Don’t panic about the $1 pharmacy copayment discount—and don’t automatically assume you should offer it, writes Mal Scrymgeour

I was at a restaurant the other day. I gazed longingly at the menu and the thought occurred to me that if they increased the prices by $1 for each meal, I wonder if I’d even notice.

Then on the other hand, if they reduced the price by $1, I wonder whether I’d buy more? I suspect that such a small change in price probably wouldn’t change what I purchased at all.

In fact, I doubt I’d notice much. I’m not especially observant about these matters: in fact, I’d probably be more mesmerised by the chilli calamari, the Helvetica typeface or the interestingly hirsute waitress. But I’m easily distracted.

On the other hand, if I popped into a petrol station and forgot my four-cent Coles fuel voucher I’d be most unhappy. With every litre that ticks up, I feel even more ripped off.

If I purchased 50 litres of fuel, that’s an extra $2 I would have had to pay. I’d be grouchy about it for days. If my wife forgot the voucher it’d be the perfect excuse for a frosty glare.

But $2 is about the price of a couple of apples. Research will tell you that the average Australian household throws out 20% of all the fruit and vegetables it purchases—so I shouldn’t worry about the fuel price, I should just buy fruit more carefully.

Such is the ill-logical emotional topic of pricing. In some instances we are not bothered about a dollar or two, in other cases a cent or two is critical.

When you consider pricing, you can see how pharmacies have overall perhaps got pricing a bit wrong.

In the last week or so you may have seen the report from Choice Magazine entitled “Pharmacy cheaper than Supermarkets.” Why are we cheaper? I’d argue we could be a bit too cheap.

In fact, if it was all about price then people would only shop pharmacies for the relevant products, but they don’t.

Taking this argument further, we’d only buy groceries from Aldi (assuming it’s in your neighbourhood). So there is much more to it than just price.

In its own disjointed way, this brings us smoothly to the logic associated with the $1 co-pay discount and what to do about it.

Let’s start off with a reality check: If you are not a price focused pharmacy (that is, a discounter) most price-sensitive consumers don’t shop with you as it is. They’ve already gone to a discount business.

Secondly, price-sensitive online shoppers will already be hitting the $99 threshold for free delivery from discount pharmacies. You won’t be losing these most price-sensitive consumers because you don’t have them.

Unless you are especially clever and creative, you can’t lose them twice.

So, what to do? My colleague Bruce Annabel and I have developed the following actions as things to consider.

First up, determine what sort of business you are. If you are a discount operation you will be passing the discount on. It’s part of the positioning for a discount pharmacy business. Most will promote this fact.

If you are not a discount business, then there are other options to consider.

Secondly, let’s look at the thorny issue of how to address the $1 co-payment. Here are some rules to consider employing:

  • Don’t discount the general co-pay as a basic rule.
  • Discount concession co-pays on a selective basis only.
  • Select the most price-sensitive SKU’s impacted by the $1 co-pay.
  • You needn’t reduce every item by the full $1.
  • Explain to customers that it’ll take longer for them to hit the safety net. For some, this will be a significant consideration.
  • If they are not a frequent/loyal customer, the challenge is to make them become one. Consider: asking to keep their scripts on file so that you can look after their them and reward their loyalty; offering them the opportunity to join your loyalty club (assuming you have one); joining your script reminder service; making use of MedAdvisor; and undertaking a MedsCheck.

 

Thirdly, the best form of attack is defence.

Consider the medium-longer term by removing price as the competitive differentiator.

How do you achieve that? Differentiate through your service, maximise the convenience factor in your pharmacy (hours, layout etc.), stock the range of products customers want and develop services that are attractive to your customers.

Having a pharmacist(s) permanently at the front engaging patients and delivering a genuine health solution service focused on health outcomes is what really makes a difference.

Research will also tell you that after location, health advice is the key reason for selecting a particular pharmacy over another. Price features, but it’s after health advice and convenience.

Finally, restaurants aren’t all the same. Restaurant prices and offers vary wildly. Petrol stations are not the same either. Price is not the key reason consumers visit one petrol station over the other.

It’s location and ingress/egress that people value most. Admittedly the range of the price of fuel in petrol stations isn’t especially great (say 10c a litre in any city on any given day), but when a petrol station only makes 4c a litre, doubling that amount is to them at least, proportionately huge.

Let’s not pretend price isn’t important in either of those cases; of course it is. But it’s typically not the single most important reason people visit.

And discount format pharmacies aside, price isn’t the key reason people visit most of our pharmacies either.

Remember, price is what you pay. Value is what you get. You are the arbiter of that value.

Mesmerise me with your chilli calamari (product offer), or the Helvetica typeface (presentation) or your interestingly hirsute waitress (staff and advice).

Remember, I’m easily distracted and impressed by your product offer, store presentation, staff and advice. Just like most consumers.

Mal Scrymgeour is the founder of retail consultancy Zumo Retail Ltd.

References: http://goo.gl/W5gjTh

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