Pharmaceutical O2O Enters a Rapid Growth Phase: Four Critical Challenges to Overcome for Sustainable Development
The latest statistical data show that the top three companies in terms of O2O transaction volume on Alibaba Health’s pharmaceutical platform on Singles’ Day (November 11) were: Wenzhou Yizheng Pharmacy Chain Co., Ltd., Xinjiang Baicaotang Pharmaceutical Chain Distribution Co., Ltd., and Wuhan Ma Yinglong Pharmacy Chain Co., Ltd.
The 2016 Double 11 Shopping Festival has concluded, with pharmaceutical manufacturers reaping significant rewards. Pharmaceutical companies represented by Wenzhou Yizheng Pharmacy Chain Co., Ltd. have garnered widespread acclaim. This is highly encouraging news, allowing domestic pharmaceutical O2O practitioners to finally breathe a sigh of relief. It confirms that China’s pharmaceutical O2O sector not only has a future but also holds substantial promise for growth.
However, the Double 11 shopping frenzy does not mean that pharmaceutical O2O is free of hurdles. Challenges remain, some stemming from industry policies and others from pharmaceutical care services. While we do not deny the bright prospects of pharmaceutical O2O, we must not overlook the “four major barriers” impeding its advancement.
Pass Level: ★★★★
Breakthrough Difficulty: ★★★★
According to incomplete statistics, among the most expensive single items sold on Tmall Health during the Double 11 shopping festival, many were pregnancy, childbirth, and maternal-and-child health service packages. Notably, Beijing United Family Healthcare’s prenatal check-up package, combined with its cesarean section delivery package and the children’s vaccination package (ages 0–24 months), topped the list at a price of RMB 91,131.
A careful comparison reveals that best-selling items in online pharmaceutical retail are mostly daily necessities—standardized products that lend themselves to simple, straightforward decision-making. Categories such as maternity care and bundled packages are familiar to consumers, involve low levels of specialization, and contain few technical terms, enabling quick purchase decisions. This also conveys a clear message: purchasing common medications, drugs for prevalent conditions, and medicines for chronic diseases is relatively easy, with remote transactions being comparatively convenient and the purchasing process fairly simple.
Daily necessities and standardized medications are relatively easy to purchase remotely. However, if you ask users whether they would be willing to buy gastrointestinal medications online based on a doctor’s advice, or purchase neurological drugs via the internet from doctors they have never met in person, I believe most people would answer no!
This is the current state of online pharmaceutical sales in China. A simplistic, bare-bones approach to selling drugs online is unfeasible, fails to inspire consumer trust, and lacks scientific rigor. This fundamentally explains why common over-the-counter (OTC) medicines, medications for prevalent conditions, and drugs for chronic diseases account for more than 70% of online pharmaceutical sales.
According to a 2016 survey on pharmaceutical e-commerce conducted by BCG, 87% of pharmaceutical retail e-commerce companies believe that fierce price competition is a major challenge facing the online over-the-counter (OTC) drug market. Since prices have already hit rock bottom, why not leverage enhanced remote purchasing experiences and increased value-added purchasing services as competitive advantages for pharmaceutical retail e-commerce and pharmaceutical O2O enterprises?
For users purchasing medications remotely, professional physicians are required to provide preliminary diagnostic and treatment recommendations. This necessitates relatively specialized criteria for symptom assessment and, more importantly, initial yet professional predictions tailored to individual constitutions. Such outcomes are unattainable without specialized medical professionals and expert-level medical communication. Nevertheless, the pharmaceutical O2O model represents an inevitable path for the development of pharmaceutical manufacturers. At this critical juncture, if this bottleneck cannot be overcome, alternative strategies must be sought!
Pass Level: ★★★★
Breakthrough Difficulty: ★★★
It is often stated that medical services, pharmaceutical products, and medical devices are inextricably linked. Medical services provide diagnostic and treatment recommendations as well as medical prescriptions; pharmaceutical products deliver substantive drug-based therapies; and medical devices offer device-based solutions. These three components are inseparable, a principle that remains applicable to the online pharmaceutical sales business. The essence of online drug sales is also to alleviate patients’ suffering and enable them to lead healthy lives.
Online pharmaceutical sales must not be reduced to merely hiring a few pharmacists for medication consultations, nor should it rely on recent medical school graduates serving as customer service representatives. Pharmaceutical O2O providers are urged to integrate drug sales with medical advice and preliminary diagnostic recommendations, offering patients remote initial physician guidance. This approach enables patients to perceive the professionalism and value of online preliminary consultations, which is precisely why mobile health platforms that provide “second professional medical opinions” have gained widespread popularity.
At its core, the deep advancement of healthcare O2O benefits from the integration of medical services and pharmaceutical sales. Medical services provide patients with solutions, while pharmaceutical sales offer medication therapy recommendations. How can these elements be separated?! If you have not excelled in pharmaceutical O2O, reflect on whether pharmaceuticals and healthcare have become disconnected?! Is there insufficient deep integration between the two?!
Certainly, it is undeniable that we cannot expect all pharmaceutical companies to operate hospitals, nor can we require every pharmaceutical manufacturer to employ a large team of specialized physicians. Therefore, the deep advancement of pharmaceutical O2O aims to achieve efficient integration by leveraging pharmaceutical O2O platforms to combine online medical services with offline pharmaceutical care, and by utilizing doctor-patient communities to link online diagnostic and treatment recommendations with offline medication review. This represents the true essence of advancing pharmaceutical O2O in depth and constitutes the key to overcoming this significant bottleneck.
Pass Level: ★★★★
Breakthrough Difficulty: ★★★
Pharmaceutical manufacturers generally place significant emphasis on multi-channel sales, including the hospital channel, chain pharmacy channel, and the “third terminal” channel. The emerging online sales channel is experiencing rapid growth. Online drug sales are gaining popularity due to their broad geographic reach and diverse customer base, making corresponding offline pharmaceutical care services increasingly important.
According to industry data, the transaction volume of China’s pharmaceutical B2C market was estimated at RMB 13.41 billion in 2015, with a projected high growth rate of 75.7%. By the end of October 2015, the number of vertical pharmaceutical O2O enterprises had increased to more than 20, and the trend of online purchasing combined with offline pharmaceutical services has become increasingly prominent.
Pharmaceuticals are not ordinary commodities; they require prescription by physicians and dispensing by pharmacists, with medical orders and drug administration being mandatory procedures. While online physicians and e-pharmacists can provide patients with preliminary advice, terminal verification and pharmacist re-checks are critically important for patient diagnosis and treatment. These steps constitute a vital component in advancing pharmaceutical O2O (Online-to-Offline) services and represent a key step toward achieving a closed-loop pharmaceutical O2O ecosystem.
In light of the current state of online pharmaceutical sales, industry players have devoted greater efforts to online operations, e-commerce store design, medication sales management, advertising campaigns, and capital financing. Yet, how much attention has been paid to offline pharmaceutical care services? How significant is the investment in pharmaceutical care service equipment? And to what extent have training and professional development programs been implemented for offline personnel in pharmaceutical O2O models? The answers are self-evident to industry insiders. These critical bottlenecks are not only of paramount importance but also exceedingly difficult to overcome!
Checkpoint Level: ★★★★★
Breakthrough Difficulty: ★★★★★
The pharmaceutical industry is a sector critical to national welfare and people's livelihoods, with pharmaceutical products directly impacting users' personal health and safety. Factors such as integration with medical insurance systems, the introduction of commercial health insurance, the promotion of multi-site practice for physicians, the advancement of tiered diagnosis and treatment at the regional level, the liberalization of electronic prescriptions for patients, and the online sale of prescription drugs all influence the development of pharmaceutical O2O (Online-to-Offline) services. This is a heavily regulated domain that is significantly shaped by national policies; consequently, the progress of pharmaceutical O2O is profoundly affected by government policy directives.
In August 2016, in accordance with policy requirements from the China Food and Drug Administration (CFDA) and the Hebei Provincial Food and Drug Administration, online retail of pharmaceuticals by third-party platforms was suspended. E-commerce platforms such as Tmall and Yihaodian were no longer permitted to facilitate online transactions for over-the-counter (OTC) drugs. During the “Double 11” shopping festival, four major pharmaceutical e-commerce companies—Jianke, Kangaiduo, Qilekang, and 111.com—relied primarily on their self-operated channels, while the pharmaceutical O2O (online-to-offline) model encountered significant strategic challenges.
Amidst crisis lies danger, but also “opportunity.” The suspension of online retail of pharmaceuticals by third-party platforms presents a prime opportunity for medical O2O entities—such as branded pharmaceutical manufacturers and chain pharmacies—to expand. It is an ideal moment for branded pharmaceutical companies to deepen their engagement in the medical O2O sector. This will encourage stakeholders to strengthen pharmaceutical brand management, promote the healthy online sales of pharmaceutical products in a measured manner, actively build doctor-patient communities, and integrate with offline O2O pharmaceutical retail terminals. We are confident that pharmaceutical O2O initiatives led by branded manufacturers can achieve significant success.
After years of development, the pharmaceutical O2O sector has been profoundly influenced by national healthcare and pharmaceutical policies. It holds promise yet faces bottlenecks, risks, and opportunities. Some companies are building pharmaceutical O2O platforms, others are pursuing the integration of healthcare and pharmaceutical services, and still others are leveraging medical IP to break through market barriers. How exactly can pharmaceutical O2O achieve breakthroughs? This remains a question for committed enterprises to explore together.
This article is a guest submission and does not represent the views of VCBeat. Author: Wang Pengfei, Consulting Director at a well-known Chinese consulting firm based in Shanghai; China-certified Management Consultant, China-certified Economist, and China-certified Senior Marketing Professional. He serves as a contributing expert and columnist for renowned domestic and international magazines and websites such as Business Review and Manager. He is also a specially invited expert and contributor to prominent Chinese industry publications including Tianxia Wangshang, Seller, and Sales & Market. Additionally, he maintains columns on several leading internet platforms, such as iResearch, Paidai.com, Meihua Network, and Global Brand Network. Mr. Wang has provided consulting and strategic planning services to numerous prestigious clients both in China and abroad, including Bright Food Group, Yunnan Investment Group, Wahaha, Fuma Foods, King Koil Mattresses (USA), 61 Health Mobile Healthcare, Baihe.com, Huifu Group’s cross-border e-commerce division, and Hong Kong Hongci Medical Group.