As low-priced drug retail chains gain strong momentum in the
pharmaceutical retailing, traditional retail formats are busy
restructuring themselves. The consequence is the emergence of
strong retail outlets in first- and second-tier cities.
This is a challenge to small- and medium-sized pharmaceutical
companies. They must take active measures to form effective
cooperation with retail channels and grow with their help in market
expansion and company development.
But along with cooperation, smaller drugmakers must also have
their own principles:
Equality
Smaller firms are weak compared with big retail channels, but
they should not look down upon themselves, instead should base
cooperation with retail chains on equality and mutual benefits. If
they think they are weak and should rely on strong distribution
channel partners, it will put them in a passive position, resulting
in continuous concessions to their partners.
Strategic partnership
Smaller firms should try to build long-term and strategic
cooperation. Retail channels are important to drugmakers, but the
sector differs from traditional distributors or wholesalers because
retail outlets are the contact point with patients and customers,
requiring more careful planning and management of the network.
Dynamic management
Small and medium pharmaceutical businesses should put strong
retail channels into their own management, centered around market
changes. They also need to evaluate risks and learn market trends
and consumer demands through retailers to provide data for other
operations and new products.
Smaller businesses can use the following techniques to deal with
power retail chains:
Product supply: Weaker drugmakers should have special supplies
for retail chains to take advantage of their strength in products
and product packages.
In packaging, products sent to retail chains should be of a
smaller size than those sent to other outlets to meet their needs
or faster product cycles. In products, businesses should analyze
patients' demands and provide the appropriate medicines. At the
same time, companies should also have a supply technique to keep
the product cycle for retailers short.
Pricing: This is a key link in dealing with large retail chains.
The pricing scheme must be different and based on a comprehensive
analysis of patients' affordability, competitive products, dosage,
supply price and retail price. The prices should be a little bit
lower than products going through other channels. At the same time,
they should regulate prices through contracts and incentives to
keep the whole price system stable.
Close watch on outlets: It is meaningless if a drugmaker just
moves its inventory into a warehouse of a retailer. Retail outlets
need a close watch. At present, advertising medicines is still
highly regulated, so a retail outlet can be a good platform to
educate patients and spread brand names. So pharmaceutical firms
should use methods like attractive posters, packages and innovative
layouts to promote retail sales and communicate with patients.
A balanced channel: Large retail chains are just part of the
market and it is dangerous to put all resources into them. The
complexity of the Chinese market determines traditional
distributors - individual distributors and wholesalers - will
remain in the market and they play a meaningful role in expanding
coverage and sharing risks. Smaller companies should continue to
train and support traditional distributors to build cooperation in
community clinics in the future to avoid the risk of over-reliance
on one type of outlet.
They should also consolidate their traditional distributors and
ask them to be responsible in promoting sales in retail chains to
transform their business model from making profits through
wholesale to revenue sharing.
Brand is key: Brand is a key bargaining chip with strong retail
chains. Brands mean endorsement from patients and customers, which
drive sales for retailers, so drugmakers can pay lower entry or
display fees and get payments quicker. Without a solid brand,
pharmaceutical companies usually put themselves in a passive
position in the bargaining with powerful retailers.
Of course, smaller businesses do not have as many resources and
have difficulties in building brands, but they can concentrate in a
regional market and make good preparations for product positioning
and identification so that customers can easily pick them out.
(China Daily July 12 2007)
