How Can Independent Pharmacy Compete…

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Competing against the big guys is always part of running a small business and is a particularly relevant issue for independent pharmacies that operate in the face of considerable pressures. Headwinds in the industry swirl around insurance and reimbursement: pharmacy benefit managers (PBMs), preferred/narrow networks, declining reimbursement rates (the average is now 87.7%1) and expensive specialty drugs. This is all in addition to the big guys getting even bigger through consolidation.

However, several trends still push things in the independent pharmacy industry’s favor. These tailwinds include more patients with access to healthcare, the aging of the huge Baby Boomer generation, growth in the long-term care market, legislation to grant pharmacists provider status under Medicare and, when done well, the move toward the pay-for-performance model – monitoring adherence, managing chronic disease and keeping patients out of hospitals.

So What Should Independent Pharmacies do to Navigate the Crosscurrents?

Study Chain Pharmacy Operations

Learn what your competitors do well and how they do it. Look at operations and branding; steal shamelessly and do it even better. Also, it’s important to discover what your competitors don’t do well and pick up the slack.

Operationally, consider whether you have the appropriate amount of both prescription and over-the-counter (OTC) inventory. Be a merchant – focus on items your customers want but can’t find elsewhere, always keep best-selling items in stock and have seasonable items available. Remember to make it as easy as you can for customers to spend their money with you.

Your expenses, or the cost to fill, must be considered as well. For example, examine your payroll: Do you schedule for your business’s benefit or for your employees’? Look at total payroll spending as well as scheduled hours and wage per hour. Are you lowering the cost to fill with technology like point-of-sale (POS) systems, IP phones, Interactive Voice Response (IVR), online and smartphone refills, robotics and reconciliation of third-party claims to the claim level?

What about customer service? Are you hiring employees for their attitude and capacity, knowing that you can train for skills? You have something the chains don’t have: that personal touch. Remember the acronym CHANT: Customers Have a Name Too. Provide services that the chains can’t or won’t.

Develop a Brand

Entrepreneur.com’s Small Business Encyclopedia defines branding as the marketing practice of creating a name, symbol or design that identifies and differentiates a product from other products. Simply put, your brand is your promise to your customers. It tells them what they can expect from your products and services, and it differentiates your offerings from that of your competitors. Can you, your employees and, more importantly, your customers describe your brand?

Your brand derives from who you are, who you want to be and who people perceive you to be, so every store will be different. The pharmacy owner sets the tone. Look at what exists in your market, ask potential and existing customers what they want, share the brand with all your employees and inspect what you expect. Remember to use the brand when creating plans for digital and print marketing.

Provide a Unique Customer Experience

In addition to understanding your own brand, work to understand the customer experience (CX). A Forbes article describes this as the cumulative impact of multiple touchpoints between customers and your business over time, which result in a real relationship feeling, or a lack of it.2

Important in creating this relationship is to look at your store as your customer does: How does your outside signage look? Is your parking lot clean and in good repair? Are you in stock in the OTC area? Is your store neat and organized? Do you have ample customer space on the sales floor? Are the floors clean? Is the store well lit? Is the professional area neat, clean and organized? Are your employees amicable and knowledgeable?

Develop New Revenue Streams

All these considerations play into staying competitive, along with realizing that prescriptions need to become a smaller part of your revenue stream. Why? Because of headwinds: an ever-increasing focus on the cost of drugs, downward pressure on margins, domination of Medicare Part D preferred networks, increasing cost of technicians and the simple fact that your competition is doing it.

In recent years, big pharmacy chains’ prescription sales accounted for about 65-70 percent of revenue3; independent community pharmacy derived 92 percent of its revenue there.4 OTC sales are the only part of the store where you control your revenue and reimbursement. Again, study how the chains do it. Invest in inventory to have the right product, at the right price, at the right time – and have the right person running the register. Try offering a “pharmacist recommends” label, attractive cash wraps, as well as these important emerging services:

  • Medication therapy management (MTM) – Optimizes benefits of prescribed drugs, reducing risks of adverse drug events and interactions and increasing patient adherence.
  • Medication synchronization – Aligns all of a patient’s refills to be due on the same day each month, coupled with an appointment with the pharmacist as needed.
  • Patient care services – Includes compounding, durable medical equipment and increasing services to the elderly, such as ostomy supplies.
  • Progressive pharmacy niches – Helps pharmacies differentiate themselves in local markets and become better integrated in the community’s overall healthcare system (31 percent of pharmacists have a collaborative drug therapy agreement with a physician, and 23 percent have access to electronic medical records5).
  • Disease state management – Uses these innovative services as part of coordinated care for long-term patients, lowering overall healthcare costs.

Benchmarking competitors and staying innovative are always keys to achieving a strong presence in the market. Independent pharmacy can compete with chains by studying what they do, both mimicking and improving it. Also important are to cultivate your own store’s brand and to enhance customer experiences. And never forget to take advantage of innovative new ways to give and receive patient benefits.


1 Pharmacy Reimbursement Continues to Drop. Medscape. n.d. Web. 6 May 2017. http://www.medscape.com/viewarticle/500157.

2 Zwilling, Martin. ‘Customer Experience’ Is Today’s Business Benchmark. Forbes. March 10, 2014. Web. 6 May 2017. https://www.forbes.com/sites/martinzwilling/2014/03/10/customer-experience-is-todays-business-benchmark.

3 Ross, Meghan. 5 Most Lucrative Retail Pharmacies in Rx Revenues. August 24, 2016. Web. 7 May 2017. http://www.pharmacytimes.com/news/5-most-lucrative-retail-pharmacies-in-rx-revenues.

4-5 NCPA 2016 Digest. Cardinal Health. n.d. Web. 7 May 2017. http://www.ncpa.co/pdf/digest/2016/2016-ncpa-digest-spon-cardinal.pdf

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