Unlearning the drug store business

Chain Drug Review, July 23, 2007 by Stuart Skorman, Chris Murray

This is the first part of an ongoing series on the future of drug stores. Entrepreneur Stuart Skorman is the founder of Elephant Pharmacy. Chris Murray, former editor in chief of Soundview Executive Book Summaries, is currently a book editor, freelance business writer and consultant.

Significant new technologies and trends are typically greeted by either smug skepticism--"That's just a fad"--or overreaction, both positive and negative. But the Internet is unique because it has done both more and less than what digital enthusiasts predicted in the 1990s.

The Internet revolution did not spell the end of the brick-and-mortar companies as many believed it would. People still go to the grocery store to buy their groceries. At the same time the Internet has created opportunities--in ways that no one dreamed of--for a company or venture in any industry to connect and interact with customers, employees, suppliers and any other partners or stakeholders in the enterprise. Just-in-time retailing--where point-of-sale data at clothing stores, for example, is used to guide manufacturing decisions in real time--would have been unimaginable before the digital age.

The drug store industry, however, seems to have barely noticed the revolution around it. As other industries build closer relationships with their customers, drug store industry executives have retreated further into their ivory tower; as other industries experiment with mass customization and other ways to tailor products to the needs of their customers, the drug store industry has tried a cookie-cutter approach to every facet of the enterprise --from the product mix to marketing to the architecture of the buildings.

The irony is that even more than bookstores, grocery stores or any other retailer, drug stores and pharmacies have the greatest opportunity to use the information and Internet age to create an exciting and important customer experience that goes beyond shopping--and in the process to build unshakable customer loyalty that other retailers would die for.

The pharmacy industry is primed for revolution--and if the powerful chains stick to their cookie cutters, they will find their customers moving to newcomers that are more creative and caring, or to supermarkets and mail-order operations that are beating drug stores at their core convenience business strategy.

This series will show what drug stores are doing wrong, how a fundamental change in their mind-set can lead to dramatic new solutions and offerings, and how the revolution has already started with a chain in California I founded. The reader will also learn how the top-down approach that has served the pharmacy business so well in the past is a formula for failure for the future, and that the key to success in the customer-driven information age is a bottom-up approach.

The road to today's success

For the last 60 years the pharmacy industry has focused on an increasingly generic business model that stresses convenience and efficiency. This business is centered on serving a mainstream customer base, and this one-size-fits-all approach has resulted in each of the stores of one chain company being identical to the others and, beyond that, in the stores of one company being identical to those of all the other companies. Regardless of whether one is shopping at Walgreens or CVS--or whether one is shopping in an urban and poor neighborhood; a wealthy, educated suburban neighborhood; or a small rural town--the stores are all the same. The stores all have the same basic architecture, the same shelving and lighting, even the same smell.

And we are not only talking about the appearance and product mix of the stores. Every aspect of the business--from personnel policies to advertising and marketing promotions--is standard throughout the industry.

To make this one-size-fits-all strategy work requires a simple and traditional management approach: All decisions are made at the top by a very small group of executives and are pushed down. Empowerment or creativity on the front lines is for other industries. Not only are the decision makers physically removed from the customers, but the customers are in many ways completely removed from the decision making. There is no interaction or dialogue between the two. So, short-term profitability, not customer needs, drives the business decisions in today's chains.

Specifically, the chains have been successful by focusing on 'serving the mainstream versus the niches, stressing convenience over quality, using expensive mass media advertising versus community outreach, keeping the business simple and streamlined versus the complexity of tailored customer service, and keeping stores boring and sterile versus warm, fun and interactive.

To put it bluntly, today's chains have focused on making money based on customers being ignorant--about their health, complementary remedies or the benefit of organic food, for example--instead of making money on educated customers looking for variety and specialized offerings.