Pharmacy Stores
Due to challenges facing the industry – small basket size, limited margin level, low repeat purchase rate, etc., physical pharmacy store chains have been seeking transformation to increase average basket size and margin, for example, through providing in-store medical services, or expanding the assortment of grocery products. On the other side, e-commerce giants have the ambition to accelerate the development of healthcare category offering through cooperation with physical pharmacy stores.
Ali Health Launched Future Pharmacy Store Partners Plan
Ali Health already united a big number of physical pharmacy stores to launch a program called Ali Health Future Pharmacy Store Partners Plan to help the digital transformation of pharmacy stores. Under this partnership plan, physical pharmacy stores might be empowered to become a more multifunctional store format that could offer more products like grocery goods and services like health check. Those pharmacy stores which join Ali’s Partner Plan could leverage Ali’s capabilities on internet technologies and operation, data-based membership marketing, staff training, online medication consultation, and delivery efficiency, etc. Besides, Ali could empower physical pharmacy stores to expand their business scope and innovate store operation model through involving hospitals, third-party medical servers, commercial insurance to its platform.
JD Health opened Alliance Pharmacy Stores
JD Health accelerated its entrance into low tier markets via the Internet+ strategy. According to JD Health’s semiannual report, the total store number of Alliance Pharmacy Stores reached more than 500, covering 17 provincial-level districts and near 200 county-level districts. The pharmacy stores under the alliance would be very different from the traditional ones, more wellness, skincare, cosmetic products and quick health check devices would be introduced into the revamped stores, so that shoppers would have access to value-added services such as in-store health check and virtual healthcare services. Meanwhile JD health’s own O2O platform YaoJiSong is also an important empowerment to pharmacy stores, shoppers could order online and get goods fast delivered home within 30minutes.
Physical pharmacy stores would not be replaced completely by e-commerce due to the immediacy and professional advice needed during the pharmaceutical shopping journey. Nevertheless, shopper behavior has evolved a lot in the past several years and O2O pharmacy has been a significant complement to the offline shopping experience. Even though O2O pharmacy sales is still a small proportion of the total online pharmacy sales, it would be a growth opportunity that most physical pharmacy stores cannot afford to miss, especially after COVID-19 greatly reduces the cost of consumer education.
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