The E-Commerce Opportunity
There is a large online marketplace for durable medical equipment. How can DME pharmacies tap into it?
- By David Kopf
- Dec 01, 2018
The value of e-commerce is undeniable. According to a June 2017 Forbes article, online sales grew faster in 2016 than they had over the past three years and account for 11.7 percent of overall retail sales. More data: The Census Bureau’s tallied retail e-commerce sales in the United States for the first quarter of 2016, and it grew 3.7 percent over the previous quarter to a total of $92.8 billion. Lastly, market data company Statista.com reported that health-related spending constituted 5.6 percent of total e-commerce. That amounts to $5.19 billion in one quarter.
The net takeaway from all this? There is no stopping this sea change in how people get their product information and buy products — including DME. That means DME pharmacies that want a piece of that market need to start thinking about how they can approach e-commerce.
Three E-Commerce Approaches
At the outset, you must consider how you are going to approach e-commerce. That starts with defining the types of e-commerce business models. Christina Throndson, director of business development for VGM Forbin oversees all business development by VGM Forbin for websites, social media and online advertising. She outlines three basic models for e-commerce:
- Model 1, Awareness—an online presence meant to drive traffic to the physical location.
- Model 2, Convenience—a limited e-commerce presence designed to help patients purchase resupply items and other HME offerings online, but still in support of a physical location.
- Model, 3 Dedicated e-commerce—a business that is dedicated to e-commerce and is focused on engaging with and transacting with online customers on a regional, national or international level.
Throndson says that a loose estimate based on her experience with VGM Forbin customers, approximately 60 percent of DME pharmacies with an e-commerce presence would fall into model 1, about 35 percent would be model 2, and only roughly 5 percent would qualify as model 3. That said, the overarching goal of each model is to grow sales. The difference lies in the digital strategy the DME pharmacy implements.
Model 1 is a basic online presence that informs customers about what a provider offers and specializes in, and how clients can find or contact the business. It is more of a billboard than an interactive marketplace. The main goal of a model 1 website is to drive customers into the brick and mortar location in order to conduct business.
That said, truly succeeding at model 1 is much more involved than it sounds. Media to mining data analytics, creating, maintaining and measuring your customer pipeline is perhaps the biggest learning curve for online DME pharmacies. The more a provider knows and acts on your data, the more successful it will be at building an online presence, regardless of the level.
Model 2 provides even more convenience to your customers. This model allows customers to explore more information online, such as individual products with purchase capabilities. Unlike model 1, model 2 can have elements of e-commerce, which is the ability to order, re-order and purchase online using credit cards — so customers don’t have to come in the store to get what they need. The online strategy is likely limited in its use of online marketing campaigns to bring in new customers. Like model 1, the focus is on a local presence, but you are giving convenience to current customers and potential prospects by letting them purchase online.
“You’re not only re-engaging, but the thing that’s really changed in model 2 is the selling and fulfilling is,” Throndson says. “You’re still going to utilize your existing audience, you’re still going to push your local presence.”
Model 3 could incorporate some of the goals and tools of model 2, but the main focus is running a full-fledged e-commerce platform (purchase, fulfillment, online marketing, social media, database management, etc.) that lets providers re-engage with past clients and seek new ones. E-commerce DME pharmacies must realize that they compete online with retail heavyweights, such as Wal-Mart and Amazon, so a strategy of adding value that differentiates the provider from big-box retailers is integral to success. It can also be difficult to re-engage as this model is often seen as a transactional (onetime) experience.
“Model three is really standalone,” Throndson explains. “A lot of times a different DBA with nothing to do with Medicare. It’s not so much about the local business, because while that can assist, a lot of times they can’t go hand in hand, or it’s at the least very difficult, especially if the local business billing Medicare because your pricing is a huge factor.”
In model 3, not only is visibility crucial — ranking high on search engines and advertising on a wide scale —but so too are pricing and legitimacy. Throndson explains that people will research as many as 10 different online retailers before making a decision, especially on items costing more than $100. And, if any of those online retailers that do not provide phone numbers, return policies and all the reassurances that online buyers expect, customers will click past. Make no mistake, model 3 is the territory of dedicated players.
Understand Scale and Marketing
DME pharmacies have traditionally traded on a reputation for product and care expertise, and particularly at the local level. That has been their sweet spot and the value that they bring to the home medical supplies and equipment market. Most people would reasonably look at the global reach of e-commerce, and conclude that the business model would be very different. A provider could easily be bowled over by a massive surge in demand.
Bearing that in mind, providers should start out identify two or three products they can offer online and consider how well those products can scale quickly if the provider sees some initial success. Can they get enough from their vendors? Are their vendors confident they can maintain that supply? And then the provider needs to think of the next two or three or products that can translate well to e-commerce. This gives the provider the ability to ramp up.
But the provider can also control it reach through marketing. The Internet is not an out-of-control firehose when it comes to e-commerce; it is a spigot. By controlling your marketing, you can control your exposure.
Even though the web gives providers national reach, they can fly under the radar and limit their exposure. Since there are so many players online, if a provider decides to focus geographically, the rest of the world will likely see other businesses, while the provider is chiefly visible to just its local market.
In fact, online marketing can be as highly targeted as it can be global. So if a provider actively pursues an online marketing initiative that targets people in certain zip codes and on certain keywords around very focused types of medical equipment, then it will find those people and those customers will find that provider.
This article originally appeared in the DME Pharmacy December 2018 issue of HME Business.
David Kopf is the Publisher and Executive Editor of HME Business and DME Pharmacy magazines. Follow him on Twitter at @postacutenews.