LECTURE 7MODERN ORGANIZATIONAL TECHNIQUES TO

IMPROVE THE PROFITABILITY OF PHARMACIES

Plan 1. Use merchandising 2. Product and pricing 3. System of discounts 4. Working with MPI and insurance

companies 5. Advising doctors and cosmetologists 6. Risk Sharing 7. cloud technology

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Did you know that: “According to studies, over 60% of women want to

buy something then they see it displayed in a showcase.”

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ADVERTISING SIGN

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We can add that 90% of pharmacy customers first study the windows cases or advertising materials in the pharmacy before buying something.

Merchandising is the art of presenting goods to the consumer in such a way as to increase sales. 

Merchandising of pharmaceutical and cosmetic products requires special knowledge and skills, since the product is placed among thousands of other brand names in the pharmacy.  5

There is a certain culture to merchandising in the pharmacy: a special format for advertising materials, stickers and stands, the size of window cases and the lighting. It is difficult to attract the consumer's attention in these conditions, but it is necessary to do so even before he or she hears the pharmacist's recommendation. 

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HOW TO INCREASE RETAIL PHARMACY SALES BY MEANS OF MERCHANDISING

The pharmacy market is characterized by rigid competition. Manufacturers struggle for better places on shelves, larger space, sales points decoration and promo-stands places, while pharmacies managers try to achieve minimization of expenses related to sales areas and equipment use, increase of profits and the average cheque amount.

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Both of them employ different methods and consciously or deliberately achieve some positive result. However, those

things obtained imperially can be difficult to repeat and to preserve.

Pharmacy merchandising tools provide a possibility of consciously acquiring a

positive result. The mere notion of “merchandising” appeared not long

ago but gained popularity very quickly. 8

Merchandising implies not just obtaining an efficient place on the shelves but moving products from stock and preserving that space that is already occupied in pharmacies.

Nine out of ten customers that come to a drug-store do not intend to buy a product or a medicine of a certain brand.

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Even continuous advertising of a product is not regarded as a guarantee of its being bought, while as it’s known advertisement of medicines is prohibited. Merchandising specialists should know all peculiarities of placing pharmacy products and be able to apply this knowledge in practice. Then it’s possible to influence customers’ preferences and increase sales.

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One can name the following methods of pharmacy merchandising:

  1. “In the public limelight!” Products are to

be located in the public limelight, i.e. in the middle of the pharmacy shop-window, a bit removed to the right. In case a product is sold in the pharmacy supermarket where there is a lot of space, its areas are to be zoned according to the “pharmacy-into-pharmacy” principle, i.e. to use special shop equipment or promo-stands. 11

2. “Attention. The right top corner”. The movement of customers’ eyes near the pharmacy ramp can be compared with reading a page with an epigraph: at first one looks at the right top corner, then the eyes perform a zigzag movement from the right to the left and top down. Merchandisers should consider all these regularities by laying out products on pharmacy ramps.

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3. “30 degrees”. A customer perceives information more consciously in such a space that is located within 30 degrees from the point his/her eyesight is focusing on. In case you want to take a visually dominating position on the pharmacy shelf, you have to put your products in a place, whose location exceeds these 30 degrees.

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4. “Counter-clockwise movement”. Most customers are right-handers so they move inside the sales area in a counter-clockwise direction examining it along the external perimeter. Besides, almost 90% of all customers move only along the perimeter of the sales area, while just 40% find themselves in the middle of a store at once. So it’ll be more effective to place goods within the zone of most customers’ movement, i.e. along the perimeter.

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By planning merchandising measures, it’s necessary to remember about some peculiarities of customers’ behavior in the point of sale:•95% of customers entering a point of sale stop after passing 1/3 of the shop•90% of customers want to find all products they want to buy without passing large distances and coming back•most customers (right-handers) prefer going straight without turning to the right or left but nevertheless tend to look at and take products located on the right (Fig.1)• •  Fig.1

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•most customers turn to the left, counterclockwise, while passing through the store•customers avoid noisy, dark, dirty and poorly lit places (Fig.2) 

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Places of products location in the store can be divided into two main categories: strong and weak points (Fig.3).

Strong points:5, 3 – shelves to the right side along the customers’ traffic movement11 – shelves rows crossing points1, 4 – places with good front view10 – space next to the cash operating unit9 – gondolas end parts

Weak points:2, 6 – shelves to the left side along the customers’ traffic movement7 – corners8 – places next to the store entrance

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The route customers stick to while going through the pharmacy can and shall be corrected so as all

parts of the store should be visited on a high frequency level. It’s

achieved by means of the so-called “loss leaders” (those that are most

frequently searched for by customers).

5. “Golden triangular”. The “golden triangular” rule implies the following: the larger the space between an entrance, a cash operating unit and the most popular goods is, the higher the sales volume will be. When a customer crosses the area to get a necessary product, for instance, a package of aspirin, he/she will get acquainted with other products range. So it’s optimal to place goods within this triangular area.

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The correct location of product groups increases sales by 10%, while their effective layout – by other 20%. Consideration of goods location, colour solutions and other factors provides an increase by other 20%. So compliance with merchandising rules enables to considerably step up sales volumes and perceive effectiveness of those measures taken in order to promote a product.

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Tasks of products display on the shelves: - to induce a customer who has already bought this medicine before to make a repeated purchase- in case of the first purchase, to make a customer acquire a trade mark of the company- to induce a customer to replace a competitive trade mark with a trade mark of the company- in case of spontaneous purchase, to make a customer decide for a trade mark of the company- in case of planned purchase, to provide an opportunity of easily finding the very trade mark a customer is looking for

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Judging by the experience, in winter, when the light day is shortened, specially developed information daylights (cases) make a pleasant impression and attract the attention of potential customers. It’s common knowledge that within a pharmacy a customer moves by the average speed of 1m/sec, while the human eye is capable of seeing an object image if it’s located in field of vision for at least 1-3 seconds.

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Besides, best of all a customer can see a product located at the eye level (120-160 cm from the floor). Taking into consideration these data, the place on the shelve meant for a certain medicine should be over 33 cm, only in this case it’ll be noticed by a customer.

It’s a basis for the principle of shop-windows decoration: medicines by therapeutic groups in the format of displays should be located at the distance of at least 33 cm.

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Such a display located in shop-windows takes little space and contains brief information related to each medicine.

At cash-operating units where a customer spends enough time paying for his/her purchase, one can install plates for coins displaying some information about medicines.

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After determining a place of products location, one should define their right layout on the shelves. It should consider the main stereotypes of customers’ behavior, who as it’s know tend to first of all look at and take a product located to the right, which means that this product has more chances to be seen and bought.

A great deal of customers’ attention is paid to the central group of products on the shelf. 

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Taking into consideration customers’ behavior, one can determine the following parts on the shelves:

strong horizontal parts: in the middle of the shelf and in the middle of a products group, next to the right side

weak horizontal parts: to the left of the middle of the shelf or side sections of a products group

strong vertical parts: at the eye and breast level

weak vertical parts: at the waste level and lower, over the head level (in order to take a product, a customer has either to bend or to reach the place of a product location).

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Products that can be easily seen and

taken from the shelf are the most attractive for the

customer. 

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Methods of products display on the shelves

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Products facing is an amount of product

packages on horizontal shelves (only front

rows are implied, back and vertical rows

are not considered). The decisive factor

for the amount of facings in the pharmacy

depends on the volume of products sale

and measures related to their promotion

performed by a manufacturer The final

decision related to products facing is

made by a retail seller.

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Traditional places of products

facing include places next to competitive

products of the same category. Besides, by

products facing, it‘s important to consider a

trade mark popularity as well as a

manufacturer’s advertising support. The

famous and well advertised trade marks of

medicines should be located in the most

efficient places on the store shelves.

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The location of

competitive products

with less advertising

support and popularity

next to the famous and

well advertised ones

increases the volume of

sales of a competitive

product.

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Additional places of

products facing

 

Additional places of

products facing are not

strictly determined but

used for special offers

or types of products

promotion.

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Vertical location of a product is one

of the preferable options of a product

location providing the highest degree of

probability that this trade mark will be

noticed by a customer.

Horizontal location of a product is

mostly effective in case of location at the

eye level and can include a vertical

element in the form of locating a product

on two-three shelves.

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Advertising point of

sale materials include

materials located next

to a product in

traditional or additional

places of products

facing. The examples

include posters, flags,

strips for attracting

attention, information

stands, etc.

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Pharmacy merchandising provides a

considerable economic effect. The simple

location of a product from the waste to the

breast level increases the volume of sale

by 34%, while the location from the waste

to the eye level – by 78%. The location of

a product from the breast to the eye level

allows to step up the volume of products

sale by 63%.

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РОЗПОДІЛ

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ПРАЙС-ЛИДЕР +ПОДВІЙНИЙ ФЕЙСИНГ

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Pharmacy shelves

enjoy different

degrees of

customers’ attention

but products located

at the eye or breast

level have much

more chances to be

purchased.

 

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Conclusions:the human eyesight cannot fix the product image in case the fixational pause is less than 1-3 seconds

the length of products facing should be at least 33 cm so as a customer could fix his/her sight at and consider a product

in case it’s impossible to provide a 33-cm facing for the reason of space constrictions, it’s necessary to make at least two facings of the same products in order to create a phenomenon of repetition and visual attractiveness

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facing is the amount of one product unit on a horizontal part of a shelf

in case there is one metre of space on a shelf, three types of products can be located on one shelf, i.e. 33 cm for one product type

a customer moves by the average speed of one metre per second in a sales area, which plays an important role by purchasing a productcustomers move through the store

counterclockwise, from the right to the left.

DISCOUNT AS A METHOD OF INVITATION CUSTOMERS

Simple discount is offered with or reference value.

Discount "Skonto" - a discount in case of cash settlement. In those cases where the reference price provided short-term loan and the buyer agrees to pay for goods in cash, it can be given such a discount.

Progressive discount is subject to prior agreement on the acquisition of serial party products.

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Main functional areas of the pharmacy supermarket

1.communication service

2. cash operating units for the self-service area

3. phyto bar

4. juvenile products department

5. central alley with shelves for open layout as well as an example of navigation location

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6. optical department

7. prescription department

8. homecare department as well as an area for blood pressure measurement

9. cosmetics department with skin and hair diagnostic equipment

Bonus discount, or discount for circulation, provided the seller to its permanent agents for the implementation of a number of products.

Dealer discount provided by the manufacturer to its permanent representatives or intermediaries dealing with product sales.

Special discount is offered to favored customers, orders in which the most willing seller. Similar discounts can be provided in case of trial shipments.

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Seasonal discounts are available for purchase off-season. The discount depends on the nature of the goods.

Export discount provided by the seller when selling goods overseas buyers over the existing discounts for buyers of the internal market.

Hidden discount given in the form of discounts on freight, and preferential interest-free loans by providing free services.

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BACKGROUNDWHAT IS RISK SHARING?

Risk sharing is a method in which the cost of the consequences of a risk is distributed among several participants in an enterprise, such as in syndication.

And identification, analysis, assessment, control, and avoidance, minimization, or elimination of unacceptable risks. An organization may use risk assumption, risk avoidance, risk retention, risk transfer, or any other strategy (or combination of strategies) in proper management of future events.

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In some cases the discount as such is not mentioned in the text

of the contract, and in the process of negotiating the final

price is determined by taking into account discounts, and the price fixed in the text of the contract.

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Background

GOVERMENTS Control expenditure

Accessibility

PHARMA INDUSTRY Patents

Profits

EUROPEAN UNION Free movement of goodsCompetitiveness

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OBJECTIVES

This presentation is proposed to encourage Risk Sharing in Ukraine and other Eastern European Countries. As we can see that the larger the degree of risk-sharing in a health financing system, the less people will have to bear the financial consequences of their own health risks, and the more they are likely to have access to needed care.

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OBJECTIVESThe RS was introduced to address a complex principal/agent relationship

Patients

NationalHealthService(NHS)

Physicians

Consume Prescribe Pay

Consume Pay Prescribe

Prescribe Pay Consume

The stated objectives of the RS● To secure the provision of safe and effective medicines for the NHS at

reasonable prices

● Promote a strong and profitable pharmaceutical industry to ensure sustained R&D and subsequently development of new medicines

● Encourage the efficient and competitive development and supply of medicines

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Risk-Sharing agreement reality in Russia• Is the RSA effective new drug X?• Can I use RSA experience in other cis most acceptable to the Russian Federation?ountries for drug X?• Whose experience and approach • What are the steps for RSA Drug X?• Federal or regional level?• Who is the payer and who negotiator?Development of RSA• What is the most appropriate scheme for the implementation of RSA for Drug X?• Expected outcomes of therapy with X RSA (including financial and clinical) should be evaluated?• How to implement RSA for Drug X will be monitored?• What is the cost of implementation and economic outcomes for its implementation?• What are the risks for the implementation of RSA for Drug X?Implementation of RSA• How to "convince" the state? 55

METHODS

Two major methods to implement risk-sharing: General tax revenue may be a main source of financing health services, OrSocial health insurance may be established. It is noted that 55% of some countries still has to introduce risk sharing in the aspect of social health insurance which is still the most common method perceived. In recent times some developing countries have indicated interest such as Ukraine, Russia, Cyprus, Côte d'Ivoire, Indonesia, Iran, Nigeria, Kenya and Ghana.

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Under traditional contracts, the firm’s revenue does not depend on the realisation of the success rate. Once the medicine is accepted on the positive list, the company is guarantue revenue of π* per-unit sold, independently of the actual performance/outcome of the drug.

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Incentives under traditional and risk sharing contracts (II)

Under risk sharing scheme, if the success rate is zero, the firm does not receive any money. But if the actual success rate is far above expectations, the per-unit profit π exceeds the π* level

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An intermediate solution (dotte line) is the risk sharing scheme where the firm is guaranteed some small fee per unit sold and a “bonus” per every successful treatment.

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THE PPRS IS A PROFIT CONTROL SCHEME, BASED ON RETURN ON CAPITALIn principle voluntary, in practice all suppliers participate (over 200 companies)

Companies choosing not to join are subject to an alternative statutory scheme

Prices increase are controlled post-launch (incl. line extensions after the first 5 years Contract)

● A price cut of 4.5% was imposed in 1999; 7% in 2005; and 3.9% in 2009 This is now a routine part of the renegotiations The 2009 price cut may be extended, depending on savings achieved elsewhere e.g. generic

substitution

● Free pricing for innovative products (defined as new active substances) at launch

Based on a company’s total sales of branded products to the NHS● Companies with sales to the NHS in excess of £35m per annum (about 35 companies)

must submit detailed annual financial returns (AFRs) to Department of Health AFRs are subject to negotiation and agreement

● The outcome of the AFR negotiation is assessed in terms of a return on capital (ROC) target of 21%, with a margin of tolerance from 40% to 140%

● Companies with little or no UK capital may opt for return on sales assessment with rates set by dividing the ROC by 3.5 (i.e. ROS of 6%, with a range from 4.96%)

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RESULT

A number of risk sharing schemes had already been introduced Treatments for multiple sclerosis (2002)

An example (the only one?) of a true risk sharing scheme

Patient outcomes to be monitored over a ten year period, and prices adjusted according to the outcomes achieved in practice

Lucentis (2008) Novartis agreed with NICE to pay for the drug cost of treatment beyond 14 injections

per patient

Tarceva (2008) Following initial rejection by NICE, Roche announced 27.5% interim price cut to make it

equivalently priced with competitor pending results of appeal Tarceva accepted by NICE on appeal at discounted price

Velcade (2008)● Janssen renegotiated with NHS to refund cost of the first 4 cycles if there is no clear

patient benefit

● If there is benefit, a patient can continue with next 4 cycles 61

Without the patient access scheme the ICERs for ustekinumab would be £41,000 per QALY gained compared with supportive care, £102,000 per QALY gained compared with intermittent etanercept 25 mg, and £300,000 per QALY gained compared with adalimumab

● The Committee concluded that ustekinumab could not be considered a cost-effective use of NHS resources without the patient access scheme

● The manufacturer proposed that the patient access scheme is to remain in place until either a review of the guidance by NICE or the introduction of any new formulations that would render the scheme obsolete, and that it would not be withdrawn without the agreement of NICE and the Department of Health

The estimates of cost effectiveness that included the patient access scheme were considered as reasonable

● In the manufacturer’s base-case analysis (including the patient access scheme) ustekinumab had an ICER of £29,600 per QALY gained compared with supportive care, an ICER of £27,100 per QALY gained compared with etanercept 25 mg given intermittently

Without the patient access scheme ustekinumab could not be considered a cost-effective use of NHS resources

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Potential patient numbers in each Patient Access Scheme

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SUMMARY OF RESULT

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DISCUSSION

Studies should focus on the total value provided by the drug (economic, humanistic, and operational value) and not just cost.

The use of prices during studies should be both correct and consistent.

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Transparency is a major issue

● For agreed deals, the terms will be publicly available This may have implications for other markets

● For proposed deals, there is no transparency We will know about deals proposed but rejected (and why they were rejected) only

if the company decides to reveal that information

There appears to be a limit in terms of patient numbers A recent application for a patient access scheme was rejected partly on

the grounds that 3,000 new patients a year would have significant operational implications

There appears to be an “unmet need” hurdle

● Sutent vs other products in mRCC

● A new product competing with three established products

● It appears that the scheme is virtually limited to oncology products

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CONCLUSION

Profits and price controls do not reflect the value of drugs

The PPRS does not benefit patients The PPRS does not encourage investment

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Implications for companies with innovative products

Risk-sharing will remain the exception, not the rule, for most products● But may become the preferred pricing mechanism for high priced products with small

patient populations and limited evidence of efficacy or cost-effectiveness

● IF current schemes prove successful to the DoH. Should current schemes become too difficult or costly to manage, or show no appreciable

impact on cost, risk-sharing will be supplanted by another cost-control mechanism

● No systematic evaluation of the impact of risk-sharing has yet been conducted A review is promised after two years

The onus is on companies to decide whether to propose risk sharing schemes, and what kinds of scheme to propose

● The scheme must Reflect the characteristics of the product and therapy area Offer benefits to the payer Be workable within the context of the NHS

● Where there are (or will be) competing products, a well-designed risk sharing scheme may provide a competitive advantage

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THANK YOU FOR YOUR ATTENTION

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