NEW MARKETING NICHE FOR DRUG CHAINS

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What is the crisis in healthcare? Both consumers and the Clintons are looking for someone they can trust to manage use of, and spending on, drugs. The Clinton Administration has broadly labeled drug manufacturers, hospitals, insurance companies and doctors as the bad guys of the healthcare industry. Drugstore chains, among the most troubled retailing formats of the last 10 years, can assume the role of the good guys and at the same time be one of the primary beneficiaries of the healthcare transformation.

The question is, can drug retailers, who are used to being passive bit players, step out front to become the leading stars of healthcare?

To survive in the 1970s and 1980s, drug retailers had no choice but to copy from mass merchants, grocers and convenience stores. Wal-Mart, Kmart, club stores and discounters expanded their product assortment to include grocery and drug items, squeezing drug chains between grocery and mass merchandisers. Drugstores added general merchandise and food items as a prescription for survival but, in a twist of marketing logic, the drug items became the loss leaders used to steal customers back from the encroaching giants.

Now, drugstores are places to buy soda, magazines and snack foods. About 60% of the revenues of drug chains comes from non-drug items. Retailers stock a few aisles with drug items to avoid being mistaken for a Super 7-Eleven.

Healthcare reforms provide drugstores with their first opportunity to become important again, to become a centerpiece of retailing. Political and marketplace pressure has already improved costs for drug retailers. Branded manufacturers have held down costs, thus reducing wholesale prices to drug retailers and allowing margins to improve. Increased knowledge among consumers and doctors has already stimulated switching from branded to private label and generic drugs that will further improve drug retailer margins and share of market.

The challenge now is for drug retailers to redefine their position in the marketplace so they no longer look like discounters in white coats. Drug chains can supply consumers with the item in greatest demand-information.

Most consumers are befuddled by every aspect of healthcare: usage of drugs, diagnosis of everyday illnesses, selection of doctors, medical insurance and costs. Much of the crisis debate lies in being overwhelmed by questions with no one to turn to for answers. The people we used to trust-hospitals, doctors and insurance companies-have been defrocked. As in the Ghostbusters' lament, "Who ya gonna call?" it could be your local pharmacist.

As the healthcare marketplace restructures itself, so should drug chains to become the information and communications centers for healthcare. The pharmacist is available in each community, every day, and should be or could be knowledgeable about many of the healthcare issues.

At the very least, drugstores or Health Care Stores could provide consumers with direction toward getting the information they need. Drug chains could deploy pharmacists together with nurses, dentists, doctors, physical therapists, podiatrists and nutritionists to discuss health issues and answer questions about ailments, drug usage, physical fitness, preventative care and costs. The "pharmacist and associates" could become a walking physicians desk reference made simple.

However, this scenario will only work if consumers perceive that drugstores are in the healthcare business. Drugstores could employ both high-tech and high-touch communications-an Interactive Health Care Network-to keep the community informed and build store brand loyalty. The network could offer seminars and newsletters on health topics, use in-store information kiosks, implement direct mail programs, create on-site pamphlets, offer 800/900 information numbers or provide on-line computer information systems.

To further bond Health Care Stores with consumers, the "pharmacist and associates" could be out in the community at schools, hospitals, day-care facilities and senior citizen centers.

Drug chains could create an "information cooperative" in partnership with doctor groups, hospitals, HMOs, insurance providers and manufacturers that would compensate the chains for providing an opportunity to reach consumers. Manufacturers of branded and generic products could sponsor the newsletters, on-line information services and seminars.

There are many opportunities for drug retailers to become an important contributor to healthcare reform, while at the same time increasing volume, share and profit. Ultimately, consumers must think of drug chains as focused on healthcare and not as the everyday low-price leader in soft drinks and paper goods. Repositioned as Health Care Stores, drug chains can become unique fixtures in the marketplace that grocers and mass merchants cannot copy.

Mr. Hapoienu is managing partner, Sage Worldwide, a marketing and retail consulting company in Greenwich, Conn.

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