The secrets to fighting big pharmacies

As a former director of marketing for 1-800-PetMeds, I've heard about all the strategies used to grab pharmacy business from you. In fact, I've tried many of them. And while the big guys have economies of scale on their side and can out-price you any day, that's not their main strategy.

What direct-market pharmacies like PetMed Express really want is to upstage you on service and convenience. And I'm here to tell you that you're holding a better hand. You provide value that those other guys don't—and clients will buy from you even if you charge higher prices. Don't believe me? Let's look at the market for contact lenses as a comparison.

What's happening in the veterinary market is similar to what's been going on for years in the contact-lens business. (I've also held senior marketing roles in the contact-lens industry so it's pretty easy for me to see the parallel.) Optometrists have worked to overcome the combined threats of online dispensing and mass merchants—and they haven't lost all their business to direct marketers. You won't either; I'll tell you why later. But first, here's how the optometrists handled the heat.

Research pays off

In the mid to late 1990s, 1-800-CONTACTS and other Internet suppliers had grown to serve about 17 percent of the contact-lens market. Now, after more than 10 years, they still only hold about 17 percent of the market. Despite the best efforts of these marketers, there's a ceiling on the appeal of direct delivery of contact lenses.

Sure, there's a group of people out there who like buying online. In fact, you've probably heard some staggering numbers about the growth of online purchasing. But don't let that data give you stage fright; much of the growth is due to large, online retailers, like Amazon.com. And even with this online giant, bricks and mortar bookstores are flourishing. All this bodes well for you and your business.

Another plus: Only a small number of shoppers consider price their primary driver. Many marketers believe only about 15 percent of consumers are wallet-watchers. They shop around at large discount stores, online retailers, and direct-mail outlets. And they'll do this regardless of your pricing policies.

What not to say

Optometrists learned the hard way that trying to get this 15 percent to buy wasn't worth the gouge it made in the remaining 85 percent of sales. Many optometrists dropped their prices to match online pricing and then complained they weren't making any money. Of course, it didn't make sense to drop their prices on 100 percent of their business when only 15 percent was truly sensitive to pricing in the first place. Most customers didn't question the cost of contact lenses, so dropping prices just cost the optometrists money.

And consider this: Optometrists also compete against corporate giant Wal-Mart. Do you really think if Wal-Mart entered the market for flea and tick products that you could compete with them on price? Your best bet is to focus on non-wallet-watchers and deliver the best service to them. Many optometrists are thriving today, despite Wal-Mart's entrance into the market, because they responded in a healthy way. So how are you reacting to online and direct-mail pharmacy sales?

Your response

You have several options—some better than others—when it comes to a price challenge. You could try to match prices, guilt your client into buying from you, badmouth the other retailers and their products, or refuse to give a prescription. These reactions, in my opinion, are all bad options, because your clients can and do construe these actions negatively. (See "What

Not

to Say" below for more.)

Plus, refusing to give a prescription could get you in trouble. According to the AVMA Position Statement on Internet Pharmacies, "Veterinarians should honor client requests to prescribe rather than dispense a drug. The client has the option of filling a prescription at any pharmacy." On the other hand, signing a prescription without a valid veterinarian-client-patient relationship could open you up to risk.

All that said, what can you do? From my perspective, your best bet is to use the preemptive strike. You probably know that consumers use online services for convenience. Well, there's nothing more convenient than you handing the client a product before she leaves the clinic.

The problem is one of perception. The client thinks she's paying double the online price for the convenience of buying from you. And your competitors are playing on that perception. Some online marketers, most notably PetCareRx, claim savings of up to 50 percent in their TV advertisements. Your client will have to dig to find that savings, but you're left to fight the "perception versus reality" battle.

To clear the stage of this clutter, go online and do a little price shopping. I've found that for the biggest revenue generators, flea and tick products, the difference in price is much smaller than you or your clients believe. (See "Research Pays Off".) And when you're talking about saving just a little money, well, the issue boils down to value.

Your client believes she's paying more for the convenience of hand-delivery from you, which she doesn't see as a good value. Your challenge: Change your client's perception about the value you provide. Here's how:

• Set your price about 10 percent to 15 percent above the online prices.

• Communicate the value you're offering your clients without seeming pushy. For example, say, "You have a choice today, Mrs. Jones. You can go through the trouble of ordering this product online and maybe save a little money, or you could take it home now and get Max started on it right away."

• Point out the other advantages of buying from you, including your big-picture understanding of the pet's health history and the fact that you'll be around to help if the pet doesn't do well on the medication.

• Track your product sales, profits, and your conversion rate—the number of times the product was purchased divided by the number of times the product was recommended. If you track your conversion rate for a few months before you change your approach, you can compare the difference in sales. My bet is that sales and profits will rise. Try it for six months and see for yourself.

That's what two doctors I met while working for PetMeds did. I encouraged them to try this approach, and while there was no difference in sales over the short term, profits rose in the long run because the doctors weren't devaluing the convenience and value they offered their clients.

Best of all, with this approach, you're correctly pricing your products, taking into consideration the level of service and convenience you provide. Eighty-five percent of clients will appreciate your time and service—and your honesty about what they're getting from you. So take a bow, and enjoy your success.

Ian Morrison

The bottom line

Fifteen percent of your clients are walletwatchers. That means 85 percent are making decisions based on factors other than price. The key lesson: Don’t sacrifice healthy pharmacy sales to woo a small group of price shoppers.

Ian Morrison is president of Focus Consulting and the former director of marketing for PetMed Express. Please send questions or comments to ve@advanstar.com