Opportunities & challenges for direct marketing in Indian healthcare!

10 June 2016 | Column | By S Chandrasekhar

Direct marketing of health- care products, which was unheard of till a few years ago,   is now emerging   as a huge opportunity. Thanks to the internet and mobile revolution, the distance between the seller and the buyer has completely   disappeared and it is just a click away. Apart from rewriting the way products are sold. Although the segment is in its infancy, it has shown enormous promise.
According to FICCI report, the direct sale of products through online pharmacy could be up to 15% of the pharma market, which is valued at about Rs 1,25,000 crore (prescription  category plus OTC products) and number the technologies, there are many other well-known reasons  for the  category to grow, like rising income level, longevity, exposure  with developed world and diminishing rural-urban divide. As per the report by RNCOS, the healthcare industry in India is poised to become a $280 billion by 2020, which will be 10 times higher than what it was in 2005.
People  residing  in  metros  in  India have got a taste  of direct marketing as the organised retail chains like, Subhiksha, Apollo Pharmacy, Med- Plus, Trust, and  Himalaya’s set  their foot  way back  since  2005  to  2010. This had given the first glimpse of shopping experience and one could think of selecting  brand/products as per one’s choice. The ambience and in store experience was far superior to conventional Dawa Ki Dukan. But, the party was short-lived and many could not sustain, either closed down or merged with other bigger players.
The revolution  that  we are witnessing today  through  e-commerce  and m-commerce  is so profound that it is of people  buying  products  through online will touch 100 million this year. The rapid expansion of m-commerce (using mobile) is only going to increase the usage several times.
With low entry barriers less capital intensive and quick to turnaround the online pharmacy sector is witnessing a hyper-activity. It is estimated that about 30-40 online pharmacy stores are operating in India, targeting the direct to consumers opportunities. The sector also has attracted funds from VC and PE firms, which would like to bet on this emerging opportunity.  
Some of the prominent players are: www.healthkart.com, www.bigchemist.com, www.netmed.com, www.zigy.com, www. dawabazar.com, www.medstar.com, www.pharmaeasy.com, www.saveo- nmedicals.com, www.savemymeds. com, www.buydrug.in, www.oneRx.in, www.sastasundar.com. The popular brands of online business in India, Snapdeal, Amazon, Flipkart and Shopclues, have already included separate health category  to sell OTC and supplements. Seizing the mobile revolution, health focused player like Healthkart has already launched a separate mobile version called 1mg. com and other players too have launched mobile apps, to remain relevant.
The online pharmacy is evolving and most of the players following, the time-tested method of discounting. No doubt, it is one of the strong reasons for migration, but considering the  vertical nature  of the  business, discounting is unlikely to work on a sustained  basis. Those who invest in customer research to  unearth  newer opportunities will stay ahead  and grow faster. Among the many opportunities, one could be applying data mining/analytics, to profile the user deeper and forecast the future demand trends.
Meanwhile, we are already witnessing a slowdown in investments, especially in the emerging technology sectors, which can  put  pressure  on the existing players, if their burn rate is high. The current trend suggests that, most of the merchandising depends on health supplements and wellness products, where loyalty and sustenance is questionable.
To make matters worse, the high doctor-de- pendency existing in the prescription business is likely to make the switch difficult. Considering that the majority of the doctors have long association with neighborhood chemist, it will be hard to break the eco-system. Notwithstanding, online pharmacies are here to stay because the existing distribution system is out dated and due  for a haul. Tucked in with huge margin - as high as 35% - the system continues to reward middlemen who hardly add any value, but gobble up margins by virtue of their presence.
Going forward, if this segment has to reacha respectable size, then it should address key challenges. Notable ones are: 1) opposition from the brick and mortar players b) legalities of online pharmacy in India c) Scale and reach issue like any other online business d) ability to handle complex business transaction, like pharmacy. The following portion would briefly touch on each of these topics.
The heavily unionised  traditional brick and  mortar  players are threatened  by  the  entry  of online  pharmacies and thus are vehemently against  any new  model. This group blocks new entrants into the eco- system, stifles price competition and actively dissuades pharmacies from working with online pharmacies. The small vendors do get scared making it a challenge to find partners. If this were a free market, all good pharmacies who want to grow their business would love to work with  any  scale player (or scale their own business).
Coming to Indian laws related to pharmacies, these were written prior to arrival of computers and India doesn’t have any concrete   law defined for e-commerce companies. Pharmacy laws are derived from Drug and Cosmetics Act 1940, Drugs and Cosmetic Rules 1945, Pharmacy Act 1948 and Indian Medical Act 1956. Apart from this, there are few high court judgements that have provided further insight and  interpretation of the  laws. The only law related to internet in India are defined under Information Technology Act, 2000. This leaves a huge void and may snow ball into a potential problem, if not addressed. The other issue on scale and reach is that  the  sector  has seen  many startups, emerging  and  then  disappearing, because  they could not replicate the  initial success, when  expanded. Hence, it is too early to say, how many will survive in the long run.
Lastly, there are reports cited in the print media,  where  online  pharmacies in India are being  criticised for floundering rules, particularly with respect  to the handling  of Schedule X/H drugs. Since these reports are trivial, it is difficult to state the exact magnitude of the problem. The traditional business having won the trust can get away with minor aberrations, but not only pharmacy, where even a small issue will be blow out of pro- portion. Hence the onus is on these players to put a good compliance sys- tem in place and adhere to.

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