Introduction to pharmacy business models

BUSINESS MODELS IN COMMUNITY PHARMACIES

DAVID HOLDFORD, R.PH., M.S., PH.D.

PROFESSOR, VIRGINIA COMMONWEALTH UNIVERSITY SCHOOL OF PHARMACY

Slides to Accompany “Marketing for Pharmacists”

OUTLINE

1. DEFINE BUSINESS MODEL

2. ILLUSTRATE A BUSINESS MODEL CANVAS

3. IDENTIFY GENERIC BUSINESS MODELS THAT ARE COMMON IN COMMUNITY PHARMACIES

4. PROVIDE EXAMPLES OF PHARMACY BUSINESS MODELS

1. DEFINE BUSINESS MODEL

A BUSINESS MODEL DESCRIBES HOW A BUSINESS OR ELEMENT OF A BUSINESS PLANS TO MAKE MONEY.

BUSINESS MODELS ARE GENERAL, LARGE PICTURE VIEWS OF THE BUSINESS & TYPICALLY GLOSS OVER THE OPERATIONAL DETAILS OF THE BUSINESS

BUSINESS MODELS DESCRIBE:

• THE CUSTOMER VALUE PROPOSITION

• RESOURCES & PROCESSES

• THE PROFIT FORMULA

2. ILLUSTRATE A BUSINESS MODEL CANVAS

THE BUSINESS MODEL CANVAS IS A POPULAR TOOL USED FOR PLANNING & DEVELOPING BUSINESS MODELS

THE BUSINESS MODEL CANVAS ORIGINATED FROM BUSINESS MODEL GENERATION (HIGHLY RECOMMENDED) & HAS BEEN ADAPTED FOR MANY TYPES OF BUSINESSES INCLUDING HEALTH CARE

THE BUSINESS MODEL CANVAS HAS BEEN ADAPTED TO TEACH PHARMACISTS AND PHARMACY STUDENTS HOW TO DEVELOP INNOVATIVE BUSINESS MODELS

Organization's Operation -

Specific background about the organization

where the product/service will

be provided

Strengths, Weaknesses - Your

capabilities to serve targeted

customers

Value Proposition - The case you make

to customers

Secondary Customers - all

other people you may serve

Partners - People or businesses who can help you serve

customers

Opportunities, Threats - Potential

for success or failure in the

market

Primary Customers - People or

businesses you want to serve

Competitors - People or

businesses who compete for your

customers

Costs - Financial and nonfinancial inputs needed to serve customers

Pricing & Reimbursement - Sources of revenue to sustain your value proposition

Communication Plan - How your

value proposition is communicated

to customers

Implementation - Details about critical factors for success of business

Business Model Canvas for Pharmacy Services

Lean Canvas is adapted from The Business Model Canvas (http://www.businessmodelgeneration.com) and is licensed under the Creative Commons Attribution-Share Alike 3.0 Un-ported License.

Organization's Operation -

Specific background about the organization

where the product/service will

be provided

Strengths, Weaknesses - Your

capabilities to serve targeted

customers

Value Proposition - The case you make

to customers

Secondary Customers - all

other people you may serve

Partners - People or businesses who can help you serve

customers

Opportunities, Threats - Potential

for success or failure in the

market

Primary Customers - People or

businesses you want to serve

Competitors - People or

businesses who compete for your

customers

Costs - Financial and nonfinancial inputs needed to serve customers

Pricing & Reimbursement - Sources of revenue to sustain your value proposition

Communication Plan - How your

value proposition is communicated

to customers

Implementation - Details about critical factors for success of business

Business Model Canvas for Pharmacy Services

Lean Canvas is adapted from The Business Model Canvas (http://www.businessmodelgeneration.com) and is licensed under the Creative Commons Attribution-Share Alike 3.0 Un-ported License.

3. IDENTIFY GENERIC BUSINESS MODELS THAT ARE COMMON IN COMMUNITY PHARMACIES

ALL BUSINESS MODELS FALL INTO THREE GENERIC CATEGORIES

1. SOLUTION SHOPS

2. VALUE-ADDING PROCESS BUSINESSES:

3. FACILITATED NETWORKS

ALL BUSINESS MODELS FALL INTO THREE GENERIC CATEGORIES

1. SOLUTION SHOPS

2. VALUE-ADDING PROCESS BUSINESSES:

3. FACILITATED NETWORKS

PROVIDE SOLUTIONS FOR COMPLICATED

PROBLEMS THAT HAVE FEW, IF ANY, CLEAR SOLUTIONS

ALL BUSINESS MODELS FALL INTO THREE GENERIC CATEGORIES

1. SOLUTION SHOPS

2. VALUE-ADDING PROCESS BUSINESSES

3. FACILITATED NETWORKS

INTERMEDIARIES IN MARKETING CHANNELS

WHICH TAKE SOMETHING FROM ONE CHANNEL

PARTNER (E.G., MANUFACTURER), ADD

VALUE (E.G., REPACKAGE MEDICATIONS AND

PROVIDE COUNSELING ON PROPER USAGE), AND THEN

SHIP THEM OUT TO THE CONSUMER OR NEXT

INTERMEDIARY

ALL BUSINESS MODELS FALL INTO THREE GENERIC CATEGORIES

1. SOLUTION SHOPS

2. VALUE-ADDING PROCESS BUSINESSES:

3. FACILITATED NETWORKS

PROVIDE VALUE BY CONNECTING PEOPLE

TOGETHER VIA A PLATFORM THROUGH

WHICH USERS CAN OFFER THINGS OF VALUE TO EACH

OTHER

4. PROVIDE EXAMPLES OF PHARMACY BUSINESS MODELS

SOLUTION SHOPS

Solution shops provide highly customized solutions to clients. Problems are unique and not subject to solutions that can be standardized with algorithms. Examples include:

B2B consulting firms which advise businesses on solutions to delivery, financing, & management

Research & development organizations which design studies to evaluate causal relationships between health care interventions and outcomes

VALUE-ADDING BUSINESS PROCESSES

This describes any health care that can be guided by rules-based & standardized processes. The majority of pharmacies are value adding process businesses.

Most pharmacy services in community, specialty, hospital, & managed care setting are relatively routine and lend themselves to standardized treatment plans

A specific type of value-adding process is a retail business model

RETAIL BUSINESS MODELS (RBM)

Community pharmacies often work under RBMs which generate most of their revenue by selling merchandise. RBMs typically offer one (or more) value propositions:

Economic: offers customers greater utility (compared to competitors) for the costs paid

Functional: offers greater convenience by finding the right products with as little time and as little physical and cognitive effort as possible

Emotional: offers an arousal of feelings associated with the act of shopping itself, e.g., enjoying shopping with others, the hunt-for-a-bargain, relaxation

Symbolic: attaches positive consumption meanings associated with shopping itself e.g., shopping local, shopping that supports environment

Economic? Functional? Emotional? Symbolic?

http://time.com/3947684/starbucks-cold-brew-nationwide/

FACILITATED NETWORKS

This describes any platform that provides value by connecting individuals and organizations. Facilitated networks in pharmacy include:

pharmacy associations which connect individuals & organizations around a similar cause

pharmaceutical purchasing groups where members band together to negotiate lower prices from suppliers

SUMMARY

The business model may be the only thing a pharmacist needs in planning for a new service OR

It might be a tool to help build a business plan

Models need to evolve as they are tested in real marketplace conditions