The consumer healthcare market is shifting as consumers’ purchasing habits are evolving. Consumers increasingly make use of multiple sales channels for different shopping occasions, instead of purely relying on traditional pharmacies. That’s why retail as a distribution channel is gaining importance – find out what consumer healthcare companies can do to reap the potential of this development.
How do consumers buy medicine – now and in the future? Consumers’ purchasing habits are evolving, in the healthcare industry as in many other sectors. Looking at the healthcare market development, we can see that the times when everybody bought all their health products exclusively in brick-and-mortar pharmacies are over. Consumers start to choose more freely between all available sales channels, pharmacies, online shops, and sometimes retail stores – depending on the purpose and occasion of their purchase.
Especially the growth of the latter is one of the key developments shaping the Consumer Healthcare (CHC) industry right now, driven by retailers pushing to offer more CHC products, markets becoming increasingly liberal, and CHC offerings becoming more about staying healthy and preventing illnesses.
Why is retail becoming more important?
Why is retail an increasingly important distribution channel for Consumer Healthcare companies? Which European market trends are fostering this? Analyzing the current developments, we were able to detect multiple changes, all driving retail growth in the CHC channel landscape – and therefore increasing the need for your company to prepare for change:
Accelerated demand within preventative care
Within CHC, there is a clear trend of moving from acute (consumer purchasing product due to current symptoms) to preventative care. As a result, not only the type of products but also the entire shopping occasion is changing. While consumers might have a specific product in mind when having to serve acute needs, shopping for preventative care is more long-term, in advance, and usually larger bundles – this asks for a different sales approach.
Pro-active choice of product
Consumers obtain information more and more by themselves about health products (e.g., via online channels such as social media) and consequently feel increasingly comfortable to make their own purchase decisions when retail shopping, independently of pharmacists’ recommendations. Packaging and product descriptions need to be self-explanatory and easy to understand – but also must catch the attention of shoppers – to cater to this development.
More liberal instead of regulatory markets
Overall, regulatory frames for CHC products are becoming more liberal in many markets, allowing a rising number of OTC products to be sold outside of traditional pharmacies. In addition, more prescription-only medicines are gaining non-prescription status, further increasing the importance of retail channels as opposed to the traditional pharmacies.
Channel developments of pharmacies, retailers, and new players
In some markets (e.g., UK), large drug store chains already dominate traditional pharmacies, in others (e.g., Germany), such chains are not yet allowed, both resulting in traditional pharmacies presenting themselves more like retail stores with larger self-spaces, more POS promotions, and a wider portfolio including health, but also beauty and healthier food products.
Modern trade retailers – such as drugstores, supermarkets, or beauty chains – are focusing stronger on health care products. In line with the previously described market trends, here the beauty and health market segments are increasingly interlinked as well. In practice, shoppers can already find dedicated areas in retail stores that focus purely on typical consumer health products and even offer advice from health care professionals.
Lastly, entirely new types of players are entering the CHC retail space, altering the sales landscape. For example, most recently, delivery service companies with an original focus on general products or groceries have added CHC products into their portfolio, offering last mile delivery services the healthcare industry is often still missing.
As a result of these market trends and the general development towards retail, manufacturers need to prepare for the rising importance of varying retail channels.
How to successfully enter the retail sphere
How can CHC companies move forward and prepare their businesses for the developing retail environment? To enter this channel and become a successful retail player, you first need to convince retailers to list your products. Therefore, showing the value they add to the retailer’s offering and the ability to increase the category revenue is vital, while also appealing to them on other levels. In the following, we outline six key prerequisites to achieve this: pricing, sales, packaging, portfolio, business case, and internal capabilities.
1. Pricing: Cover price bands that are still showing “white spaces”
To find your optimal price bands, you first have to decide whether it’s better to be a mid-tier or premium brand in the retail segment. Consider the current price area of your products on traditional pharmacy channels and either keep it or adapt it for the retail positioning to suit your needs. Additionally, you should analyze how the current portfolio of the retailer in your category is designed to find out which price bands in there are still offering space and where you can fit in.
2. Sales: Get the best shelf space
The best shelf space (i.e., middle and top shelves, since they are associated with high quality) is key in order to stand out against the large number of competing products, especially in retail, where shoppers stroll by themselves without pharmacists providing guidance. To achieve a good placement, you need to consider size, weight, shape, and other space requirements of your products. Aim for a retail-friendly product/package ratio that minimizes wasted space and allows you to fit as many products as possible on a shelve.
At the same time, try to offer a wide surface coverage to become more visible, for example with a variety of products of the same brand within the same product category that can be displayed next to each other. Keep the retailer’s needs in mind and not only “pitch” for one product, but for the whole portfolio, the look and feel you can create in the shelf.
3. Packaging: Offer shoppers a retail-friendly package communication
Retail-friendly packaging is an important aspect, as we outlined above. In retail, packaging as well as descriptions needs to be different than for traditional pharmacies, as they have to be more consumer friendly and self-explanatory. Apart from being informative, make your products stand out by having recognizable packaging with a clear logo, a clear slogan, and a recognizable color scheme.
4. Portfolio: Create a differentiated and interesting product portfolio
As mentioned under #2, it is important to offer several products of the same brand. To achieve this, there are a couple of options. For instance, you can:
- offer multiple versions within one category, e.g. by differentiating for different target groups, product flavors or administration forms.
- offer different pack sizes per product, e.g., multi-packs or “family packs” next to single or travel pack sizes. They not only cater to consumers’ different needs (e.g., due to varying household sizes or occasions), but also motivate customers to try out new products, and allow CHC manufacturers to play with different price models and promotions.
Generally, regular product updates or extensions are needed to ensure your products remain interesting and spark new interest of consumers.
5. Business case: Convince retail that your new category is essential to consumers
Since retailers strongly consider consumers’ purchasing behaviors, to introduce a new category or product, you need to have high-quality, quantitative market studies showing the positive impact of your product for each specific retail channel and category. Demonstrate how your offering helps retailers to improve their overall shopping experience for consumers and drives category revenue. Highlight all the improvements you made in the aforementioned categories and combine them into a compelling trade story that can be adapted to the individual retailer you’re negotiating with.
6. Internal capabilities: Ensure that internal capabilities fulfil retail requirements
To enter the retail sphere successfully, you need to assess mainly two areas:
Sales: Make sure to find out if your sales team can fulfill the new requirements that come with retail. Provide training to the existing team or expand it, if not. Be aware that one large retail account can require much more attention than many small pharmacies, which could make the introduction of dedicated key account managers necessary.
Performance requirements: Before you go into negotiations with retailers, understand that you as a manufacturer are expected to “perform”, same as all listed products. Make sure that you fully understand the differences of delivery and stock-keeping behavior of large retailers as opposed to traditional pharmacies. For example, consider to what extent you can guarantee regular deliveries of your products to minimize out-of-stock stock keeping units.
Summary: Take the first steps into retail now!
The outlined considerations will help you prepare for successful operations in retail channels. However, these are only examples, and they need to be individually assessed to be ideally suited to different CHC companies and retailers. Overall, there are many more topics that need attention: Marketing operations, the management of promotions, revenue growth areas including all pricing considerations (e.g., retail versus consumer pricing), to just name a few.
And even though retail will be playing a major role in Consumer Healthcare distribution, it is not the only channel on the horizon that is gaining importance. Within the upcoming articles in this blog and webinar series, we will shed a light on other market developments, including the rising importance of e-commerce as well as direct-to-consumer operations.
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