Wake-up call for the global pharmacy market: The US launch of Amazon Pharmacy and its impact for the industry worldwide
The mail-order giant continues to grow with the establishment of its own pharmacy service in the US, Amazon Pharmacy. Industry experts Chris Rebholz and Josh Goodman, from global strategy and marketing consultancy Simon-Kucher & Partners, assess the potential impact for the global pharmacy market.
Boston/Munich, November 20, 2020 - After the takeover of the online pharmacy PillPack in 2018, it was only a matter of time before Amazon itself became active in the digital pharmacy market. As usual for Amazon, the launch of Amazon Pharmacy is very ambitious and aggressive: forward-looking contracts with a large number of insurers, high discounts on over-the-counter medicines, utilization of their huge “Prime” member base, and the goal of establishing a comprehensive health platform. It is clear that the US is only the first step: Market entries in other countries will soon follow (e.g. trademarks have already been secured in Australia, Canada, and the UK).
Amazon Pharmacy will also directly and indirectly influence pricing dynamics. By introducing its private label "basic care", the company offers many standard medicines at low prices, thus indirectly increasing the pressure on established brands. Another lever for Amazon: Consumers are already used to buying consumer healthcare products via the Amazon market place and will additionally benefit from existing Prime subscriptions, so the likelihood of switching to Amazon for their prescription fulfillment is high. Additionally, while the shift towards online shopping has been growing for years, this has only been amplified by consumers seeking out more convenient and safer alternatives in the midst of the global pandemic. Therefore, it is not even necessary that Amazon has the lowest prices in the market given the ease in which consumers can order and receive their prescriptions at their door.
Impacts on the US pharmacy market
When Amazon announces their entrance, everyone pays attention. With the announcement on Tuesday, stocks of competitors dropped, including CVS, Walgreens, Rite Aid, and GoodRx. The two services announced address two customer segments – first, Amazon Prime members have access to a prescription savings benefit which provides consumers purchasing without insurance the ability to price shop medications the same way they would other general consumer goods, the way they are used to engaging Amazon. Second, Amazon Pharmacy enables consumers to acquire their prescriptions via home delivery while leveraging their insurance, again the way they are used to engaging Amazon. In both these cases, Amazon is banking on the customer intimacy and familiarity they have with their consumers.
Looking back over 2018 and 2019, mail service has only accounted for 5% of total dispensed prescription sales, and 2020 (heading into 2021) is the type of year where the channel by which consumers acquire their prescriptions will change. There are estimates that mail order has increased by 20% through the first seven months of 2020.
Mail-order has been available in the past, however this required consumers to change their behavior in order to attract their business. With the entrance of Amazon, it is only the product being purchased that is different for the consumer. As Coronavirus cases continue to surge in the US, combined with the familiar consumer engagement of Amazon, this could be the environmental and market forces that drive increased mail-order adoption across the US.
European pharmacies have to be prepared
With an expected growth at a CAGR of over 14% during the next five years, the online pharmacy market in Europe is highly attractive for Amazon. Thanks to their established Market Place, the company already has a solid consumer base that can be leveraged in almost all European countries. Additionally, the increasing digitalization of the healthcare market offers great opportunities for growth. Developments like the introduction of the e-prescriptions in Germany will give the online healthcare market another push.
Although platforms such as Apora (Germany), Zur Rose (Switzerland), or PromoFarma (Spain) are already active in Europe and integrate many market stakeholders, they have to scale up quickly to remain relevant. Amazon is ahead in terms of comprehensiveness of customer data and has a laser sharp consumer-centric mindset.
For the global pharmacy market, this calls for significant changes: Redesigning the customer journey and redistributing the balance of power between all market participants, from wholesalers and online platforms to stationary pharmacies. The negotiating power of manufacturers will also be reduced, as Amazon already has a strong negotiating position and controls access to customers.
The global pharmacy market has a new relevant player, which certainly should not be underestimated. In order to withstand, the top priority for platforms should be to accelerate existing approaches and to push them forward together with a strong end-consumer focus and optimized data management. On the other hand, manufacturers must both focus on the best possible cooperation with all players, including Amazon Pharmacy, and find a way to strengthen their direct connection to the customer and limit their dependence on Amazon Pharmacy.
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Simon-Kucher & Partners, Strategy & Marketing Consultants: Simon-Kucher & Partners is a global consulting firm with more than 1,400 professionals in 40 offices worldwide focusing on TopLine Power®. Founded in 1985, the company has 35 years of experience providing strategy and marketing consulting and is regarded as the world's leading pricing advisor.