Challenges and limitations to the Internet business model future innovations in online pharmacy

and college students, i.e. in the past few years, there has been a tripling of 12- to 17-year-olds that abuse prescription drugs. Many of them have bought drugs online. It also called on Internet search engines like Yahoo!, Google and Microsoft Corp's MSN.com to block advertisements from unlicensed and uncertified online pharmacies. In the past two years, eight of the Unites States have passed laws regulating Internet pharmacies requiring more stringent regulation of online pharmacies (Reuters, 2008)¹.

5.2.3 Challenges and limitations to the Internet business model future innovations in

Pfizer. Some are American companies and some are Asian. Most online pharmacies engage into promising that all are high quality pharmaceutical manufacturers either certified by the U.S. FDA or meet the WHO’s Good Manufacturing Practices (GMP) standards. India boasts of over 80 U.S. FDA-approved plants, which is the largest number in any country other than the U.S. Despite the fact that these plants are said to be in compliance with the exacting standards set by the U.S. FDA, there is absolutely no guarantee that all India’s pharmaceutical manufacturing units employ the GMP. The quality of pharmaceutical products could also be reduced due to inappropriate handling and poor storage facilities at drugstores and other retail outlets. However, it is worth mentioning that exports to the strictly regulated markets in the West are subject to approval of the manufacturing units by the respective regulators, consequently, the quality of drugs exported from India will generally be better than that sold locally (The Economic Times, 2008).

Online sales of fake, expired or gray-market drugs continue to grow as traffic to questionable sites triples and marketing tactics become increasingly aggressive. MarkMonitor, the global leader in enterprise brand protection, in their independent report on Brandjacking Index have concluded many interesting findings that potentially could affect the online pharmacy further evolution. Only two out of 2,986 online pharmacies studied were Verified Internet Pharmacy Practice Sites (VIPPS). 64% out of the given population do not secure customer data, putting consumers’ identity information at risk (50% more compared to 2007) (MarkMonitor, 2008).

5.2.4 Main assumptions on future trends in online pharmacy sector

Having gained knowledge on online pharmacy evolution, survivors and newcomers, and having identified the market trends and biggest challenges, it is time to look into assumptions of the future business model innovations. There are three following assumptions: (1) Brick-and-mortar pharmacies will remain as important industry players, (2) Internet-based pharmacies will expand their target market, strive to become the industry leaders but most likely will focus on a niche product group or consolidate with other industry players, (3) Brick-and-click pharmacies have the biggest potential to grow through business model innovations.

(a) Brick-and-mortar pharmacies will remain as important industry players

Despite rapid changes in all kind of aspects, the traditional retailers are likely to hold their dominant position for some years to come. However, online pharmacies across many countries have proven that they can offer products equal to those offered by traditional channels, for vastly lower prices. As such, the authors do not consider it plausible that heterogeneous position of the traditional drugstores will remain undisturbed. It is very likely indeed that the market share of the before mentioned will erode on account of a number of products previously defined. There might be several categories of pharmaceutical products, such as such as pain killers, anti-allergics and regular over-the-counter products that will continue expanding its sales online and, therefore, somewhat reduce the market share of traditional pharmacies. Furthermore, online pharmacies offer discreetness, something that traditional pharmacies are not able to offer, and it makes it likely that, e.g. the purchase of sexual health products will be ever more common online. High mark-up, traditional brick-and-mortar pharmacies are facing a serious threat and will have to decide how to manage the situation. However, a lot will also depend on local government policies and their reaction to negative online pharmacy cases that will either promote or set limits to further online competitor expansion.

(b) Internet-based pharmacies will expand their target market, will strive to become the industry leaders but most likely will choose a niche product group or consolidate with other industry players

As analysed previously in this chapter, today online pharmacies operate worldwide, serving both domestic and foreign markets. During netPhase I, the lion’s share of early online pharmacies was established domestically, mostly in the U.S. Of late however, foreign-based online pharmacies have started operating, set to avoid strict trademark regulation and making full use of the price caps on local medicine. These ventures have found stable niche in certain product groups, and growth is likely to continue as the prices of pharmaceuticals and the number of uninsured population, esp. in the U.S., gradually rises. The increasing number of purchases online pharmacies takes part of the traditional pharmacy market share and this trend potentially will continue in the years to come. It will make the market conditions for the traditional players more difficult but not impossible as there will always be customers, e.g.

who are not familiar with the Internet or who need a medication prepared at a pharmacy.

Moreover, the foreign-based pharmacies that are currently lining their pockets operating in the gray area of tolerant FDA regulation have to continually be wary of the threat of sharpened import regulations. Whether or not if this will happen is highly uncertain, yet might have mayor effects on industry relations. As a second and more assessable factor currently impeding unlimited online pharmacy growth, this analysis has identified the matters of products safety, security of reimbursement and security of data management. These are matters that cannot be solved within a short time span as they are matters depending on trust, notably trust of the customer in an online pharmacy. Over time, online pharmacies might be able to increase their market share by exercising good business practice, thereby enhancing customer trust by means of mouth-to-mouth advertisement. One should not forget however, that the great behavioural change pared with the great perceived risks of possible mistakes in the purchase process is likely to lead to slow convincement of wary customers.

(c) Brick-and-click pharmacies have the biggest potential to grow through business model innovations

Taking into account the identified positive and negative aspects of online pharmacies pared with the risks and trends, one can come to a rather plausible and wellfounded assumption -more and -more traditional pharmacies will realise the threat constituted by online pharmacies, and respond by diversifying their retail channels, themselves constructing online pharmacy initiatives. This industry response will focus on a number of products as identified above, namely products with a high potential for the greater sales figures and figures that require certain discreetness. The pharmacies who initiate this movement will realize that they can instil the positive elements of their carefully built-up name in the customer seeking for lower prices on medicine. The click-and-brick “pioneers” are likely to be the greater traditional drugstores, with name recollection through great geographical areas. They will be able to leverage the trust factor of their name and the efficiency of online pharmacy practices to take market-share away from other, less wary traditional pharmacies, selling the above high-volume and discreetness-wanting products. These ventures, to certain extent, will also curtail the growth of the fully online pharmacies that will see the price difference of their star-products partly dissipate. If the online part of the business of these trusted traditional pharmacies is able to sufficiently reduce the price difference, many customers will prefer

say that click and bricks could potentially provide ground for business model future innovations for a simple reason – they would be better prepared to deal with previously identified challenges, gain trust, obtain more resources and, hence, be more exposed to innovations.