On June 28, Amazon announced the acquisition of online pharmacy PillPack. And thus the company shouldered its way into yet another industry.
The acquisition’s impact was immediately felt — CVS, Walgreens, and Rite-Aid stocks lost a collective $11 billion in value that same day. Talking heads and financial analysts covered the news as if the earth’s tectonic plates had rearranged themselves.
All this despite the fact that PillPack generated a mere $100 million in sales last year (the total pharmacy spend in 2017 was $450 billion). Amazon itself generated $177 billion in net sales revenue in 2017. But PillPack has something incredibly valuable to offer Amazon — specifically a new way to engage customers, one with the potential to create even deeper relationships than it already enjoys. And that has traditional pharma retailers — for whom repeat drug purchases are an important source of customer retention — searching for a defense.
The Secret Sauce
To understand why PillPack was worth a billion dollars to Amazon, it pays to understand how central Relationship Commerce is to their value proposition. Key to this is the company’s PharmacyOS platform.
Launched in June 2017, PharmacyOS is a software tool that allows both pharmacists and consumers to automate many of most annoying elements of getting their prescriptions.
PharmacyOS automatically requests refills, confirms co-pays with insurers, warns of potential drug interactions, and ensures that all prescriptions are on the same purchasing cycle.
“For customers,” cofounder TJ Parker explained at the time, “this means streamlined service, fewer back-and-forth phone calls, and more control over how their end-to-end medication plan is managed.”
Taken together, PharmacyOS’ features enable PillPack to establish a relationship with consumers that makes it an indispensable part of their lives, one that helps them stay healthy without hassle.
A 2006 study published in Journal of the American Medical Association tested the efficacy of pharmacy care programs (such as the one PharmacyOS enables) with patients aged 65 years or older taking at least 4 chronic medications.
“Six months after randomization,” the study found, “the persistence of medication adherence decreased to 69.1% (16.4%) among those patients assigned to usual care, whereas it was sustained at 95.5% (7.7%) in pharmacy care (P<.001).”
PharmacyOS’ features enable PillPack to establish a relationship with consumers that makes it an indispensable part of their lives
Or, as Amazon’s CEO of Worldwide Consumer Jeff Wilke blandly put it in a press release announcing the acquisition, “PillPack is meaningfully improving its customers’ lives, and we want to help them continue making it easy for people to save time, simplify their lives, and feel healthier.”
What’s it Mean for the Competition?
Walgreens CEO Stefano Pessina was faced with a quarterly earnings call mere hours after the PillPack deal was announced, and it was pretty much all analysts wanted to talk about.
“It is a declaration of intent from Amazon,” Pessina said. “[But] pharmacy work is much more complex than the delivery of a certain pills or certain packages.”
Despite Pessina’s apparent sangfroid, the acquisition only underscores how major pharmacy chains need to engage their customers at a deeper, more consistent, level. And they’re doing their best to keep up:
CVS Health’s proposed $69 billion acquisition of Aetna would see its retail pharmacies folded into walk-in clinics, offering consumers one-stop shopping for health care.
Rite Aid shareholders vote on August 9 on a proposed merger with grocery chain Albertsons, thus combining the country’s third-largest pharmacy chain with the second-largest supermarket chain.
And Walgreens themselves are in the process of adding more health care services to their retail locations. They’ve recently partnered with insurers like UnitedHealth Group and the lab testing giant LabCorp.
Major pharmacy chains need to engage their customers at a deeper, more consistent, level
The message is clear: by becoming a more indispensable, more inescapable, part of their customers’ lives, major pharmacy chains see a chance for survival. But if traditional pharma wants to succeed, they’ll have to do more than merely make their retail stores omnipresent. Successful Relationship Commerce is built upon more than location — until Walgreens et al. can engage their customers with effective recommendation engines, predictive refill prompts, and frictionless reordering, they’ll soon find that Amazon has made off with a considerable share of their revenue.