Three Stages of B2B Pharmaceutical E-commerce Development: From Attracting Partners to Value Restructuring

Note from VCBeat (WeChat: vcbeat): Recently, we have received a series of submissions from professionals in the pharmaceutical industry, covering topics such as drug development strategies, business operations, brand promotion, market expansion, and pharmaceutical e-commerce. This article is contributed by a seasoned veteran in the pharmaceutical e-commerce sector, who shares practical insights on the complex ecosystem and operational models of pharmaceutical e-commerce, and provides solutions to the classic “chicken-or-egg” dilemma encountered during operations.

VCBeat will also continue to curate more contributions from industry insiders, delivering more valuable content. We also welcome readers to join the VCBeat Circle for in-depth interaction—“Share Your Story!”

Following the previous article “The Only Path for Traditional Pharmaceutical Commerce to Enter E-commerce: Third-Party Operations》After its release, some industry peers asked me whether third-party operations only cater to niche commercial and industrial needs—premium demands—and whether the market for e-commerce platforms with Class A licenses remains substantial and currently difficult to disrupt.

Indeed, I have been engaged with Platform A for many years and will remain active in the industry, as I maintain strong confidence in the concept of pharmaceutical platforms. However, compared to 2014 and 2015, both the market and investors have gradually cooled down after a period of aggressive cash burn. B2B is not O2O; user habits are not easily changed.In terms of business models, B2B is far more complex than B2C.A painful lesson has taught the capital market that throwing money at the problem cannot bring about genuine innovation in pharmaceutical distribution.

It has come to my attention that due to excessive ad spending and disordered cross-industry marketing, a well-known pharmaceutical e-commerce platform in Beijing, which had secured Series B financing, had not yet issued its 2017 New Year performance bonuses. Meanwhile, after raising RMB 100 million in March of this year, Yaoshibang (Pharmacist Helper) has scaled back its promotional efforts and tightened its operations.

A barbaric surge is necessary, but in the current phase of cooling capital markets, how can we rapidly scale up a Class A licensed platform based on effective investment? Before laying out the answer, why not start with the age-old chicken-and-egg debate.

During the early stages of promotion, this dilemma inevitably arises. The operations team argues, “How can we expect hens to lay eggs (generate transactions) if there are no hens (buyers and sellers onboarded)?” Meanwhile, the business development team counters, “How can we hatch chicks (attract sellers to join) if we don’t have any eggs (buyers making transactions)?”

I once told my subordinates to stop asking the foolish “chicken-or-egg” question about our early-stage dilemmas. First, build a solid foundation; a golden nest will attract a “golden phoenix,” while a doghouse will only draw “single dogs.”

A pharmaceutical platform’s evolution from inception to maturity, and from subpar to excellent, must undergo three stages. To build Platform A successfully, these three stages are unavoidable and must be faced squarely.

At this stage, e-commerce platforms are merely intended to address efficiency issues in the pharmaceutical distribution industry; do not overthink other aspects.It is unnecessary to analyze this pain point and that pain point.This stage is further divided into three sub-levels: addressing the most fundamental issue of inefficient information flow, implementing measures to enhance information circulation, and eliminating various interferences to ensure that different information reaches the appropriate recipients.

It should be easy to understand what the platform can do at this stage. From a process perspective, it only needs to enable buyers and sellers to obtain information more directly and efficiently, thereby facilitating smoother transactions. This can be summarized in one sentence, but implementation is challenging. The most basic platform system should include:Smart Procurement, Smart Pricing, Smart Grading.Mr. Ding Xinchao of “My Medicine Network” is an expert in this field.

Unfortunately, a survey of the current landscape reveals that few pharmaceutical companies in China have successfully completed this initial phase on Platform A. This outcome stems from various factors. Some companies lack extensive operational experience and robust teams in operations and technology. Others lack a platform-oriented mindset, mistakenly equating Platform A with a simple combination of B and B. Still others prioritize rapid profitability, neglecting foundational infrastructure; after obtaining the Class A license, they shift their focus to other proprietary business ventures.

At this stage, the promotion of the pharmaceutical platform should revolve around providing comprehensive, concierge-style services to seed customers.Those in marketing understand the immense patience and courage required for clients to engage with a platform. Seed clients need to understand what the platform does and how it can benefit them. Meanwhile, pharmaceutical platforms must gain deeper insights into their clients, optimize products, adjust processes, refine systems, and make initial forays into marketing and promotion. Therefore, let us cherish this mutual commitment.

Explain that the value here refers to the distinct advantages offered by commercial companies, manufacturers, and platforms to buyers, differentiating them from traditional transaction models. In other words, the value demonstration phase is designed to highlight the benefits of online channels. If the first phase primarily served commercial and industrial sectors,This phase and the third phase primarily serve buyers as their main clientele.

Building on the foundation of cultivating user procurement habits in the first phase, the platform has leveraged sellers’ product advantages, namely variety, quality, and cost-effectiveness. With a wide selection of product categories and numerous substitutable options, buyers can not only procure best-selling items but also access products that local distributors are unable to supply. During the purchasing process, buyers can reduce part of their procurement costs, as online prices are lower than offline prices.

At this stage,The platform system has shifted from the technical level to the marketing level., with intelligent promotions and intelligent distribution as the core modules. Through intelligent promotions, sellers introduce consumer-facing promotional formats such as group buying, collective procurement, and flash sales. Reaching this stage indicates that the platform has successfully adapted to the market.

From a promotional perspective, the platform needs more users to understand its value. Therefore, the platform’s positioning should focus on serving “business clients” to generate greater word-of-mouth among “procurement users,” and promoting these “business clients” to gain broader recognition from “procurement users.” We have also observed that “procurement users” are becoming increasingly discerning, often critiquing the platform’s services by adopting the perspectives of buyers and competing platforms. This is not a concern; rather, it underscores the ongoing need for platform optimization.When “procurement users” can no longer find any issues, congratulations—you have cultivated a “loyal procurement customer.”

I have always believed that platforms should not overly involve themselves in actual business transactions, but this does not mean that platforms cannot create value for buyers and sellers. At this stage, platforms need to leverage their true advantages, not only to retain buyers but also to engage sellers. Ensuring that users at every step on the platform benefit is the essence of value creation.

Currently, many enterprises are developing SaaS solutions; my understanding isSaaS services are not merely data acquisition and service software; their essence lies in connectivity.. Connects the retail and service ends with individuals, connects individuals with the production end, connects the production end with warehousing and distribution, and connects warehousing and distribution with the retail and service ends.

Reshaping value hinges on methods and strategies. The CSO model, the CPP model, and financial service products built upon standard online payment infrastructure—provided by platform operators—all represent the platform’s reshaping of value across the entire industry chain. Niche platforms merely establish a transactional environment for upstream and downstream participants, functioning as e-commerce websites created solely to facilitate transactions. AndBroadly speaking, internet-based e-commerce platforms represent an optimization of this industrial chain, spanning from upstream control over R&D, technology, and raw materials, through midstream production and distribution, to downstream sales and management at terminal channels.Even further integrating consumer health education, health services, medical services, and other related areas.

At this stage, the platform has become relatively mature, with established processes, a proven profitability model, a well-developed user service system for both upstream and downstream partners, and a robust promotional and marketing framework. Therefore, aggressively acquiring new customers is no longer the platform’s primary objective; instead, the focus shifts to identifying high-quality users and enhancing professional services for them to maximize value.

For instance, through resource integration, online consultation services are introduced to procurement users to expand their prescription drug sales; for pharmaceutical manufacturers lacking ground promotion teams, online education and distribution-driven sales services are provided; and for commercial companies, cross-regional sales and private hospital distribution are expanded."The cake is baked, not snatched.". Having reshaped the market for upstream and downstream clients, who would not want to share in the platform’s profits?

Current pharmaceutical e-commerce platforms are striving to expand their operations as aggressively as possible, hoping to outpace competitors and gain a first-mover advantage through scale. However, I believe a more measured approach is warranted. While having ideals and strategic plans is essential, if one wishes to avoid wasting investors’ capital, it is prudent to proceed steadily in three phases. The internet industry is characterized by rapid iteration and growth, whereas the traditional pharmaceutical distribution sector, which has evolved over several decades, requires meticulous and intensive management.“Large and comprehensive certainly has its merits, but small and beautiful is by no means unfeasible.”

Value can be infinitely large; it all depends on the strength of the foundation. Years ago, I predicted that pharmaceutical B2B and B2C models would converge, with the F2B2B2C model ultimately enabling “customized services,” a trend that is already beginning to emerge. The rapidly evolving pharmaceutical platform companies will eventually undergo restructuring and mergers through investment firms—a perspective clearly recognized by Matrix Partners China.

Next, please stay tuned for “The Six Core Strategies for Early-Stage Operations of the Class A License Platform”!

By Hong Xiuhai（WeChat:hongxiuhai）, entered the pharmaceutical B2C e-commerce sector in 2007, and has been active in the pharmaceutical B2B circle since 2009. With deep roots in pharmaceutical e-commerce for many years, he/she possesses practical experience from several renowned e-commerce companies. Previously held positions at Yaofang.com, Huayuan Pharmaceutical Network, Hanning Pharmaceutical Network, and My Pharmaceutical Network.