Say goodbye to the corner drugstore.
The savvy consumer is increasingly likely to go online to buy both prescription and non-prescription medications.
In the last year alone, at least three major drugstore chains have become cyber-druggists, either by acquiring or forming partnerships with Web sites, in effect creating a whole new business.
The online pharmaceutical market now accounts for about $1.4 billion a year, according to Forrester Research. And roughly 3% of all online users report they have made an online health product purchase, notes Cyber Dialogue, a New York-based consultancy.
Thanks to centralized and automated operations and the need for fewer employees, online pharmacies offer greater efficiency and a lower cost structure than brick-and-mortar drugstores.
One of the first Web-based pharmacies was DrugEmporium.com, founded in 1997. The company just redesigned its Web site and expanded its offerings to 20,000 stock-keeping units (SKUs) of prescription medicines, vitamins and other health-related products.
Besides convenience, the main benefit to consumers is price. The cost of filling a single prescription in a store can run as high as $6 per order while online the cost runs about half that, thanks to the lower overhead engendered by reduced labor costs, according to the firm’s vice president for operations Matt Erick. These savings are passed on to the shopper.
To promote itself and build traffic, DrugEmporium.com has entered into arrangements with other healthcare Web sites like drkoop.com. It has also hooked up with non-health sites like Cable News Network’s, says senior vice president and chief marketing officer Brad Mitchell.
As for retention, the company is sending out e-mail and direct mail to customers depending on their spending levels and is creating software to pursue “true one-to-one marketing” with its customers
PlanetRx.com is also taking retention and customer relationship management seriously. Earlier this month, it kicked off its Vitamin Club program, which selectively awards frequency discounts and special offers. Like other online pharmacies, PlanetRx also constructs online shopping carts for customers. These carts contain records of a customer’s previous and habitual purchases, which facilitates reordering, says Jay O’Connor, vice president of marketing for the Seattle-based company. However, he warns that “if you promote too much, you risk alienating people and you miss opportunities.”
To acquire customers, PlanetRx has been running national 60-second direct response commercials on cable news channels and on women-oriented networks like Lifetime. (Women make up about 70% of PlanetRx.com’s customers.) The firm is also running some direct response radio ads and has worked out portal arrangements with America Online, Yahoo! and iVillage, the latter of which bought a small stake in the company a few months ago. PlanetRx.com also made its first public stock offering last fall to help build its online infrastructure.
The meteoric rise of online pharmacies has brought about justifiable concern from doctors’ groups, state regulators and even Congress. They charge that some sites are selling prescription drugs without proper certification, and that some doctors allied with Web sites are prescribing medicine without ever physically examining patients or knowing anything about the conditions for which they are prescribing. Pharmacies are regulated by individual states.
Last November, Kansas officials began taking action against doctors filling prescriptions online without being licensed to practice in the state, and against those not properly acquainted with the specialization for which they were prescribing. The first case concerned an orthopedic surgeon who prescribed medicine online for sexual dysfunction.
Mark Stafford – general counsel to the Kansas state Board of Healing Arts, that state’s medical regulatory agency – says that at least three such cases hav e come to the board’s attention and he expects more, given the prevalence and ease of use of the Internet.
This issue attracted congressional attention last summer when Rep. Ron Klink (D-PA) introduced H.R. 2763, a bill that would require U.S. pharmaceutical Web sites to prominently display their addresses and phone numbers; to name the doctors responsible for online consultations and their areas of specialization; and to list the state in which they are licensed to practice medicine or pharmacy.
In September, the National Association of Boards of Pharmacy (NABP), an organization of state pharmacy regulators, began awarding verified Internet pharmacy practice site (VIPPS) certifications to online pharmacies including PlanetRx.com, Drugstore.com and Merck-Medco Rx Services. To qualify for VIPPS, online pharmacies must meet the organization’s 17-point licensing criteria and pass inspection from the group’s trained inspection team, says executive director Carmen Catizone.
In addition to enforcing routine pharmacy regulation, the NABP also watches out for e-pharmacies with poor security that might allow patients to take prescriptions turned down at one site and move them to another. At press time, the NABP had 150 applications pending and expects to get to them by the end of the year.
Catizone admits the group’s biggest headaches are coming from foreign sites over which no state or federal agencies now have any jurisdiction. The NABP has begun working with federal agencies like the Food & Drug Administration and Federal Trade Commission to help combat this problem domestically.
On top of all this, at least one doctor’s group is also warning that online drugstores may not be as good a deal for consumers. In a report submitted to the American College of Physicians, Bernard S. Bloom and Ronald C. Iannacone argued that while the Internet may give patients greater access to healthcare, medicine obtained online may cost more than prescriptions filled through drugstores.
Despite these actions, Web-based pharmacies are still causing problems for regulators. Last month, Illinois Attorney General Jim Ryan filed four lawsuits against companies that sell prescription drugs over the Internet, claiming they are not properly licensed in the state. One of the medicines said to be dispensed illegally is Pfizer Inc.’s Viagra. Ryan is asking the court to stop the companies from advertising or distributing prescription drugs to Illinois consumers and to order the online pharmacies to pay damages.
Naturally, the VIPPS-certified sites are quick to herald their status. “We did this to show we’re one of the good guys,” says Rachel Templeton, spokesperson for CVS.com.
Her unit started out as Soma.com, a small pharmaceutical Web site that went into business last January in Washington. CVS acquired it last August for $30 million, in an attempt to extend its marketing west of the Mississippi River.
Conceding only that overhead costs are lower online, Templeton says that CVS.com offers its customers 15% to 20% discounts on all items it sells, including over-the-counter medications, vitamins, herbal supplements and private label products. CVS.com is now mainly concerned with acquiring customers, and is working on a campaign that will include TV radio, billboard and online advertising, adds marketing vice president Mike Hartmann.
New players are hot acquisition targets. Last February, Drugstore.com opened its cybergates, and has already sold pieces of itself to drugstore chain Rite Aid Corp. and to Amazon.com. Drugstore.com is now, in effect, the online pharmacy unit for Rite-Aid, which owns a 22% stake in the firm.
So far, the site has been pulling in about 1 million hits per month and average sales of $25 to $30, says spokeswoman Debby Fry Wilson. She notes Drugstore.com is marketing itself largely through Web portal arrangements with several major Web sites.
To build customer retention, Drugstore.com regularly sends out e-mails to remind patients to renew their medicine. For other products, it’s using online shopping carts.
All e-mail is opt-in. “We don’t send out obnoxious messages,” Wilson says.
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