Published by Computachem Services

P.O Box 297.
Alstonville. 2477
NSW Australia

Phone:
61 2 66285138

In a recent radio interview in South Africa, Peter Green, the financial director of New Clicks, was asked various questions on the Australian Priceline Pharmacy extension.
He confirmed that Priceline was using the Packenham store as a model, and that the plan was to open one additional pharmacy before Christmas this year (Mornington Peninsula).
The basic plan, he said, is to add value to the retail end of pharmacy, which Priceline claims, existing banner groups are unable to do, because of their wholesaler focus.

He was questioned on his claim that Priceline already had 750,000 members in its “Clubcard” loyalty program and was asked if the liability was covered in the balance sheet, given that recent publicity surrounding British Airways loyalty program indicated that if all the “voyager miles” were cashed in on one day, there would not be enough money on hand to pick up the tab.
Peter Green assured the interviewer that the entire obligation was covered and listed in the balance sheet under “liabilities”.

And this seems to be the strength and the weakness of the Priceline offering.
A potential “Achilles' heel” to beware of, if opposition banner groups decide to step up pressure, and compete aggressively at the loyalty club level.
Loyalty clubs are popular with consumers and this is evidenced by the high take-up rate (120,000 in the past 12 months) of the Priceline offering, setting the entire direction of Priceline marketing.
The focus of this style of marketing is to drive sales at the "bricks and mortar" outlets rather than the Internet, but both ends tend to thrive.
The loyalty club is similar to others being promoted, and appears to be deceptively simple to copy. However, behind the facade there is a deal of complexity. (see management details at this link)
It operates by utilising a points system based on purchases, with the following qualifications:

* Minimum purchase value to begin registering points is $5 per transaction.

* Points are awarded on the basis of $1=one point.

* Earn 100 points in any given quarter and a voucher is given for a calculated dollar amount (equal to around 3-5 percent of sales).

* Bonus points are given if a spend reaches a target $ value.
In the example they give on their website, if the total spend is $160 then the customer gets a $4.80 voucher (3 percent of sales) plus extra bonus points amounting to 120 points.
The value of the voucher issued in this instance is $8.40, or 5.25 percent of the original purchase value.
When this particular $8.40 voucher is spent on retail merchandise, Priceline is actually giving away $5.60 approximately at the wholesale level, which is the real value that has to be funded in the balance sheet. i.e. an actual percentage loss in sales terms of 3.5 percent.

* Bonus points are also offered on special promotions and selected merchandise, and here you would expect a manufacturer subsidy to weigh in to create the additional value.

* Clubcard members will receive additional exclusive offers through a glossy lifestyle type magazine, which promotes the organisation, its future activity and progress to date, plus consumer competitions to stimulate interest and participation.

And there you have it.
A scheme that is pitched, in real terms, at about 3.5 percent of sales maximum, which seems to me very manageable in financial terms.
Most of the schemes that have been disbanded or gone “bust” were pitched between 6-8 percent of sales (some even higher).
As a driver of sales it is a very potent system.
Do not run away with the idea that you could set up a competitive system without giving proper financial and managerial resources. It has to be run as a “business within a business” and requires a sophisticated computer program to keep track of all details..
The secret in running this type of system is to cross-fertilise as many product and service segments as possible and to use the Internet to drive sales to the “bricks and mortar” outlet as well as using “bricks and mortar" to drive sales on the Internet. Internet sales will represent 10-25 percent of total sales, but they will be the driver of additional sales outside your normal catchment.
Now the primary “edge” in this, is that Priceline will have intimate knowledge of what sales (units and dollars) are generated at each of their own outlets, as well as their "compliant" outlets (pharmacies), both individually and collectively.
More importantly, they can track what promotions affect other departments in a retail environment, when they begin to generate associated sales, and at what point there is a leap in sales as customers begin to bond with the entire organisational offering.
They are in a position to continually refine the system, utilising only those products and services that have had a proven track record.
The speed at which they can do this, without the opposition really being aware, is the real competitive advantage
This information is not available to wholesalers and they do not have the ability to manage through to the “micro” level. Nor do they really have the incentive to provide management support to the level required.
The Priceline system is a genuine powerhouse for growth, which builds strength upon strength with the passage of time.

I really see no genuine competitor in pharmacy, because Priceline has outlets all over Australia, and it is this national focus that gives the ability to run at an economical level, and to uniformly penetrate the entire market.
There are no pharmacy groups operating on a national basis that are owned by pharmacists, and capable of sharing “results” information, that could match Priceline capability. This is another argument for pharmacy mergers, amalgamations etc.
The wholesaler banner group will only ever be a partial offering, and is not trusted with the intimate details of a pharmacy's market movements. This could mean that future directions for wholesaler-based marketing groups could be to support market research conducted by retailer collectives at arms-length.

Because Priceline marketing is oriented around generating the highest average cash sale per customer, profitability improves dramatically as there is less overhead generated e.g. 100 customers at $5 per spend is more economical to service that 500 customers with a $1 spend.
Same gross sales but drastically reduced net profit in the second example.

Reflecting the trend in this type of marketing is the custom publishing industry. This is regarded as the next boom growth sector, and is currently valued at $200+ million annually.
The Priceline magazine when launched 12 months ago, was regarded as the retailer initiative that would drive this market.
Priceline utilised Pacific Client Publishing to produce its magazine, which was officially launched late last year in Victoria, and was rolled out nationally this year.
The magazine is pitched at the 18-35 years age bracket.
It is interesting to note that Chemmart put out a tender for a similar publication at the same time, indicating that they, at least, recognised the challenge presented and moved to meet it.

Might I suggest that given my comments above, the Chemmart publication will not totally work, for the reasons already given.
But it is better than nothing at all.
A potential solution may be for a group of retailers, like the Chemmart group, to form a cooperative to share market research information.
The cooperative may need to form an alliance with a marketing consultant, who becomes a member of the cooperative.
Individual pharmacy members could then give their confidential information for analysis, provided suitable secrecy and compliance agreements have been entered into.
A separate agreement would then be negotiated where Chemmart agrees to buy the market research of the cooperative at an agreed price.
This type of arrangement would match the potency of the Priceline equivalent, in quality of information and in speed of delivery .
It may be slightly more costly to run than the Priceline equivalent, but it would turn the Chemmart group into a “retail-oriented” group, driven by retail requirements, not wholesaler needs.
While Chemmart currently structures meetings with groups of its more active members, the information gleaned at this level is simply incomplete, and does not go to a sufficient depth.
Some of the activities currently performed within the Chemmart structure would have to be passed over to the cooperative for full effect.

Just on an associated note, the custom publishing industry is eagerly anticipating another “driver” of growth, and it is none other than publications about drugs and health, initiated from government sources. These have already started, and will emanate primarily from the Health Insurance Commission and Medicare on a regular basis.
Pharmacists may also be aware that National Pharmacies has launched a publication called Vital Health, and Coles has launched a publication entitled “Coles Toddler” as an extension to its successful launch of “Coles Baby”.
The Coles offering has the potential to cut deeply into traditional pharmacy territory.

There is nothing new in terms of custom publishing, but what is emerging is that this approach is a development of “relationship marketing”, forming a bond with clients in a way that no television advertising campaign is able to.
Custom magazines have the ability to deliver all of your offerings in a friendly “advertorial” presentation, and if they are delivered in a continuous and sustainable manner, they build sales with each customer. They are a natural extension of a loyalty club and they drive the membership of loyalty clubs.
Individual pharmacists find it difficult to sustain this type of promotion, because someone has to come up with continual content that intimately relates to their personal environment.
Wholesaler marketing groups can produce an overview segment, but cannot describe the specific personalised details for each member, simply because they are all different.
Hence the insistence in the Priceline franchise for “compliance”.
And major retailers are realising fast that a “head-to-head” clash in a media blitz is more expensive and less productive than building a relationship with a client, in a softer, more suggestive approach through loyalty clubs and magazines. You also have the added advantage of being able to distribute your magazine in electronic format through your website (i.e. if you have one).
As a footnote to this article, Priceline have now posted their pharmacy details on their website, and you can view them at this link (http://www.s-central.com.au/priceline/pharmacy.asp). Only one solitary pharmacy is listed, but as they say in the classics, “watch this space”.

Pharmacists have always been in the business of relationship marketing, and they are now being presented with the spectre of larger retail organisations being able to reach down and bond with their customers at an unprecedented level.
It's definitely time to review all areas of marketing activity at the in-house level, and franchised market groups will progressively come under the microscope to justify the fees currently charged to community pharmacists.
Not only in how they spent the money, but what it was spent on and what it achieved.