Zheng Zao Ming Advocates Social-Based Pharma E-commerce 4.0 Model as Key Growth Driver

“Regarding pharmaceutical e-commerce, two points are worth noting: first, it reduces distribution costs; second, integrating medical services into pharmaceutical e-commerce can drive drug sales.”

On March 11, Zheng Zaoming, Vice President of the China Medical Pharmaceutical Materials Association and Chairman of Wenkang Group, expressed the above views at a roundtable forum held as part of the “Healthy Chinese People·Two Sessions Health E-Lounge.” The event was jointly organized by People’s Daily Online Health, Health Times, and the China Medical Pharmaceutical Materials Association, with the roundtable themed “Internet + Healthcare Hospitals.”

In fact, at the conference, Zheng Zaoming also mentioned another concept: “the 4.0 era of pharmaceutical e-commerce.” He stated that the social relationship-based e-commerce 4.0 model will be an important direction for the future development of pharmaceutical e-commerce.

E-commerce for Pharmaceuticals Can Reduce Drug Distribution Costs

With the deepening and widespread adoption of internet-based healthcare, pharmaceutical e-commerce has gained support, and policies promoting the “separation of prescribing from dispensing” and the opening of online sales of prescription drugs have been proposed. Allowing the online sale of prescription drugs means that the core policy barriers restricting the development of pharmaceutical e-commerce have been broken. According to industry statistics, the transaction volume of China’s pharmaceutical e-commerce has grown from RMB 6.8 billion in 2014 to RMB 10 billion in 2015, clearly indicating that the online pharmaceutical market is entering a period of explosive growth.

Pharmaceutical distribution is an integral component of the healthcare service delivery process. Integrating pharmaceutical services with online drug sales will inevitably optimize workflows and reduce costs, thereby not only meeting consumers’ increasingly diverse needs but also achieving optimal resource allocation.

Zheng Zaoming noted that previously, before medicines reached patients, they had to go through multiple channels and stages. However, the emergence of the internet has directly eliminated certain distribution links in the logistics chain, thereby reducing costs.

Pharmaceutical e-commerce reduces drug distribution costs primarily through three key stages:

First, the Internet has optimized the traditional pharmaceutical supply chain by leveraging specialized pharmaceutical logistics and professional customer service, thereby enabling purchasers to achieve precise procurement and significantly reducing the time and labor costs associated with the procurement process.

Second, pharmaceutical e-commerce platforms offer transparent price negotiations, enabling purchasers to directly secure the best prices, rather than having to compare multiple suppliers without necessarily obtaining the most reasonable purchase price for medications;

Third, the development of pharmaceutical e-commerce will facilitate the streamlining of processes in internet hospitals and their integration with offline physical hospitals, thereby enabling them to secure medical resources and government support. By establishing a viable profit model, these institutions can achieve sustainable development.

4.0Model: The Core of Pharmaceutical E-commerce Is Trust

Zheng Zaoming pointed out that while more than 300 companies in China currently hold licenses for pharmaceutical e-commerce, very few are actually operational. Most pharmaceutical e-commerce platforms treat drugs as ordinary consumer goods, using subsidies to attract patients to purchase medications, which is unreasonable.

Pharmaceuticals are distinct from ordinary consumer goods; drug prices are not the most sensitive factor for patients, whose primary objective is achieving a cure.

Therefore, pharmaceutical e-commerce platforms need to integrate medical services, leveraging professional healthcare offerings to drive drug sales.

Pharmaceutical e-commerce is a segment of the pharmaceutical market and also a specialized niche within the e-commerce industry. Data shows that in 2014, the transaction volume of China’s pharmaceutical e-commerce accounted for 0.51% of the total pharmaceutical market size and 0.06% of the overall e-commerce market size, indicating that the online penetration rate of pharmaceutical products remains low.

Why is the penetration rate of pharmaceutical e-commerce so low despite its vast market potential? Zheng Zaoming attributes this to the following reasons:

First, at the policy level, regulations governing the online sale of prescription drugs have yet to be introduced. Given that prescription drugs account for 80% of total pharmaceutical transaction volume, and nearly 80% of domestic prescription drugs are sold in hospitals, policy restrictions have indeed constrained the growth potential of pharmaceutical e-commerce. Furthermore, the absence of unified standards for electronic prescription systems, online prescription review, and the management of drug incompatibilities and safety has been a significant factor contributing to the sluggish development of pharmaceutical e-commerce.

Second, from an industry perspective, pharmaceutical e-commerce has yet to identify the optimal business model suited to its development.

Zheng Zaoming stated that the optimal model for pharmaceutical e-commerce is to first enable pharmaceutical manufacturers to sell directly to patients, eliminating intermediaries and passing cost savings on to them. Pharmacies should then handle last-mile delivery, ensuring both speed and a positive user experience. Furthermore, by involving physicians and pharmacists in the service process, this approach not only enhances the rationality and safety of online medication purchases but also improves patient adherence to prescribed regimens.

“Starting with a detailed analysis of the conventional e-commerce business model, we believe that the e-commerce industry as a whole will undergo four distinct eras, from 1.0 to 4.0,” said Zheng Zaoming.

In the 1.0 era of e-commerce, the products sold were well-known standardized goods. For instance, in the online liquor market, consumers did not need to rely on reviews or other methods to determine whether Moutai tasted good. In this model, the key factors were product authenticity and reasonable pricing, making scale the primary driver.

In the e-commerce 2.0 era, platforms began selling non-standardized or lesser-known products, prompting consumers to rely on reviews from other buyers to make purchase decisions. This model is currently adopted by most mainstream e-commerce platforms.

The era of E-commerce 3.0 aims to embed services into the commodity purchasing process, which is currently the biggest challenge facing pharmaceutical e-commerce, a specialized branch within the e-commerce sector.

Fundamentally, medical services and medication procurement are inextricably linked. From the onset of symptoms, patients’ primary need is an accurate diagnosis rather than simply purchasing drugs. Even after acquiring medication, the ultimate goal remains curing the disease. However, if adequate medical services are lacking, patients’ needs for care and attention go unmet, which constitutes a major constraint on the development of pharmaceutical e-commerce platforms.

Therefore, no matter how fervent the Double 11 shopping festival becomes, the top-selling categories on pharmaceutical e-commerce platforms are not pharmaceuticals themselves, but rather medical devices, family planning products, and health supplements. This, in turn, confirms that the development of online pharmaceutical sales has hit a bottleneck due to a lack of accompanying services.

“E-commerce 4.0 model is also the ultimate state that pharmaceutical e-commerce should develop into.” Zheng Zaoming believes that the core point of pharmaceutical e-commerce is trust, and what is the foundation for building trust? In addition to authoritative endorsements, relationship-based social interactions are also very important. For example, recommendations from acquaintances can more easily generate trust, further stimulating purchasing behavior.

“Therefore,” stated Zheng Zaoming, “the e-commerce 4.0 model based on social relationships will be an important direction for the future development of pharmaceutical e-commerce, and we have been consistently striving toward this goal.”