Unlocking new markets; look for a good fit

Drug Store News, March 1, 1993 by Ted Gladson

Articles in Drug Store News' Store Management Training Program are written by Ted Gladson of Ted Gladson & Associates, Lisle, Ill. Managers who wish to participate can do so by reading the course material and completing the questions that follow. To receive a certificate denoting successful completion of the course, 10 lessons must be completed within 18 months.

Send the completed answer sheets for grading to Drug Store News, Store Management Training Program, P.O. Box 31180, Tampa, Fla. 33631-3180.

Very briefly, and for practical purposes, a market can be considered a group of people with similar needs.

It is customary to describe markets in terms of segments. Examples are numerous, but for drug stores segments they would include prescriptions, OTCs, cough and cold preparations, and hair care products, for example. Segments also can be defined by the customers served, such as infants, retirees and young single adults.

Defining existing markets

In this article we discuss how to find new markets for your drug store. The search begins by thinking about your existing markets. If you have not thought about the markets you serve, take the time to list them according to products (includes services) and customers (includes potential customers).

For chain drug stores the list could be lengthy, so try to limit the list to large markets. For example, if you sell notebook paper, this should be thought of as part of the school supply market.

Defining your market by customer type can be done by age groups, gender, occupation, special interests and special needs, for example. To illustrate, the list may include infants, patients with diabetes and young mothers.

Before embarking on a search for new markets, one should consider whether the markets currently served are appropriate for the drug store and are being served at the correct level.

The main criteria for evaluation is sales volume, but there are practical constraints on this view. Some markets may be required because the retail outlet is a licensed drug store. In other cases a small market may be seen as a convenience for shoppers that represent a larger market.

For example, newspapers may be a small part of sales volume, given the space and effort required to offer them, but they create traffic from a segment that is very important to you (young professionals with children, a group with substantial needs for health care products and services).

If a market is found unsatisfactory because sales volume does not justify the space devoted to it (assuming it is not a key related market as described above) then it should be discontinued. If, for example, pet supplies sales volume has dropped below a level that can justify its presence, the space should be reallocated to more valuable merchandise.

A product line may have been an excellent choice when first introduced but conditions change for many reasons. Clientele of the store could change, an anticipated trend that originally introduced the merchandise could have failed to develop, or new competition for this market could enter the trade area.

Failing to recognize market trends can have disastrous consequences. Merchandise becomes unsalable, turnover suffers, cash flow deteriorates and customers leave because your marketing mix no longer serves their needs. It is time to cut losses and seek newer, more appropriate markets.

Often the shifts are more subtle and difficult to detect, which is why managers should constantly monitor how well the pharmacy serves the needs of people in the trading area. Eliminating unprofitable markets is only half of the problem; they must be replaced with profitable new markets.

The search for

new markets

Spotting developing markets is usually not difficult. You will receive considerable guidance in this matter from chain upper management but there is a substantial role for store managers because nobody knows your local market better than you.

The more pertinent question for store managers is the fit of the new market to their particular drug store. Is this a market that should be pursued or is the trading area clientele sufficiently different that the larger trend will not fit well? A related question is whether the proposed new market is of adequate size (for the drug store) to justify entry. Finally, what will be the cost of entering this new market?

Fit and size are often addressed as a single question: will there be enough sales to justify the expense of serving this new market? The two are related because it often is possible to enter a new market at different levels.

For example, the decision to serve the needs of diabetes customers could represent a small investment in products or a substantial commitment of space to a full range of products (glucose test equipment, related medical supplies and specialty food products).

This example clearly has implications for operation of the prescription department and could require coordination with the staff pharmacists. Diabetic related merchandise would need to be located near the pharmacy which might represent space allocation or structural problems depending upon the level of commitment to the market.