Growth is not about slaying your competitors but about serving your customers

Statistics show that more pharmacies have become insolvent in the past three years than in Australia’s entire pharmaceutical history.
Government reforms have transformed the very core of the Australian pharmacy industry. Bank debts have climbed to insurmountable levels. Costs are increasing across the board, from ridiculous rents to high wages. And cannibalising price wars are in full swing between large supermarket chains and even pharmacies themselves.

Is it any wonder they’re focussed on mere survival?

What happened to the good old days? The days when pharmacists knew each customer by name, and happily chatted about their families and pets while they filled prescriptions? What happened to the days when pharmacies weren’t fighting to survive, but effortlessly thrived?

The pharmacy industry has adopted a retailer mentality, where pharmacies no longer place any value on genuine customer communication and support. Instead, all effort goes to sales and mark-ups, encouraging customers to search for the best price.

The top method pharmacies are using to increase sales today is discounting. It’s not uncommon to see pharmacies with black boards on the foot path reading, ‘We will beat anyone’s scripts by ten per cent’. I even saw a discount pharmacy store that actually had this painted on their external wall.

Businesses have an insatiable appetite for new customers and pharmacies have fallen deep into the trap of the need to grow their customer base. There is no doubt that every business in the world cannot survive if there was no demand from customers, but in today’s business world, pharmacies are throwing everything they can to try and lure customers through their doors – fierce discounts, marketing campaigns, so-called loyalty programs and special offers.

Playing the price game is a very tempting way to lure customers into buying from you, and it can be a very effective tool. Drop any price low enough and people will flock through your doors. In fact, discounts are so effective that we now have the emergence of the fully-fledged discount pharmacy, and even the Pharmacy Guild has defined the difference between the discount pharmacy and the service-driven pharmacy.

This may be justified in cases such as the end of financial year sales, Boxing Day sales and so on when you need to get things off the shelf to replace them with new stock. But the practice of constant discounting doesn’t make business sense, and the millions of dollars lost in discounts every year is staggering. You don’t need an accountant to calculate the losses pharmacies are willing to discount from their prices to sell their products – many of these sales lose millions of dollars of losses every year. In fact, reduced prices are the greatest loss businesses incur as a result of not selling their products at a profitable rate.

They find themselves in a constant battle of having to create everlasting price cuts, catalogues, vouchers and sales to keep sales moving, knowing that if the next door neighbour becomes cheaper, the discount-addicted customer will go next door to get their high. And there’s only so much the pharmacy can pay to lure the customer into its doors.

In the end, there’s only a short time between when pharmacies start to compete on price by cutting down their own profit margins and when they start compromising on staff and the quality of the products they stock.

This has led to an environment where pharmacies are constantly undercutting each other. As a wonderful pharmacist, Lisa, very truthfully said, ‘We are the only industry that is cannibalising itself.’

Unsurprisingly, this has led to the customer mindset shifting from relationship and trust-based buying to that of bargain buying. Now more than ever customers are wired to want to buy cheaper products and follow sales and bargains, to the extent where they may not notice the cost of petrol, time or resources spent to get a cheaper deal. Customers now carry store catalogues so they can go from one store to the next to find the best deal. I was amazed when I was at a supermarket and a customer said, ‘Don’t buy the washing detergent from here – it’s twenty-three cents cheaper at the pharmacy down the road.’ As the discussion continued, I discovered that he would rotate between four separate stores and to buy his bargains. When I asked him, ‘Where do you get the best customer service?’ to which he smiled and said, ‘Who cares?’

His words resonated – in such a hostile, price-sensitive environment where the major emphasis is to have cheaper prices and out price the competitor next door, who does really care? 

This use of manipulative techniques has transformed many customers in retail industries to bargain addicts.

And, like any form of addiction, the pharmacy industry has become accustomed to feeding the addict with more of his addiction. Yet no matter how enjoyable that short-lived high feels, it has a deteriorating impact on their business no matter how productive the increase in sales may seem. It is no different to the methadone program – addicts come to try and get clean over and over again, yet on their first opportunity to score again sends them back into the claws of addiction.

Surely there must be a better way to get customers through the door.

If all you are doing is taking a customer’s prescription and providing a pack of medicine with minimal advice on how to take it, be prepared for a price war. Let’s be honest – that’s what the majority of pharmacies do. They dispense the script and, depending on the pharmacist, the customer would be lucky to have some advice about the medicine they are going to take. It’s the usual practice, but does usual make a significant difference in people’s lives? And does the usual make a significant difference in your pharmacy’s bottom line? If you are the same as the majority, then the only differentiating factor between you and everyone else is price. And if you’re not providing your customers with any additional value, why should they pay you more than the local supermarket?

In my next article we will discuss measures on how to improve customer service.

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