B2B Pharmaceutical E-commerce Practical Guide: 2019 Trends and Forecast for a Trillion-Yuan Market

In 2018, the author focused on providing third-party operation services for traditional businesses, following “The Sole Path for Traditional Pharmaceutical Commerce to Enter E-commerce: Third-Party OperationAfter publishing “...” and “Grasping the Three Stages of B2B Pharmaceutical E-commerce Development,” I have not written any lengthy articles for quite some time. However, after attending the Hubei E-commerce Salon, I was inspired once again—marveling at the vigorous growth of pharmaceutical distribution e-commerce, appreciating the diligence and dedication of many colleagues in the pharmaceutical industry, and seeking to address the pressing question of how pharmaceutical distribution e-commerce can sustain its development. This article, long requested, was finally compiled during the Spring Festival holiday. It serves as both a summary of my year providing third-party operations for pharmaceutical e-commerce and an outlook on pharmaceutical distribution e-commerce in 2019.

In early 2018, with a deep respect for pharmaceutical e-commerce and a steadfast commitment to the original mission of digitalizing pharmaceutical distribution, I co-founded Paiyou Technology, a pharmaceutical e-commerce operation agency serving the industry.

Friends familiar with the B2C model are no strangers to the term “third-party operations,” yet few in the distribution industry clearly understand it. This is a concept I have frequently needed to reinforce over the past year when engaging with traditional business leaders. Of course, delving too deeply into e-commerce technicalities is unnecessary for them; doing so would only make e-commerce seem more distant and irrelevant to their world.

But when you rephrase it as “contracting out the e-commerce department,” they immediately see the light. Then they follow up with some blunt questions: “Can you achieve monthly sales of 5 million within three months? I have the money; products are not an issue.”

Those who are already asking these questions have realized that if they do not take action, they may be eliminated by the industry before being phased out by policy. Fortunately, among the three clients I serve, resistance to e-commerce no longer exists.

My clients fall into the following three categories.

The first category comprises municipal-level pharmaceutical distributors that prioritize stable cash flow. Due to this cash-flow-driven model, their annual sales volume reaches RMB 200 million. Their primary customers are clinics and small retail pharmacies. Their product portfolio is dominated by high-volume distribution drugs and common generic medications.

The company’s key strengths lie in the strong professional capabilities of its procurement staff, a client base composed entirely of long-standing customers, and well-established customer relationships within its operating region. In reality, based on its current business operations, the company is not particularly eager to engage in e-commerce transactions. First, its customer base is well-maintained, reducing the urgency to expand into markets outside its current region. Second, the company enjoys stable and healthy cash flow on its balance sheet, so the cash transaction advantages offered by e-commerce are not especially compelling. Third, it has diversified procurement channels and relatively stable product offerings. Nevertheless, surprisingly, senior management has decided to “go online,” albeit with minimal investment of effort and capital.

From the perspective of third-party operation services, the ability to conduct trial-and-error with minimal risk is a key advantage of e-commerce services. In short, the third-party operator contributes manpower and resources, while the enterprise provides limited capital and its products. The greatest risk for enterprises newly entering the pharmaceutical e-commerce sector is overexpansion through aggressive hiring and pursuing overly ambitious goals.

The operations agency deploys a team to assist the commercial company in launching its e-commerce business, streamlining internal e-commerce processes for traditional enterprises (including financial procedures, logistics and shipping workflows, and initial product qualification filing), and managing online operations (such as product listing and delisting, order returns and exchanges, routine order review, and campaign management). The initial objective is “product testing,” which involves evaluating overall e-commerce profitability, identifying product categories suitable for online sales, assessing whether the existing service system can support e-commerce transactions, determining the most suitable online platforms, and evaluating whether current operations are suited for self-operated e-commerce.

Although not all pharmaceutical distribution companies are suited for e-commerce, it is encouraging to note that after one year of outsourced operational partnership, this company’s e-commerce business has taken shape. By operating a single store on one e-commerce platform, it now acquires over 100 new customers monthly, generates monthly sales of RMB 300,000–500,000, and achieves a net profit margin of 2%, outperforming the majority of pharmaceutical e-commerce distributors in Hubei and Guangdong provinces.

Category II Enterprise: With annual sales of RMB 400 million, this company serves a diverse customer base across the entire suburban area. The founder, born in the 1980s, is quick to embrace new trends, demonstrating both boldness and competence, and is particularly proactive in adopting internet-based strategies. Prior to our collaboration, he had already established stores on multiple Class A e-commerce platforms, achieving monthly sales of no less than RMB 1.5 million. His primary concern is that while sales revenue has increased, costs have risen even more sharply.

We understand that the expenses incurred by pharmaceutical commercial companies in conducting online sales are roughly divided into three major categories: transportation costs (express logistics fees, material costs), transaction commissions (platform deposits, transaction commissions on Platform A), and platform activity fees. In addition, there are some incidental costs, such as express delivery fees for initial qualification documentation, courier insurance fees, return and exchange costs, damage fees, and taxes. Based on my calculations, as long as online transactions are conducted, even without carrying out customer acquisition campaigns, the cost will amount to at least 4 percentage points. This inevitably leads to certain products being sold at a loss when listed online. Consequently, under extensive operational management, commercial companies are constrained by performance assessments of operating costs, making them reluctant to offer promotional discounts online.

Under the premise of accurate cost category accounting, it is necessary to strategically conduct customer acquisition activities. If there are few advantageous products and common drugs offer limited competitive edge, it is still possible to achieve satisfactory online sales profits without promotional campaigns. For instance, many platforms feature online communication tools, such as Yaoshibang. These platforms can typically track customers’ browsing histories. Therefore, it is essential to combine targeted outreach with cold calling for these specific customers. For example, if a customer from Heilongjiang frequently visits the product page for Jurui Pu Xin in the online store towards the end of the year, the e-commerce department should prioritize promoting products like Jurui Pu Xin.

Meanwhile, regarding product inventory and pricing strategy, online sales share the same ERP inventory system with offline channels. During the phase where online sales volume is lower than offline transaction volume, priority can only be given to order fulfillment. Without implementing an inventory locking mechanism, it is impossible to guarantee adequate stock availability for online orders. Even if system integration is flawless, this shortfall will inevitably lead to a poor customer experience. Therefore, e-commerce success hinges not on sales tactics but on strategic decision-making. It is certain that high-margin products must maintain sufficient inventory levels.

Having resolved inventory issues, the next step is to optimize product pricing. In the 4P marketing mix, price, place (channel), promotion, and product are all indispensable. Fortunately, detailed managed operations provide a data-driven basis for decision-making, rather than relying on arbitrary pricing or simply adding a 2% markup online. I believe that pricing should be anchored in the product itself; in other words, the nature of the products offered determines the appropriate pricing strategy. It is not advisable to indiscriminately list all inventory items online. While there are varying perspectives on how to select products, this topic need not be elaborated here. From a pricing perspective, meticulous work is required. This involves benchmarking against competitors’ prices and actual market conditions on the platforms where one operates, rather than adhering to traditional regional pricing strategies.

For instance, the lowest price for Adalat GITS (Nifedipine Controlled-Release Tablets, 30mg*7) is 32.8 yuan, with the second and third lowest prices being 33 yuan/box and 33.1 yuan/box, respectively, and inventory is ample. Our floor price is 28 yuan/box; excluding promotional activities, the pricing space starts from 28+X yuan/box (excluding tax). This establishes the base pricing. On this basis, factors such as product scarcity, seasonality, common usage, and substitutability must also be considered.

The third category comprises enterprises with regional resources and a 90% market share. Such an enterprise maintains an inventory of 12,000 SKUs, possesses hospital distribution capabilities, and has a state-owned background involving companies like Sinopharm Group. It achieves annual sales of RMB 1 billion, with pure sales (direct sales to end-users) amounting to RMB 700 million. The company established its own e-commerce department, initially staffing it with up to eight employees. However, within six months, due to various factors, the scale of e-commerce transactions failed to grow, remaining consistently below RMB 1.5 million per month. Furthermore, as the profits from e-commerce sales were insufficient to cover departmental costs, the e-commerce team was reduced to three members. In reality, the challenges they encountered in e-commerce were low operational efficiency and weak member procurement stickiness.

Efficiency issues are addressed by partners through specialized tools. Multi-platform onboarding has led to chaos in order and inventory statistics processing. Some companies have had to resort to hiring additional staff to handle the surge in order processing. However, this approach is akin to drinking poison to quench thirst; it significantly increases labor costs while reducing profits. By implementing corresponding measures to integrate orders from Platform A with internal ERP systems, companies can achieve one-click completion of processes ranging from new user initial filing and order generation to order entry and outbound shipment. Companies such as Hubei Qiyuan and Qianruiming have adopted similar operational strategies.

Meanwhile, the product pricing process involves challenges in selecting prices for items currently on sale. Out of 12,000 SKUs, 8,000 are available for sale. If a small commercial company were to manually compare competitor prices on Platform A, it would undoubtedly consume significant manpower. Paiyou has encountered similar issues in practical operations and is currently developing a cross-platform data analysis tool. This tool matches product codes, scrapes competitor prices, and determines whether items are participating in promotions. The output is an analytical Excel file, enabling operations and merchandise teams to implement timely pricing decisions.

To summarize, this year’s third-party operations have indeed encountered a myriad of miscellaneous challenges. For pharmaceutical distribution e-commerce, the question is no longer simply whether to engage or not; leveraging new online channels has become an imperative choice for any enterprise. In Puning (Guangdong), Wuhan (Hubei), and Chengdu (Sichuan), the first wave of “new pharmaceutical distribution enterprises” has already emerged. Seizing the opportunity, these companies have relied on internet-based channels to transform simple buy-sell transactions by integrating cash flow management and the concept of volume-based pricing. By achieving the fastest capital turnover rates, they have secured a substantial number of effective terminal outlets, thereby “flexing their muscles” to industrial manufacturers to garner greater industrial support.

At the end of 2018, I attended a salon on pharmaceutical distribution e-commerce held in Hubei Province. The venue, originally designed for 50 attendees, drew 120 participants. I was deeply impressed by the enthusiasm of the attendees, which underscored the large number of enterprises excelling in pharmaceutical distribution e-commerce in Hubei, as well as the even greater number of companies seeking to establish or currently implementing their e-commerce strategies.

Long ago, I observed the cash-burning strategies employed by certain pharmaceutical e-commerce platforms. The true value of these platforms failed to reach the end users, the commercial services were not effectively demonstrated, and promotional policies from manufacturers continued to be intercepted. Today, having emerged from that confusion and gained one year of practical experience, I have reached a conclusion: in-depth third-party operations can enable the true value of e-commerce to empower the entire industry.

Keywords: Permeation

In 2018, the pharmaceutical distribution e-commerce sector showed an upward trend. Many brand manufacturers increasingly emphasized online brand sales and price maintenance. Various Type-A platforms shifted their focus from revenue growth to profit enhancement. A growing number of commercial distribution enterprises participated in the development of e-commerce channels, while end-users gradually formed the habit of making online purchases for restocking.

During visits to commercial pharmaceutical companies in Fujian, a notable case emerged. A medication that sold well online, such as Pediatric Digestive Aid Oral Liquid (Lunan, 10 ml × 10 vials), generated insignificant offline sales in the Fujian region. Although the product was not originally subject to sales channel restrictions, a sharp surge in online sales in May—concentrated mainly in Jiangsu and Shandong provinces—triggered complaints from local distributors. In response, the manufacturer imposed sales channel controls, subsequently prohibiting online sales altogether. Similarly, products like Jurui Pu Xin, a potent formulation for treating gastric acid-related gastritis, experienced substantial procurement and stockpiling in Northeast China toward year-end, leading to regional shortages. As end-users turned to e-commerce platforms to source the product from the Fujian region, the manufacturer likewise implemented sales channel restrictions. Such cases are numerous.

On one hand, industrial enterprises are exercising increasingly strict control over online product sales; on the other, some manufacturers are attempting to launch new products via online channels. Andohuer Antibacterial Gel is a disinfection-grade product for female intimate care. There is significant growth potential in terms of both its target customer base and its industrial characteristics. Distributors aim to use “brand building + online sales” as their initial market expansion strategy. In terms of brand building, new media platforms (official WeChat accounts and short videos) are introduced to conduct online education and precisely target specific consumer groups. Regarding sales channel development, a combined B2C and B2B strategy is adopted to establish online channels for both direct-to-consumer sales and distributor networks. This case represents an early attempt by traditional industrial enterprises to apply internet-driven thinking to brand development. Naturally, few individuals within traditional industrial companies possess the capability to carry out such cross-disciplinary work; in this process, the industrial brand serves as an integrator of resources. The results of this approach have been quite promising.

In fact, as early as the years when B2C was booming, some industrial brands (such as Yiling and Tonghua Jinma) had already engaged in deep cooperation with Kangaiduo and Jianke.com. However, it was not until 2018 that a comprehensive, multi-dimensional integration of B2C, B2B, new media, and internet hospitals began.

Let us envision the following scenario: A patient experiencing health issues searches online for information about their condition, connects with fellow patients to understand their experiences and share insights, and simultaneously consults with professional physicians via an internet hospital. The physician assesses the patient’s condition, recommends specific over-the-counter (OTC) medications or medical devices, provides guidance on proper usage, and directs the patient to designated pharmacies or clinics to obtain the products. The patient then purchases the items through B2C channels or offline O2O (Online-to-Offline) channels. Meanwhile, within the B2B channel, pharmaceutical products have already been distributed and distribution networks established. This completes a small closed loop in the new retail model for pharmaceuticals.

A new development in 2019 was the strategic expansion into new retail led by industrial brands; pharmaceutical brand companies can no longer overlook the critical importance of e-commerce to their business.

Keywords: Rationality

In 2019, distribution-oriented businesses focused more on incremental growth and profit enhancement. Consequently, they needed to move away from the previous extensive approach to online operations and transition toward refined, precision-based management, as has been mentioned repeatedly in the previous section. One segment of these businesses positioned themselves as new-style distribution enterprises; another segment persisted in leveraging traditional channels to drive internet-based sales; while a third segment, possessing greater resources and strength, focused more on laying out strategies across the entire industry chain.

Regardless of the changes, the previous extensive mindset is no longer viable; merely treating e-commerce as a tool and a new channel is insufficient. Instead, companies must rationally integrate the internet with their own unique characteristics. Hubei Zhongze Commercial focuses exclusively on the wholesale of new specialty drugs and prescription drugs based on its own strengths. Chengdu Bio has expanded its product portfolio to 26,000 items on top of its existing sales network, developed terminal SaaS tools to lay out its industrial chain, and Shandong Yibangren locks in high-margin OEM products for in-depth controlled distribution.

In 2019, the distinction between pure Platform A and pure Business B became increasingly blurred. Specifically, platform thinking has evolved toward regionalized self-operated e-commerce malls, while successful businesses have begun to adopt strategies akin to virtual platforms.

Platforms such as Yaoshibang and No. 1 Medicine City are prioritizing support for commercial enterprises with high transaction volumes and strong end-user engagement. By acquiring stakes, taking equity positions, and consolidating financial statements, these platforms engage in the development of deep-service capabilities to enhance control over end-users and product supply chains, thereby driving sustained profit growth. Meanwhile, successful commercial enterprises have already reaped the benefits of online transactions and recognized the value of cash flow management for traditional businesses. Consequently, they are seeking cross-regional business alliances to achieve unified management, shared product inventory, and controllable product margins through digital tools.

Keywords: Diversity

From the perspective of operators of Pharmaceutical A Platform, e-commerce in pharmaceutical distribution also calls for a “rational” approach. In 2018, there were two major financing events in the industry: one was Gangling Group’s IPO in the United States, and the other was Yaoshibang’s Series C round of RMB 420 million and Series D round of USD 133 million. As a third-party platform, the amount raised in the Series D round reflects the attitude of the market and investors toward the A Platform model. In my view, the financing amount was not substantial.

The absence of a unicorn in the pharmaceutical e-commerce distribution sector is largely attributable to the current lack of a clear profitability model, which is influenced by platform scale and industrial foundation. In China’s RMB 1.1 trillion pharmaceutical market, 30% of sales occur outside hospitals, while 70% take place within hospitals.

In other words, with RMB 300 billion in the circulation market and a 33% market penetration rate in developed countries representing the average for pharmaceutical e-commerce, the future size of China’s pharmaceutical e-commerce circulation market is estimated to be around RMB 100 billion. Based on an average profit margin of 1.5%, the overall circulation market generates an annual profit of RMB 1.5 billion. The aforementioned Pharmaceutical Platform A currently focuses primarily on the sales of major generic drugs.

Another RMB 1 trillion in the broader health sector belongs to the market for health supplements, medical devices, and daily necessities. It is anticipated that in 2019, platforms specializing in such differentiated products will emerge. In this context, it is worth discussing Arkang Health. Founded in 2005, the company has over 13 years of experience in prescription drug operations. Its business scope has expanded from the initial in-hospital prescription drug market to the current out-of-hospital and consumer-to-consumer (2C) markets. Its business model has evolved from a pharmaceutical B2B approach to an integrated supply chain system centered on disease types, combining Direct-to-Patient (DTP) services with Chronic Disease Care (CDC), integrating both B2B and 2C channels, and merging online and offline operations. This strategy aims to build an ecological closed loop encompassing “healthcare + disease types + medications + insurance.”

Mere turf-grabbing does not equate to strong end-user stickiness. The profit-driven nature of commerce is an inescapable rule. On one hand, price-comparison platform enterprises hold inherent value, while platforms focusing on differentiated product categories exert significant competitive pressure. It is hoped that within the next year or two, a pharmaceutical e-commerce unicorn valued at hundreds of billions will emerge.

Keywords: Empowerment

Over the past two years, the term “empowerment” has frequently appeared on major internet forums. In my view, only by adopting an industry chain perspective can greater value be delivered. In other words, empowerment involves, on one hand, an expansion in breadth. For instance, within the buying and selling transaction process, one party transforms a product’s primary attributes into essential attributes, turning the product into a service, thereby making the original behavior more frequent, higher in value, and irreplaceable. On the other hand, empowerment entails a deep restructuring of value. Beyond merely establishing a trading environment and facilitating transactions between businesses and end-users, Platform A has added SaaS services to make buying and selling more convenient, seamless, and cost-effective, while also introducing supply chain finance products to enhance capital efficiency.

In the process of empowerment, taking the Class A licensed platform as an example, greater emphasis is being placed on the role of big data, which represents the platform’s true value. Massive order data can be analyzed to determine product sales rankings (e.g., by generic name, brand name, and region). If these data are effectively leveraged, they can help buyers optimize their product mix, stock up in advance to reduce product costs, and enable commercial companies to set reasonable prices and maintain appropriate inventory levels.

In fact, it is evident that empowerment relies on the rational optimization of specific segments or the entire industrial chain. Deep-level empowerment fosters the healthy development of the industrial chain.

Unfortunately, due to survival pressures, some current platforms have not opened up their data and therefore lack professional data analysis teams to conduct operational data analytics. Moreover, several platforms have simultaneously assumed the conflicting roles of both player and referee. Sales representatives from certain commercial companies have reported that after listing products on platform marketplaces and achieving normal sales for a period, some high-margin bestsellers suddenly stopped selling well. The reasons are twofold: first, the platforms intentionally control traffic entry points to the marketplace; second, high-margin products no longer hold a competitive advantage, as rival commercial companies and platforms have deliberately secured more price-competitive products through alternative means.

Similarly, pharmaceutical manufacturers need to play a more empowering role throughout the entire e-commerce value chain. This is particularly true for manufacturers specializing in niche therapeutic areas and their Contract Sales Organization (CSO) teams, who have traditionally focused their efforts on hospital channels and maintaining relationships with physicians. In light of evolving policies and the emergence of online sales channels, it is imperative to reassess market strategies. Some manufacturers are establishing branded zones within internet hospitals to conduct professional patient education directly. When patients require medications or broader health services, physicians can then refer them to offline channels or arrange direct-to-consumer delivery via Online-to-Offline (O2O) models. This approach not only drives traffic to terminal outlets but also enhances convenience for patients.

It is thus evident that “empowerment” is no longer an empty buzzword; it represents the synergy across the industrial chain and entails deeper, more specialized services.

To foster a stronger sense of belonging among end-users, commercial enterprises, and brand manufacturers after 2018, pharmaceutical distribution e-commerce platforms must embrace the “2030 Strategy” with greater openness and proactively respond to market changes driven by the “4+7” policy, prescription outflow, and the consistency evaluation.

Over the past year, based on the various changes observed in the pharmaceutical market and combined with relevant medical and pharmaceutical policies, it is analyzed that the pharmaceutical circulation e-commerce sector may exhibit the following trends by 2019.

1. The Role of Big Data

1. Connect upstream and downstream sectors with sound operational data.

Healthy data requires a solid foundation, encompassing vast amounts of end-user data, supplier data, product data, and transaction order data. Here, “healthy” refers to data that is authentic and complete, capable of recording transactions across the entire industry, rather than fabricated data generated by platforms.

From an industry perspective, platform-based enterprises must demonstrate responsibility and accountability. I have long advocated for platforms to open up portions of their data. Of course, commercial data involves privacy concerns, such as transaction records, product mix structures, and SKU counts of specific businesses. Incidentally, from the standpoint of third-party operations, commercial companies are willing to purchase processed data products from platforms on a paid basis. Such data can facilitate the effective formulation of policies for both new and existing members in member management. Data analytics can also inform decisions on new product launches and rational pricing strategies. Furthermore, it can provide direct support to operational staff when planning campaigns or launching platform activities.

In my view, any real-world data holds value. Many commercial distribution companies engaged in e-commerce are not short of data; rather, they lack the tools and analytical frameworks to interpret it.

The value of data is derived from multidimensional comparisons, but this presupposes a unified environment for such comparisons. For instance, sales data from Pharmaceutical Platform A only reflects nationwide online sales performance, not localized trends. Discrepancies in sales data arise from differences in purchasing habits and user profiles between online and offline channels. In the face of disruption from internet-based sales, it is largely meaningless for commercial enterprises to estimate online channel sales potential based solely on regional sales rankings.

Similarly, product sales rankings within the platform must take into account sales variations across different platforms, regional sales differences, seasonal medication trends, and bidding prices for various pharmaceuticals, among other factors. All of these require operations personnel to conduct continuous data analysis to make informed procurement forecasts.

Current pharmaceutical platforms prioritize strategic layout, resulting in a lack of analytical tools comparable to those offered by B2C platforms such as Taobao, Tmall, and JD.com. In these immature platforms, product data analysts are burdened with an excessive workload.

Furthermore, SaaS software can assist end-users in scientifically managing inventory, reducing procurement risks, and improving procurement efficiency; however, its full potential remains largely untapped due to confidentiality restrictions on end-user data. From an industrial perspective, there is no shortage of tools and channels for collecting product data. With policy changes and shifts in marketing strategies, manufacturers will gain access to more authentic data, which can be used to guide product pricing and sales targets.

2. Empower the terminal with sales solutions for general health products.

At first glance, many might assume the focus is on product and project output. Indeed, this approach is typical of CSO (Contract Sales Organization) companies and agency firms. However, several other types of platforms have quietly emerged: OEM marketplaces, DTP (Direct-to-Patient) marketplaces, non-pharmaceutical marketplaces, and specialty-focused marketplaces. To some extent, these categories have moved away from the pure price-comparison platform model. By safeguarding end-user interests, they drive procurement through services, with the marketplace serving merely as a tool for product distribution. The more significant distinction lies in using professional services as the core driver for online sales.

If the platform provides a comprehensive, replicable sales service solution for home medical equipment—covering customer acquisition, increasing average transaction value, and customer education—it will effectively address terminal retailers’ concerns about after-sales support, thereby securing their strong loyalty. When a retailer purchases a full range of home medical devices on the platform and reaches a certain procurement threshold, the platform will deploy a small local team to assist with staff training and dedicated product zone merchandising. During the sales process, service personnel will guide individual users in product usage and facilitate cross-selling of related items. In the post-purchase phase, the platform will also provide assistance with device recycling and maintenance. This service-driven approach boosts marketplace sales and achieves a win-win outcome for all parties involved.

Furthermore, when a product category is locked in, other affiliated varieties will ultimately be procured through the marketplace. In other words, the platform’s primary future profit driver may lie in becoming a service platform offering multiple specialized product solutions. Such comprehensive health product sales solutions are equally needed by chain enterprises and end-terminals.

2. Empowering Terminals with Internet Hospitals

In 2018, “Internet Hospital” was undoubtedly one of the buzzwords in the healthcare sector. From a policy perspective, the framework for “Internet + Healthcare” was finally solidified, with various local governments introducing multiple policies to support and encourage its development. Platform-based websites have both the capability and the need to establish their own Internet hospital platforms, and the role of Internet hospitals within the entire industry chain is undeniably significant.

First, it facilitates patient referral services for medications targeting end-users and individuals. Individuals consult via internet hospitals, where physicians guide them to pharmacies for medication purchases, thereby completing basic medical consultations and pharmaceutical services. Although this segment may appear unrelated to B2B transactions, it can effectively be viewed as a value-added service provided by the platform to end-terminals. Second, for chronic disease-related conditions, referrals through internet hospitals can boost sales of chronic care product categories at end-terminals, thereby increasing pharmacy revenue. Third, internet hospitals essentially establish a “physician + pharmacist” service system for small pharmacy chains and independent pharmacies. Finally, customer education and staff training for new products can both be conducted through internet hospitals. As long as industrial brands provide sufficient support to internet hospitals, their new products can be distributed to pharmacies via B2B e-commerce platforms and subsequently sold to individual consumers.

Third, the integration of single-vendor stores and platform-based marketplaces.

There are two factors behind this judgment.

1. Survival of Platform-Based Websites: Engage in Commerce, Control Products, and Increase Commissions.

In 2018, despite numerous reports of platforms securing additional funding and new enterprises entering the platform space, the market remained in a fragmented, highly competitive state akin to the Warring States period. First, no single platform controlled more than half of the total terminal outlets, which include pharmacies, clinics, and community health centers. Second, no platform achieved a market share exceeding 60% in terms of overall gross merchandise value (GMV). Third, the industry had yet to develop a mature and proven business model. Overall, no oligarchs had emerged in the pharmaceutical e-commerce platform sector.

Looking back at Platform A in 2018, companies such as Yaoshibang and No. 1 City leveraged their scale advantages to acquire and take equity stakes in multiple pharmaceutical distributors. The aim was to drive transaction volume through product offerings. In fact, as early as 2016, Drug Terminal Network had already attempted a self-operated distribution model in Chengdu. The underlying rationale is clear to most observers: by leveraging big data to identify and monetize high-value products, these companies sought to generate positive cash flow and achieve financial self-sufficiency, thereby escaping the predicament of relying solely on capital injections. This approach not only allowed them to prioritize support for core distribution partners but also sustain a large field sales force.

However, this approach carries inherent risks. By pivoting to direct product sales, a platform risks compromising its neutrality as an intermediary, effectively acting as both player and referee. Many commercial enterprises have voiced complaints, as products that achieve strong sales on the platform are often quickly co-opted by the platform itself for its own competing offerings.

Another grievance voiced by commercial companies is the increase in commissions. The fee structure imposed by some platforms on these companies includes, in addition to security deposits and annual fees, a 1% commission on transaction volumes within the company’s home province and a 3% commission on transactions from other provinces. While platform fees are arguably justified given the costs associated with system development, platform infrastructure, and ground promotion teams, commercial companies are now barely able to generate profits from transactions on these platforms. As discussed in previous articles, this issue of shrinking profit margins has become significant. In response, commercial companies are actively adapting to these changes.

2. Traditional commercial companies are upgrading into new pharmaceutical e-commerce enterprises.

Commercial companies engaged in the distribution of generic drugs find it difficult to control their profits when entering the e-commerce sector. Nevertheless, new pharmaceutical commerce companies have identified unique advantages in e-commerce sales that differ from those of traditional business operations.

From a simple perspective, this is no longer a matter of difference between traditional brick-and-mortar pharmaceutical distributors and mobile traders. New pharmaceutical commercial enterprises leverage e-commerce channels and strategies to rapidly accumulate an effective user base and accelerate capital turnover. The ultimate goal is to achieve long-term enhancement of commercial value and corporate valuation.

From the perspective of sales channels, new pharmaceutical commercial companies will attempt collaborations with multiple Platform A partners, ultimately establishing stable relationships with one to three platforms. Although they do not prioritize net profit per individual e-commerce transaction—accepting that some orders may incur losses while others generate profits—many new pharmaceutical commercial companies are beginning to build their own stable online malls to maintain control over sales channels and mitigate risks. From the standpoint of policies governing online pharmaceutical transactions, there are no longer any regulatory barriers; however, from an operational health perspective, these new pharmaceutical commercial companies still lack sufficient experience.

From the perspective of overall market changes, and based on conversations with executives of emerging pharmaceutical commercialization companies, there is significant interest in their attempts to leverage “Class B” licenses to facilitate operations under “Class A” licenses. As one executive put it, “My partners have established companies in other provinces, and they use my e-commerce platform to sell their inventory.”

It remains unclear how feasible such an approach is, and whether it violates regulations in different regions. The strategy of leveraging a “Class B License” to obtain a “Class A License” aligns with internet-era thinking.

One thing is certain: in 2019, the pharmaceutical e-commerce distribution market remained in a state of fragmented competition, akin to the “Spring and Autumn and Warring States” period. There may still be many aspects of the pharmaceutical e-commerce sector that remain opaque to us; however, from an ideological perspective, this era of fragmentation was also a period of intense intellectual flourishing. Clinging to convention will make traditional business operations increasingly difficult, while drawing broad conclusions from limited observations will lead pharmaceutical e-commerce into a dead end. It would be presumptuous to claim that a single article could comprehensively outline the path forward for pharmaceutical distribution e-commerce, as any such attempt would inevitably be incomplete. From the perspective of mutual learning and resource sharing, I personally hope to establish a platform for exchange in 2019, enabling partners committed to the pharmaceutical distribution e-commerce industry to learn from and engage with one another.

So, don’t overthink it—just do it.

This article is authored by Hong Xiuhai from Paiyou Technology, WeChat ID: hongxiuhai.