Why you Should Fight for Your Pharmacy or Risk Losing Revenue
Not long ago, the typical small animal veterinary hospital derived
approximately 20% of its income from pharmacy sales. Unfortunately, this number
has decreased over the years and this trend seems likely to continue. As you
might guess, one major contributor in this decrease is the continued rise of internet
A 2015 report done by the FTC contained some eye-opening statistics in this regard. This report stated that US manufacturer sales of pet medications total $3.7 billion to $4 billion annually. In 2014 veterinarians accounted for 58% of pet medication sales, brick-and-mortar retailers accounted for 28%, and internet/mail-order retailers accounted for 13%. What is troubling is that, in 2011, the study found that veterinarians accounted for 63% of sales, brick-and-mortar 28%, and internet/mail-order pharmacies represented 7% of sales.
In just three years, veterinarians had lost 5% of the pet medication market, conservatively estimated at $185 million, while internet/mail-order pharmacies gained 6% of pet medication sales. Internet pharmacies are not bringing new income into the profession; instead they have taken income out of your pocket and put it into theirs.
Whether you want to accept it or not, internet pharmacies are a successful business that will continue to grow. Business schools often study successful businesses to determine what competitive advantages they have. In other words, what is one business doing that causes them to be more successful than their competitors? So let’s examine the internet pharmacy business to see if we can determine what competitive advantages internet pharmacies have over a veterinary practice.
Probably the greatest competitive advantage that internet pharmacies have over a veterinary practice is convenience. Clients can get on their computer at 10:00 pm to order a product and have it shipped directly to their home. There is no question that people like to purchase products on the internet and enjoy the convenience of having those products shipped directly to them.
Some people would say that a second competitive advantage would be price, and that products purchased on the internet are cheaper than those purchased from a veterinary practice. While this may be true in some circumstances, it normally is not the case. When I conduct an onsite consultation at a veterinary practice, we always have this discussion with the team and team members who usually say that products are cheaper on the internet. But when we actually compare prices, nine times out of ten, the practice is cheaper. So don’t believe it when the internet pharmacies advertise that they are cheaper. While it may be true in some instances, it is normally not the case.
What other competitive advantages do the internet pharmacies have? Well, some have a substantial advertising budget that they can use to misinform our clients. Other than that, they really don’t have many other competitive advantages.
Now let’s look on our side of the equation. What competitive advantages do you, the private veterinary practice, have over the internet pharmacies?
The first one that comes to mind is convenience. If a client is standing in your practice, what could be more convenient than purchasing and receiving the product right then and there? Obviously this only applies if the client is at your practice.
Your second competitive advantage is that you are a health care professional. You know the patient, you are aware of what other medications the pet is on, you know whether it would be appropriate for the patient to be on that medication or not. Nothing beats this knowledge but you must “leverage the white coat.”
A third competitive advantage your veterinary practice has over the internet pharmacies is the manufacturer’s guarantee. If a client buys heartworm medication from a veterinary hospital and their pet contracts heartworm, the manufacturer will pay for the cost of treatment. Will the manufacturer pay for the cost of treatment if the client buys that heartworm medication from the internet pharmacy? No. Although some internet pharmacies have been trying to take this competitive advantage away from you by saying that they, the internet pharmacy, will guarantee the medication and pay the client if the pet turns up heartworm positive. Will they honor this guarantee? Who knows, trying to take away your competitive advantage is a smart move on their part.
Another competitive advantage you have over internet pharmacies is a highly trained health care team who can discuss medications with clients. Again, you know the pet’s medical history and whether it would be appropriate for the pet to be on a medication or not. You also have real people, who clients can talk to when they have a question. Speaking of which, who will the client call at 2:00 am if there is a problem with the medication they ordered over the internet-- the internet pharmacy? Good luck! No, the client will call you or your emergency service.
The Real Reason
So if, upon analysis, internet pharmacies really don’t have that much of a competitive advantage over private veterinary practices, then why have they been so successful and taken so much revenue out of our pockets and put it into theirs? When I ask this question at meetings and seminars I get a variety of responses, but I think there is really only one real answer – WE LET THEM! As a profession, we have chosen not to be competitive and therefore allowed internet pharmacies to take this revenue away from us.
Let me see if I can prove this to you. I think most people would agree that the one competitive advantage that internet pharmacies really have over us is convenience. That is, the ability of clients to purchase medication on-line, day or night, at any time they wish. Yet how many veterinary practices have a shop site on their website? While I don’t have an exact figure to answer this question, when I ask the question at meetings and seminars about a third of the audience put their hands up. We have just said that the one competitive advantage internet pharmacies have over veterinary practices is convenience. So why wouldn’t a practice want to have a shop site on their website, giving clients what they want and keeping that revenue in their practice? I don’t get it. A shop site will not only help you to maintain your pharmacy revenue, it will also help with inventory control because you won’t have to purchase and keep inventory items in stock that seldom sell. Clients will still purchase the item through you, however it will be through your shop site.
How We Can Reverse This Trend
Although we may not be able to completely reverse this trend and put internet pharmacies out of business, I do think we can give them a real run for their money if we do three things.
- You need to have a shop site on your web site.
- You need to educate your team about the
differences between clients purchasing medications on the internet versus buying
them at your practice or from your shop site.
- You need to educate your clients about the differences
There are some great brochures available commercially that can help you educate your clients and team members. You can also write something up for your clients and hold an in-service meeting on this topic to educate your team (all team members). My office recently created a poster that can be customized, printed and displayed in your practice’s exam rooms to promote your online pharmacy/shop site to clients.
If you have a shop site on your web site and are competitively priced with the internet, why would a client purchase a product from the internet? It makes no sense. The client can get the same or better product from you, shipped directly to their home for the same or better price and have the veterinarians’ endorsement and manufacturer’s guarantee behind that purchase. When you do these three things, you will have taken away most of the internet pharmacies’ competitive advantages and you will be truly competitive in this market.
Don’t Roll Over and Play Dead
Internet pharmacies are not going away; they are here to stay. You can choose to keep your practice competitive and offer products on the internet or not. But if you don’t, your client may very well go to an internet pharmacy site and purchase their products. Once this happens, that internet pharmacy will continue to solicit that client and try to take further business away from your practice, leveraging their advertising advantage. I would urge you not to “roll over and play dead.” This is a serious challenge to your practice and an important income stream. You also want to make sure the pet gets the proper medication with a valid prescription. Be competitive, establish a shop site on your web site, educate your clients and educate your team members. Don’t give your clients a reason to get their products or medications anywhere else.