Written by and published in Elements magazine, December 15, 2016
Keeping up with the competition is likely a top priority for your independent community pharmacy. And, while it may seem impossible to beat competitors’ retail prices, it’s not always about having the lowest price.
“Sometimes stores get wrapped up thinking they need to match Wal-Mart, or that they need to have the best prices in town,” said Tom Boyer, director of national accounts at Hamacher Resource Group (HRG), a leading partner in category management, business strategy and marketing services focused on consumer health care at retail. “You’re never going to win that game. You need to think from the standpoint of your image and branding.”
For example, if a pharmacy prices a private label product dramatically lower than a national brand, that price disparity can actually diminish the product’s appeal. The patient might think the store brand is inferior because of the large pricing gap.
The lowest price isn’t what gives your pharmacy a competitive edge; it’s the value you provide. Providing value can be as simple as ensuring that your front-end space is well stocked, and that products are always on the shelf. “You want to focus on building relationships and the shopping experience with customers and avoid competing with Wal-Mart on price,” said Sean Grudzinski, product research and analysis manager at HRG.
Pricing know-how
But before you can set your retail pricing effectively, you need to know your market.
Look into your patient demographics and who’s shopping your front end. Grudzinski recommends pharmacies consider their competition, determine how they want to be positioned and perceived, and then establish their retail price strategy. “You really need to understand your market and customers. That’s a common mistake retailers on all levels make,” he said. “They don’t really understand who’s shopping their store or the surrounding area.”
Examining patients’ retail purchasing habits can also help determine whether your pharmacy is a convenience or a destination business. Grudzinski said most independents are convenience businesses. “If a patient is already in the store getting a prescription, maybe they’ll get something because they’ve been meaning to pick that up. They purchase it as a convenience,” he said.
Boyer suggests pharmacies amp up their over-the- counter (OTC) offerings so their front end becomes a destination for patients.
Regular updates
It’s also important to routinely evaluate and update your pricing—monthly at a minimum. “You want to change your prices frequently to keep your customers receptive to change,” Grudzinski said.
“Pharmacies need to focus on changes in market conditions and whether their wholesalers or manufacturers change costs,” he said. “Obviously the goal for them is to not lose margins, so they need to adjust their retails accordingly.”
And if you want to get rid of slow-moving merchandise, overstock, discontinued products or seasonal items, a sale is a good idea. “People are always looking for a good deal,” Boyer said. “Don’t send things back to your wholesaler. Find ways to offer discounts to your customers to help build loyalty.”
Grudzinski recommends promoting your sale with price cues like signage, banners and bag stuffers. “Putting something on sale isn’t the most important thing. Communicating it is,” he said.
Finding the right formula
Ultimately, pricing requires a well-thought out strategy.
“It all depends on how the store wants to be positioned, how competitive they want to be in the market, and what other services and products they offer,” Grudzinski said. “Sometimes there’s a misconception that the lowest price is the best price. That’s not necessarily true. I know a lot of retailers in which the market area, and the general positioning of the store, is more geared towards a specialty, so they can get a higher retail.”
When pharmacies don’t adhere to a pricing strategy, they’re ultimately affecting their bottom line. “Pricing is definitely one of the biggest factors in contributing to a pharmacy’s bottom line, when you consider profitability,” Grudzinski said. “Even a small improvement in your retail price can have a large impact to your bottom line and overall profit.”
A managed pricing program, whether through your wholesaler or HRG, can help you set a consistent pricing strategy, create a professional image and help minimize pricing issues.
“The benefit of a value-price program is that someone is taking over the management of it for you,” Boyer said. “It’s kind of that silent coach for that store.”
Want more proven tactics for retail success? Download the 5Ps of Retail Success by Hamacher Resource Group: http://bit.ly/5psofretailsuccess.
By the numbers
From the very price conscious to the impulse buyers, consumers shop in different ways.
20 – percent of consumers are very price conscious. The primary driver for their buying decisions is price. They’re more likely to shop around and the shopping experience is less important.
20 – percent of consumers are not price conscious. “These individuals are the consumers who just go and buy that product. They don’t look at or care about the prices,” said Tom Boyer, director of national accounts at Hamacher Resource Group.
60 – percent of consumers are image shoppers. “These are the impulse buyers,” Boyer said. “They like the pharmacy’s environment, or they like the staff.” For these shoppers, the benefits outweigh the costs related to the product.