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Pharmacy Mega Trends

The pharmaceutical firms play a pivotal role in making drugs, defining the price & profitability of drug at each level of supply chain as well as positioning of the drug in mind of medical practitioners(having medical representatives as well as freebies to doctors). Since the drugs are manufactured in volume, the work of drug distribution is handed over to distributors who purchase bulk drugs and pay the pharmaceutical firms upfront. The distributors then sell to many wholesalers, who in turn then sell to retailers who finally deliver drugs to patients.

The combined industry structure for wholesalers as well as retailers is depicted in Figure(1). Some of the observations from the industry structure are -

  1. Wholesale customers like hospitals have low switching cost. They bargain for payment terms greater than 120-150 days. Similarly, retail customers too have low switching cost, they look for maximum discounts as well as ease of procurement of drugs. In short, the bargaining power of customers is HIGH.

  2. Big distributors have to deal with many wholesalers, so they have fixed discount policy which is based on purchase volume. Similarly, for a retail shop while purchasing from wholesalers, fixed discounts are offered based on volume. In short the bargaining power of suppliers is HIGH.

  3. E-pharmacy shops have brought a culture of giving away a portion of their margins to customers, which has forced retail pharmacy shops too to make discount policy for customers. Yet the retail pharmacy shops are not able to match with discounts of e-Pharmacies. E-Pharmacies also have made ease of ordering medicines a big differentiation for the industry, which has forced retail pharmacy shops to start using Whats App type of chat services for catering to the customers. E-pharmacy websites provide details about the drugs with its reactions etc, which has further forced the retail pharmacies to have qualified employees while dealing with patients. Overall the competitor rivalry is for adding value to customers.

  4. Entry barriers are very low, so even hospitals as well as medical practitioners have started in house retail pharmacy shops. Wholesalers have started retail shops. Pharmacy students get lot of opportunity to open pharmacy shops with the help of other peoples money. Crowding of space is happening as profitability is assured in the supply chain of drugs.

  5. Generic drugs have forced pharmaceutical firms to establish lean supply chain for many drugs, this involves completely short circuiting the wholesalers as well as retailers.

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