Study on O2O Pharmacy E-commerce Based on SWOT Analysis

HAN Xue-ting, HUANG Zhe



Study on O2O Pharmacy E-commerce Based on SWOT Analysis

HAN Xue-ting, HUANG Zhe

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ObjectiveTo put forward some suggestions for the development of O2O e-commerce of pharmaceutical retail enterprises in China. Methods SWOT was adopted toanalyze the strengths, weaknesses, opportunities, and threats of O2O pharmaceutical e-commerce. Results and ConclusionSuggestions are raised to develop O2O pharmaceutical e-commerce, including making full use of the advantages of online pharmacy and offline experiences, combining B2C pharmaceutical e-commerce, and providing products and services suitable for O2O pharmaceutical e-commerce.

SWOT analysis; O2O model; pharmaceutical e-commerce

Consumers always expect higher level of drug safety as it is a special commodity. However, network can’t provide the sense of security for the consumers so that most people dare not try buying drugs online. With the rapid development of the O2O e-commerce model, the O2O pharmaceutical e-commerce model of “Paying Online, Picking up Offline” appeared. In the thesis, SWOT was adopted to analyze the strengths, weaknesses, opportunities, and threats of O2O e-commerce in pharmaceutical industries to put forward some suggestions for the development of O2O e-commerce in China’s pharmaceutical retail enterprises.

1 SWOT analysis

SWOT analysis is an approach which synthesizes and generalizes all the aspects of the internal and external factors of the enterprises to analyze the advantages and disadvantages of the organizations as well as the opportunities and the threats they are faced with. SWOT is an acronym that stands for four forces that affect your business: strength, weakness, opportunity and threat. The strength and weakness portion of the analysis looks at internal company factors that influence your ability to compete effectively. The analysis of opportunity and threat centers on the external factors, such as competitors and the external environment, that affect a company’s ability to compete effectively.

2 O2O pharmaceutical e-commerce

O2O, which is known as Online-Offline e-commerce, refers to the model in which the medical companies sell online to promote consumption offline through the Internet. The model combines online services with offline opportunities, with the Internet as the foreground of offline business operation[1].Now the models of O2O e-commerce in China include bulk purchasing, 2-dimensional bar code model, simultaneous online and offline model and marketing promotion model[2].

To date, we have no universally accepted definition of O2O pharmaceutical e-commerce. Based on a great deal of literature, O2O pharmaceutical e-commerce is defined as follows: it is a model in which the pharmaceutical companies display detailed information of drugs, coupons and discounts on the website; while the consumers can choose, evaluate and decide to buy in the online pharmacies; after paying online, the consumers can get the pay order and then they can choose to pick up the drugs in the physical drugstores, which serve as the experiencing stores, picking up and delivering sites, or ask the drugstore staff to deliver the drugs.

3 SWOT analysis of O2O pharmaceutical e-commerce

Through the online pharmacies, the consumers can get more detailed information and more intimate online service easily, timely and fully. It also allows the consumers to choose and buy quickly for saving time and energy[3]. It is more convenient and faster. Besides, the prices online are usually lower than the retail prices offline, which is the important reason why people choose to buy drugs online.

In accordance with “Interim Provisions on the Approval of Online Transaction of Drugs”, the company who wants to set up online pharmacy must be a pharmaceutical chain enterprise. Therefore, the online pharmacies must have physical drugstores. Many consumers are skeptical or suspicious about purchasing online. But the physical drugstores have specific address and visible shops. Therefore, O2O pharmaceutical e-commerce improves consumer trust, and customers will have some confidence in buying drugs online.

The e-commerce enterprises use the power of the Internet to attract consumers. The online pharmacy becomes the foreground of offline business operation. It displays detailed information of drugs online, publicizes and promotes drugstores. The drugstore can reduce promotion costs and improve the efficiency of marketing in this way. The Internet helps the store reduce the dependence on geographic location[4]. In the meantime, O2O pharmaceutical e-commerce increases sales channels for the pharmaceutical enterprises to improve the core capacity of competition. It benefits the management of capital and optimizes the disposition of resources.

The consumers can pay online in drugstores by scanning 2-dimensional bar offline. In that way, they can buy the same products at lower prices. For the enterprises, this way contributes to the publicity by attracting buyers to pay attention to their websites, and their web App such as micro blogs and V-Chat.

Besides, a lot of illegal drugstores on the net undermine the consumer trust. It is one of the major reasonswhy consumers choose not to buy drugs online[5]. The companies should propagandize actively the knowledge of identifying illegal online drugstores to the public so that the consumers increase the trust in online drugstores.

O2O pharmaceutical e-commerce requires the consumers to pay online. After online deal, the background can collect and analyze the data of the consumers. Mastering these data can improve consumer satisfaction and marketing effectiveness. Mining and analyzing data provides the companies with the opportunities to find potential customers[6]. In addition, the effectiveness of online promotion and sales can be counted with quantifiable data, which is conductive to the rational planning and management of the companies.

Now, pharmaceutical e-commerce apparently lags behind the e-commerce in other fields in China. For one thing, difficulty in changing buying habits is one of the main reasons for consumers not choosing to buy drugs online. For another, closely distributed drugstores in cities make it convenient for consumers to buy drugs in stores. The consumers prefer to communicate face to face to know what medicine they need and how to take the medicine. Furthermore, the consumer groups are largely middle-aged and aged people. But unfortunately, most of them can’t surf the Internet, let alone buy drugs online.

Along with the improvement of health system, the majority of consumers prefer health insurance consumption[7]. However, the sales system of pharmaceutical e-commerce and the health insurance system cannot join together. As a result, purchasing drugs online cannot be reimbursed, which is another primary reason why customers abandon the consumption online.

O2O pharmaceutical e-commerce combines online services with offline opportunities. There exist some problems with the development of O2O pharmaceutical e-commerce, as follows: How to link online with offline? How to share data? How to distribute profits? Online pharmacies’ integrating with offline drugstores is the key to success.

In addition, B2C pharmaceutical e-commerce provides service for consumers 24 hours online from anywhere. It expands the range of services in space and time. But most drugstores don’t provide 24-hour service, and a store only serves a specific area. This is a big difference between B2C pharmaceutical e-commerce and O2O pharmaceutical e-commerce.

According to “Interim Provisions on the Approval of Online Transaction of Drugs”, online pharmacies cannot sell prescription drugs. However, nonprescription drugs only have a market share of 25%[8]. The regulation causes a big loss of market share for the online pharmacies.

CFDA released “Notification on Strengthening the Management of Selling Drugs over the Internet” in October, 2013. The notification required that pharmaceutical e-commerce enterprises be equipped with required medicinal distribution system and no third-party logistics should be used because medicine is relate to people’s lives. In the process of delivery, drugs are likely to be polluted, broken or exchanged. Therefore, “ordering online, drugstores delivering” is the only legitimate business model for online pharmacies. In this aspect, O2O pharmaceutical e-commerce ensures better safety than B2C pharmaceutical e-commerce. Thus, O2O pharmaceutical e-commerce complies with policies and industry benchmarks.

CFDA drafted “Measures for Supervision and Management on Drug Supply over the Internet” (draft for comments) in May 2014. The draft lowers the limitation for online pharmacies and reveals for the first time that it is possible to approve selling prescription drugs online later on. Monomer drugstores will be allowed to apply for online pharmacies in the future.

O2O has subtly entered the life of people. According to ii Media Research, the size of O2O market is projected to reach 418.85 billion yuan in 2015. At the same time, O2O becomes well-known rapidly. Data from Baidu Index show that O2O has routinely exceeded e-commerce since November 2013[9]. Besides, with the popularization of smart phones and the improvement of mobile payment, the development of mobile e-commerce provides O2O with more opportunities. The rapid development of O2O drives the expansion of O2O pharmaceutical e-commerce. The retail pharmaceutical enterprises improve O2O by establishing their own platforms or cooperating with third-party e-commerce platforms.

With the pharmaceutical e-commerce drawing more and more concern, the competition between online pharmacies becomes fierce. Baiji Drugstore has focused on O2O since 2011. Now O2O pharmaceutical e-commerce has become its main business. Nepstar Drugstore unified its customer service system and reallocated its logistics system throughout the country in 2013. Furthermore, it cooperated with AliPay in 2014 so thatNepstar Drugstores in Hangzhou and Shenzhen took lead in accepting AliPay payment and by March, 2014, more than 2000 stores would have been covered all over the country.

The key to successful O2O pharmaceutical e-commerce is abundant resources offline[10]. Without abundant resources offline, O2O can’t attract consumers to form information base or finally promote user experience. At present, most pharmaceutical companies in our country are regional chains. Omni-channel O2O means high investment and high risk. Many obstacles need to be broken, such as, distribution problems, mismanagement, barriers in the organization and so on.

4 Suggestions

First of all, O2O pharmaceutical e-commerce needs to solve how to integrate online with offline channels. Online pharmacies take advantages of O2O to achieve online resources and offline opportunities. Secondly, low price is the main reason for consumers to shop for goods online. Since the types of drugs and online payment are limited, how to provide high-quality and inexpensive goods is the basic problem for the development of O2O pharmaceutical e-commerce. In the end, how to attract consumers to shop online is the core problem.

Many O2O e-commerce companies mainly focus on offline resources. Online channel is regarded as a complement for offline resources. In this way, they can ease the conflicts between online and offline business temporarily. However, this is only a temporary measure and the future development trend of O2O is to integrate online business with offline business.

Internet is widely concerned by the world for its characteristics of being open, free, quick to transmit information and capable of spreading information widely. With the characteristics above, the companies can use Internet to build up the brands. The drugstores can directly display the goods and improves consumer trust. The two channels have their own distinct characteristics. Therefore, the pharmaceutical retailers should take into consideration their respective characteristics, complement their advantages and disadvantages, integrate the resources available, and use integrated marketing to achieve the effect of mutual promotion[11].

The business scope of online pharmacy is not limited to drugs. A big part of it is health care products, medical devices, cosmetics and prophylactics. There is not much difference in consumer consideration while purchasing the above supplies and other ordinary goods. The primary reason that people purchase these products online is low prices[12]. B2C pharmaceutical e-commerce makes use of price advantage to attract consumers.

B2C pharmaceutical e-commerce and O2O pharmaceutical e-commerce are not independent of each other. They are complementary and interactive. Based on identifying the market position and combing efficiently the two patterns, the companies can determine their own competitive advantages.

As is known, Internet is one aspect of O2O pharmaceutical e-commerce, and the other aspect is drugstores. The two aspects should be developed at the same pace. Now O2O pharmaceutical e-commerce in our country is still in its early phase. There exist gaps in operation capability between drugstores and online pharmacies. According to the strategic planning, the enterprises choose target markets and provide characteristic goods. In this way, pharmaceutical e-commerce industry may spark a cycle of virtuous competition[13].

Drugs are special merchandise which are related to public health and safety. The consumers want not only quality products with competitive prices, but also personalized pharmaceutical services[8]. The pharmaceutical companies should provide more professional services, including licensed pharmacists online and drugstore services. More and more companies have realized that they must improve the customer experience and enhance their brand honor with more personalized services.

5 Conclusions

In conclusion, O2O pharmaceutical e-commerce in our country is still in its early phase. Difficulties in changing buying habits, rigid policies and immature supporting systems are the primary reasons that are restraining its growth. Taking advantage of O2O, using the Internet to attract consumers, providing characteristic goods and personalized services are the keys to building up the competitive advantages of pharmaceutical enterprises.

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Project supported by: Public relation plan of social development of science and technology agency in Liaoning Province “platform of technical transfer service in Biomedical Technology Industry”（2012225095）2012.04-2014.12

Author’s information: HUANG Zhe, Associate professor. Major research areas: Knowledge management,e-commerce. Tel: 13998874590, E-mail: huangzhe2000@sina.com