Producers and consumers
In the short run, it’s more fun to be a consumer. It sure seems like consumers have power. The customer is always right, of course. The consumer can walk away and shop somewhere else.
In the long run, though, the smart producer wins, because the consumer comes to forget how to produce. As producers consolidate (and they often do) they are the ones who ultimately set the agenda.
Producers do best when they serve the market, but they also have the power to lead the market.
The more you produce and the more needs you meet, the more freedom you earn.
Pharmacy has always had the ability to be in the right space at the right time – that is the reason that it has competition at all levels for that space.
And for the most part, pharmacy has performed well above its weight even though the marketplace has been stacked against it at all levels.
We tend to forget that it is really only since the advent of World War Two that national governments injected capital into drug companies so that individual countries would have access to some drugs (those that were available) some of the time.
We also tend to forget that we all survived on basically herbal medicines to that point even deeming them efficacious enough to fund in the early years of the PBS.
Post World War Two the pharmaceutical market looked limitless and inviting for investors in all consumer products manufacturers.
Pharmacy owners tenaciously held on to the medicine market primarily through compounding their own products tailored for each patient.
The patients loved it and they loved the individual pharmacists tending to their dispensing even more.
Pharmacists did not understand sophisticated marketing practices as they exist today.
Then, as now, all they knew was that a manufacturer (usually an overseas version) was trying to substitute their hard-won compounding market with their own “patent” brand.
Initially, only a few brands were able to establish themselves, mostly through the medium of radio, women’s magazines and newspapers. The smallest advertisement for a toiletry product could induce almost immediate demand at a strong level.
Eventually, strong brand names such as NYAL and Ipana began to feature strongly in shelf displays of the late 1950’s and beyond and manufacturers began to reward those pharmacists who purchased bulk buys with bonus stock and discounts.
But what happened during that time was an orchestrated attack on the pharmacist-owned markets (compounded products and private label products) and control of the market space. Manufacturers quickly realised that the more decentralised a selling space was, the easier it was to manipulate it and control it.
The manufacturer’s objective was to sell as much of their product as possible at a price closest to their sell-in price to a retailer.
To this day, because of a shift in market and political focus, the pharmacy leaders (represented by the PGA) have given scant thought to protecting compounding pharmacists. Instead, they deal with pharmacies and consumer products and competing with supermarkets.
That is a strange concept when you think about it because supermarkets are primarily about food while pharmacy is totally about health, surgical aids, medicines and nutritional supplements.
So maybe history can give modern pharmacists some pointers.
Set Godin in the introduction is spot on as he identifies producers as eventually becoming the top of the “food chain”.
Other producer innovations (such as the PBS) also achieve a top position in the food chain, because government is able to legislate its position in the market place and control price and distribution – they become the producer.
This is simply part of the process of bringing the retail selling point closer to the manufacturer’s sell-in price, cutting out the wholesaler cost in between.
This accelerates costs for the reseller as most pharmacies would already know with Pfizer direct dealings.
It is because pharmacy has moved from its niche position in controlling its products that it finds itself at the mercy of major manufacturers and major retailers and government.
Even Colesworths ensure that their own private label products are 25-35% of their own turnover, which is the ratio they find that they can exert pressure back along the supply chain to keep all markets in check.
Pharmacy today finds itself outgunned by both government and manufacturers, with drug manufacturers in particular, trying to become direct distributors. You will note that in the last section of this article some recommended interventions by the Productivity Commission that again shows how a government can destabilise a small business and it’s done on the recommendation of academics – people who couldn’t manage any simple business let alone a complex one.
So pharmacists, as they re-invent their business model, should ensure that the following elements appear in the mix:
* Compounded prescriptions both doctor generated and pharmacist generated.
* Private label products to the level of 40% of turnover. These can be compounded for small volumes, or contract-manufactured for large volumes.
* A private prescription market promoted to GP’s and allied health practitioners.
Properly marketed, this segment should be backed through publishing your own pharmacopeia and include a section for standard compounded product lines.
With a bit of research, you could investigate nutritional supplements that support various conditions or repair deficiencies created by mainstream drugs.
If done properly, it will deflect the critics of pharmacy – because they criticise without having the evidence to do so.
And here is a thought for a new political campaign.
Let the supermarkets look after food and groceries, while pharmacies look after medicines.
That should be the message carried to all politicians because it is one that would provide best benefit and sustain a wide geographic spread of pharmacies that can deliver primary health care like no other profession.
It also removes the unfair practices that big business, particularly supermarkets, can and do, inflict on pharmacy.
And of course, qualified ownership for pharmacy businesses for the best possible result.
In breaking news just to hand we find the draft report of the Competition Policy Review panel has recommended removing the ownership and location rules for pharmacy in the “long term interests of consumers.”
The report, released today, said the Panel, chaired by Professor Ian Harper, found the present ownership and location restrictions were unnecessary to uphold the quality of advice and care provided to patients.
Such restrictions limited consumers’ ability to choose where to buy pharmacy products and services, and the ability of providers to meet consumers’ preferences, it said.
The Panel said while some regulation needed to remain in place, given pharmacy’s role in primary health care, current regulations were more restrictive than those in other health sectors.
They should be replaced with regulations to ensure access and quality of advice on pharmaceuticals that did not “unduly restrict competition”, the Panel said.
Negotiations for the next Community Pharmacy Agreement gave an opportunity for government to remove the location rules, with “appropriate transitional arrangements”, the Panel said.
Looks like some hard bargaining ahead with pharmacy starting from a weakened base.