The global healthcare e-commerce sector is on an upward trajectory. Projected to reach a market size of about $750 billion by 2027, the sector demonstrates a robust compound annual growth rate (CAGR) of ~19%. This growth surpasses previous years, showcasing its increasing strength.
Consumers are actively seeking enhanced and simplified purchasing experiences, especially in consumer health in general and in prevention in particular. These evolving expectations offer substantial opportunities for consumer healthcare (CHC) manufacturers to embrace e-commerce. By fostering stronger connections with patients, manufacturers can boost loyalty while positively impacting their overall revenue and profit.
This surge in e-commerce is driven by increasing consumer spending on medical products, coupled with consumers being used to shopping online from different areas. As e-commerce becomes a pivotal growth driver for the industry, three key trends are shaping the landscape.
Key trends driving growth in CHC e-commerce
1. Rising number of direct-to-consumer (D2C) offerings as well as higher spending in D2C marketing from manufacturers
This is accompanied by a noticeable shift in consumer behavior, as more individuals opt to bypass traditional channels and purchase directly from healthcare manufacturers. D2C empowers consumers, providing them with research, comparison, and direct purchase capabilities, potentially at lower price and with greater customization.
2. Mounting emphasis on the significance of consumer data in healthcare
Direct interaction with consumers yields valuable data, enabling manufacturers to tailor products and services based on consumer preferences, buying behavior, and feedback. At the same time, we see increasing integration of Artificial Intelligence (AI) to enhance offerings. AI analyzes extensive data sets for improved diagnoses, personalized treatment plans, and streamlined automated tasks within organizations.
3. Growing relevance of e-commerce retail in the healthcare sector, spanning the entire healthcare value chain
E-commerce retail is becoming increasingly important with new players such as last milers but also established global players such as Amazon which are expanding into the healthcare sector. Amazon not only operates as a marketplace. It has also introduced its CHC product line, Amazon Pharmacy, as well as Amazon Clinic, a virtual healthcare service provider. This expansion aims to position Amazon as a comprehensive healthcare service provider for consumers.
These trends highlight the dynamic and diverse nature of the e-commerce healthcare space, presenting significant challenges for CHC manufacturers. It is therefore crucial to understand: Which channel(s) to prioritize and how to set the strategy?
Understanding the CHC e-commerce landscape
To devise the most effective e-commerce strategy, a comprehensive understanding of the evolving landscape is paramount. The healthcare e-commerce arena is remarkably diverse, ranging from straightforward product offerings on an online pharmacy to the establishment of a dedicated direct-to-consumer (D2C) store.
Each option presents distinct advantages and disadvantages for CHC manufacturers. Selecting the right approach and corresponding strategy is contingent on the individual conditions and strategic goals.
As can be seen in the diagram above, the level of control over the offer/commercial conditions etc. differs in each case, but so does the level of initial investment (e.g., organizational effort) and margin potential.
While offering through an online pharmacy requires the least organizational effort, the level of control over conditions and information is low. We see manufacturers with classic OTC healthcare products such as pain killers using this e-commerce channel.
On the other hand, a dedicated D2C store provides the highest degree of control, not only over commercial but also data-related topics. This enables manufacturers in particular to offer personalized solutions. However, the level of investment and organizational effort required is the highest. Not only investments in setting up the platform are central, but also the marketing and maintenance investment.
Providers of sensitive products, such as those related to men’s and women’s health, operate successful D2C businesses. Moreover, D2C becomes more relevant in prevention and is pivotal in developing a continuous relationship with the consumers.
Here, Amazon marketplace often serves as a middle ground. This allows a certain degree of control but requires less organizational effort and investment than introducing the own D2C store.
It is therefore essential to carry out a sophisticated assessment of the current situation and overarching corporate strategy, considering capabilities and organizational structure to determine the optimal e-commerce pathway.
Case study: Go-to-market model feasibility check for online expansion
Our client, a leading CHC brand, was looking to expand their brand into selected online channels. Simon-Kucher was their trusted partner in evaluating the feasibility and potential alternative routes-to-market, such as direct-to-consumer stores.
Our solution:
We assessed the different channel characteristics and dynamics for each market in scope to identify the most relevant channels. We also defined the requirements to enter via current and alternative go-to-market models.
The result:
Due to the e-commerce channel feasibility check, we identified and outlined the upcoming steps for the go-to-market preparation. Additionally, we introduced a structured approach for future channel environment assessments.
The D2C pathway in particular is intriguing due to its significant margin potential for manufacturers. It can be seen that this specific pathway is becoming increasingly relevant and prominent in the healthcare space. Particularly due to the level of control, it offers considerably more opportunities from the net revenue management perspective compared to retail/pharmacy for manufactures.
However, navigating this pathway requires careful consideration of three key areas by consumer healthcare (CHC) manufacturers.
Our framework serves as an initial starting point to determining the optimal path.
1. Market and product
Product suitability: Does your product lend itself well to direct-to-consumer sales? Consider factors like size, complexity, customization options, and target audience accessibility.
Competition: How saturated is your market with existing D2C brands and traditional retailers? What unique value proposition does your brand offer to stand out?
Brand identity and control: Are you comfortable managing your brand image and messaging directly, rather than relying on external retailers? Do you have the internal resources and expertise to do so effectively?
2. Financial and performance
Profit margins: Can you maintain healthy profit margins after accounting for D2C costs like warehousing, fulfillment, marketing, and customer service?
Marketing and acquisition costs: Can you effectively reach your target audience through D2C marketing channels? Consider the costs and ROI of various marketing strategies.
Fulfillment and logistics: Do you have the resources and capabilities to handle order fulfillment, warehousing, and shipping? Can you scale these operations efficiently as your business grows?
3. Data and technology
Infrastructure: Do you have the necessary technology infrastructure and data management practices to support D2C operations, customer management, and analytics?
Data collection and integration: Do you have a plan for collecting and integrating customer data from various sources (website, marketing campaigns, social media, etc.)? How will you leverage this data for personalization, customer acquisition, and product development?
AI and predictive analytics: Can you leverage predictive analytics to forecast customer demand, optimize inventory management, and identify potential churn risks?
Future proof your CHC e-commerce strategy: What is right for your business?
The e-commerce market in the CHC sector is growing strongly and is extremely diverse. Therefore, it is essential to understand which path is the right one and to determine the investments accordingly. A successful e-commerce strategy depends on an understanding of the landscape and its implications. Are you ready for tomorrow and ready to win in e-commerce?
Simon-Kucher is at the forefront of revolutionizing e-commerce strategies for consumer healthcare companies. Our approach goes beyond the traditional one-dimensional view on e-commerce; we ensure that healthcare companies connect with their customers and consumers on a deeper level, building trust and loyalty for the long term.
With specialists in each area of the healthcare value chain and deep local market expertise, we can help you to drive commercial success and transform your business to keep ahead in the digital world.
Thanks to contributions by Armin Ackassi!
