Launch Misalignment and the Anticipated Mail-Order Pharmacy Market Shift

A “Timely” Decision

The internet has enabled consumers to gain an advantage when choosing goods and services. One of those areas of high interest is the ability to obtain prescriptions by mail, ordering either by the phone or the internet. As many marketers have found, the launch timing of their goods and services in a new distribution channel is critical. Timing of the product launch is an important consideration when planning to introduce a new product to any market.

Prescription sales through mail order has endured several starts and setbacks because the timing of the distribution has not matched well with the desirable target audience to receive them. In the case of the internet and mail-order pharmacy original launch, the timing was misaligned with the right target markets, causing lags in this channel’s growth and availability.

Launch timing is essential to the success and failure of a business regardless if the product or service is the greatest the world has ever seen. To this day, internet and mail-order pharmacy services are still not what analysts predicted they would be. This article is designed to discuss the initial launch timing misalignment and the future of internet and mail-order based pharmacy services.

Examples of Misaligned Launch Timing

Segway is one of the most-recognized failed product launch attempts in history. Segway Inc spent $100 million developing the 2-wheel personal transportation vehicle, and prepared to launch the product in early 2002 with forecasted sales of $1 billion.

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Unfortunately, between 2001 and 2007, only 30,000 units were sold, which fell short of predictions. Some analysts believe that Segway Inc did not recognize the price point was high for the time, with the product costing $3000 for most models, up to $7000 for higher-end models, which caused launch failure.

While the pricing of Segway is a viable explanation for launch failure, there is reason to believe that launch timing may have been a detrimental factor in this failure. In 2013, the hoverboard was launched and provided an alternative means of utilizing similar technology to the Segway, yet at a more attractive price point. According to Statistic Brain, in 2015 alone, 2.57 million hoverboards were sold in the United States, resulting in $997.6 million in total sales revenue.

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While the price point of the hoverboard is much lower (average retail price: $386), price alone cannot explain sales of the hoverboard selling 8500% more units than Segway, when both products share such similar characteristics. One explanation is that Segway was too advanced for the time and the general public was not ready to spend that much money on such a futuristic product.

On the other hand, the hoverboard industry understood their customer base and utilized existing technology to reboot and relaunch the top-selling product of the 2015 holiday season. The example of poor product launch timing can be extrapolated to the mail-order pharmacy model, considering that there is a grave possibility of a consumer demographic mismatch.

The Mail-Order Pharmacy Market Misalignment

The practice and utilization of internet/online pharmacies only began operating in the late 1990s. A mail-order pharmacy can be defined as websites that market and sell prescription medication over the internet dispensed through mail-order services.3 Drugstore.com was considered to be the first “safe and fully operational” mail-order pharmacy with Verified Internet Pharmacy Practice Site (VIPPS) certification, and began to shape the industry. In some situations, it is an advantage to be first-to-market, but consider the 7 P’s of marketing in regards to the internet/mail-order pharmacy business (specifically, drugstore.com and the first wave of internet pharmacies).

• Product. This is a prescription drug service utilizing an internet-based platform to fill prescriptions that will be delivered through the mail.
• Price. Internet/mail-order pharmacies offer competitive pricing with brick-and-mortar pharmacies.
• Place. No brick and mortar available for patient walk-in. Corporate office located in Bellevue, WA.
• Promotion. Advertising was done through traditional media (TV, newspaper, radio), insurance company co-promotion, and direct mailing.
• People. Any patient looking to fill prescriptions without going to the local pharmacy.
• Process. Prescription drugs will be called into the pharmacy or faxed, paid by credit card or check, then shipped through the mail.
• Physical Evidence. Brand new concept for the pharmacy market; evidence in works.

After considering everything about the service or product offered by drugstore.com and other early movers in the mail-order pharmacy, consider the market surrounding the company’s launch. According to a Pew Internet & American Life Project Survey, only 46% of Americans (age 18+) have adopted using the internet in early 2000.

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Of that population, 57% were aged 30 to 49, 41% were ages 50 to 64, and only 12% were ages 65 years and older.

Furthermore, in 2001, only 21% of the American population made an online purchase, subsequently receiving product through the mail.

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Within the target population, patients aged 35 to 49 years filled an average of 6 prescriptions per year, while patients aged 50 to 64 years filled an average of 13 prescriptions, and patients aged 65 years and older filled an average of 21 prescriptions per year.

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Brand managers should be able to look at the data and understand that the target demographic does not fit the target patient profile. Despite the fact that drugstore.com established a good reputation for themselves, the evolution of the market was not ready or willing to adopt the use of an online/mail-order pharmacy. Patients 35- to 50-years-old may not have any physical, financial, or technological limitations that would inhibit them from going to a local pharmacy, or purchasing products online.

On the other hand, patients aged 51 years may have physical and financial limitations that would deter them from going to the pharmacy, but these patients are also not willing to adopt the use of the internet to purchase any product, including their own prescriptions.

Mail-Order Pharmacies

Today The mail-order pharmacy marketplace has significantly changed since the year 2000. While the number of patients using mail-order pharmacies has increased since the year 2000, there has been a noticeable slow-down in utilization over the past decade. Between the years of 2000-2006, the number of mail-order prescriptions increased by 300,000 per year (to a total of 700,000 per year).

On the other hand, from 2006-2011, the total yearly prescriptions only increased by 100,000 (to 800,000 total prescriptions in 2011⁷). The mail-order pharmacy market is ready to have a positive shift in an already matured market, contributed by the new wave of specialty pharmacy products, aging of our population, and the changing target market determined by online activity and purchases.

According to IMS Health, from 2013-2014 there was a growth of mail-order services by 36.3% for the dispensing of specialty products. Mail-order specialty products also accounted for $38.1 billion in sales between 2013-2014. The overall sales of prescriptions through mail-order services is up by 24.9%.

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This increase can be attributed to the major pharmacy benefit managers in the specialty pharmacy industry mandating that specialty scripts be filled through main-order specialty pharmacies, such as Diplomat, Briova, Accredo, and OptumRx.

The Anticipated Shift of Appropriate Demographics

In the next 5-10 years, mail-order pharmacies will be seeing a significant rise in patient utilization and number of prescriptions dispensed. Although the top 15 pharmacies (9 of 15 mail-order based) own 78.1% of the market, there is room for growth in the smaller pharmacies in the coming years.

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The desired generation for mail-order pharmacies is beginning to align with the anticipated target market.

The population that grew up with the internet (Generation X and Millennials) are now reaching the age where a mail-order pharmacy would be the best option for them. In 2013, there was an average of 12.2 prescriptions per person filled annually.

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This is a significant increase from 2006, where there was an average of 4 prescriptions per person filled annually.

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Coincidently, in 2014, 87% of the American population had adopted using the internet, compared to only 46% in 2000,12 while the action of online shopping has increased by 49% from 2001-2015 (21% in 2001 to 70% in 2015) among the US population 18+ older. Furthermore, adults between the ages of 35 and 54 years represent 47% of the total population shopping online, followed by Millennials coming in at 18.6% of the total online shopping population.

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Collaboratively, all of the statistics around online shopping are very important to mail-order pharmacies. Through data gathering and analysis, the results are clear. The generation that is most comfortable using the internet, shopping online, and relying on packages mailed to their house is about to intersect with the perfect demographic of patients who are filling 2 or more medications per month.

This will be an important trend for the mail-order pharmacy industry, as the current generations mature, age, and move to the next generation. While Baby Boomers and Generation X are beginning to get older and require more medications, they are growing up and relying on the internet to get through day-to-day tasks. People who were reluctant to use the internet for online purchases in 2001 were around the ages of 40- to 60-years-old.

Fifteen years later, these people are now in the ages of 55- and 75-years-old, and are also generally taking more than one medication monthly. These patients will generally still not be accustomed to using the internet, and would rather go to their local pharmacy to pick up medications. Patients in this age range are currently in the target demographic for mail-order pharmacies and insurance companies. In 2016, patients who are currently 35- to 54-years-old are hitting the age where they will be filling 2 or more prescriptions per year.

This demographic is also the age range currently responsible for 47% of the total purchases made online in 2014. In approximately 5-10 years, these patients will now become the ideal candidates for the mail-order pharmacy because these patients will be taking 2 or more medications per month, and be more than comfortable using a mail-order based pharmacy.

Conclusion

In conclusion, the timing of launch for a product or service is absolutely critical to determine the initial success or failure of the brand. In the beginning, patients did not match the targeted demographic of mail-order pharmacies. Since the early 2000s, mail-order pharmacies have become a regularly used service in the health care industry. In the next 5-10 years, the mail-order pharmacy market will be seeing a noteworthy increase in patient utilization and number of prescriptions dispensed.

This is, in part, due to pharmacy benefit managers mandating that all specialty prescriptions be filled through a mail-order pharmacy. Furthermore, patients are beginning to reach the targeted age, and technologically capable demographic. The data presented shows that an increasing number of people are utilizing the internet for purchases and daily activities. As more people are adopting and using the internet for everyday purchases, mail-order pharmacies will become a staple in everyday life for the next generation of patients within the targeted market.

References

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• Statistic Brain. (2016, Jan). Hoverboard / Self Balancing Scooter Insudtry Statistics. Retrieved from Statistic Brain: http://www.statisticbrain.com/hoverboard-self-balancing-scooter-industry-statistics/
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• IMS Health. (2015, April). Medicines Use and Spending Shifts. Retrieved from IMS Health Research: https://www.imshealth.com/files/web/IMSH%20Institute/Reports/Medicines_Use_and_Spending_Shifts/Medicine-Spending-and-Growth_1995-2014.pdf
• Adam J. Fein, P. D. (2015, January 20). 2014's Top Pharmacies: Specialty Shifts Industry Leadership. Retrieved from Drug Channels: http://www.drugchannels.net/2015/01/2014s-top-pharmacies-specialty-shifts.html
• Simone, A. (2014, April 15). Prescription Drug Use and Spending on the Rise. Retrieved from Pharmacy Times: http://www.pharmacytimes.com/news/prescription-drug-use-and-spending-on-the-rise
• Marie N. Stagnitti, M. (2009, May). Medical Expenditure Panel Survey. Retrieved from Average Number of Total and Unique Prescriptions by Select Person Characteristics, 2006: http://meps.ahrq.gov/mepsweb/data_files/publications/st245/stat245.pdf
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