Competitive Forces in Pharmacy Practices
This article emphasizes the vital importance of recognizing and responding to external factors for the long-term sustainability of independent businesses. It underscores the need for practice owners to assess competition more comprehensively and proactively strategize to mitigate potential threats to their business.
Long-term sustainability of independent businesses requires tuning in and acting on the shifting dynamics in your external environment. While most owners have a sense of major trends and shifts in the market, many are trying to keep their head above the water and struggle to put any real time and thought into strategizing around external threats.
There are many external factors that impact practices such as regulatory changes, social patterns, political environments and more. However, one of the most critical external factors to pay attention to is competition and the threats they pose to your business. While practice owners know who the direct competitors are in their neighbourhoods and are aware of the offerings and service differentiators of the clinic down the road, few are evaluating the competitive landscape more broadly than that.
Michael Porter is one of the most influential thinkers in modern strategy. We can use Porter’s five competitive forces to begin to think about competition as it relates to the sustainability of community practices:
Threat of new entrants: Passionate healthcare professionals looking for autonomy in practice, increased scopes of practice allowing for niche services, growing and aging populations, business diversification, and strategic partnerships are all factors that influence continuous new entrants in the market. Practice owners need to be able to clearly communicate why a patient should choose their practice over another.
Bargaining power of suppliers: Independent pharmacies should be paying attention to the need for constant review of terms, pricing and drug availability through wholesalers and manufacturers. The bargaining power of banner groups can help negotiate favourable terms and pricing so reviewing your banner agreements and your banner’s purchasing power every few years could serve you well.
Bargaining power of customers: While community pharmacies see their patients as their main ‘customers’, we can’t forget that when it comes to bargaining power, the government and third-party payers have a lot of influence over pharmacy practice through their substantial leverage when it comes to reimbursement, formularies, and the impact that can have on profitability and viability of community pharmacies.
Threat of substitute products: Our world needs more proactive health approaches and shifts to preventative care and healthy lifestyles. We can’t argue that much of pharmacy practice is centered around medication and reactive treatments. At a much more immediate and nuanced level related to substitutions, we can anticipate clinical shifts like the emergence of injectable extended-release buprenorphine replacing the need for daily dosing. This is an extraordinary option for great patient care but one that comes with the need to seriously navigate the impact to pharmacy business models.
Intensity of rivalry among competing firms: Between the re-emergence of online pharmacies and the large resources of chain pharmacies, innovation and technology will continue to change the competitive landscape for community pharmacy practices. Consider how you are embracing social and technological innovation in your practice.
With a changing economic landscape and evolving scopes of practice across the country, the status quo is not a strategy at all.
Adapted for general health practices from publications written for Pharmacy Practice + Business magazine:
https://www.canadianhealthcarenetwork.ca/competitive-forces-pharmacy-practice