Consider the “parts” that comprise most modern-day chain pharmacies. A simplified list of parts might include drug dispensing, retail offerings, supply chain, technology and brand. Many of these parts are clearly regarded as commodities today. Drug dispensing is clearly treated as a commodity by payors who argue bluntly that they won’t overpay for a commodity that is in oversupply in our country. Run-of-the-mill retail offerings have largely become commoditized in the age of Amazon. Supply chain, when viewed as logistics from supplier through distribution centers to stores, qualifies as a commodity; it can be sourced readily from 3PLs because it is a commodity function. Technology can be a competitive weapon for sure, but if used only for operations then it too is a commodity. (Worryingly, many technology packages in our nation’s chain pharmacies are beyond their useful life and risk being viewed as liabilities — worse than a commodity.) Brand is distinctive. It carries importance with customers who trust chain pharmacies to help care for themselves and their families.
The obvious challenge with commodities is that one cannot command a premium for commodities. Worse, commodities are often subject to deflation. To compete in an environment of commodities, scale economies are essential. With commodities, we focus on ever-greater efficiencies.
While many of the parts that comprise our chain pharmacies may be commodities, fortunately customers are anything but that. Indeed your loyal customers are extremely valuable. And you have the potential to turn far, far more of your everyday customers into loyal customers … provided that you don’t offer them only a commodity experience built from commodity parts.
As a senior leader in chain pharmacy, the responsibility you bear is making the whole greater than the sum of the parts. How can you reliably do that when so many of the parts are increasingly commoditized?
If customers are not commodities, they lead us to several considerations. First, invest deeply in customer research. Three questions may be instructive to help you gauge whether you’ve done enough in this regard:
- Do a large number of your customers express that you know a frightening amount about them? If not, then your capability is not yet strong enough.
- Have you made uncomfortably large investments in customer insights and customer relationship management? If not, then, candidly, you probably are not yet committed to a customer-centric approach.
- Have your processes been reengineered to be customer-oriented so each customer would feel special? If not, then why would a customer care that they are shopping with your company?
Second, educate your leadership team on Design Thinking. A more explicit name for this management topic could be Innovating Products and Services Through Deep Customer Research. I would observe that executives that have immersed themselves in Design Thinking come to appreciate what will truly win with customers … and would tend to have distinctive solutions. Questions to ask yourself:
- Is anyone on my leadership team earnestly pushing the customer agenda as frequently and loudly as they push the commodity functions’ agenda? If not, then it’s no wonder customer needs are underappreciated. Some organizations create a chief customer officer to evangelize this approach. Others disperse the knowledge and responsibility.
- Do we systematically evaluate R-W-W (Is it Real? Can it Win? Is it Worth it?)? If not, you should. It’s a deceptively simple, yet powerful framework for evaluating (and improving upon) customer-centric ideas. Your leadership would benefit from the habit of screening ideas with such a framework.
Finally, make customer engagement innately intuitive. So much customer engagement is now digital and omnichannel. And since the pandemic, this situation has jumped years’ worth of change in only a matter of months. A few questions you might consider in order to gauge whether customer engagement is innately intuitive:
- Would customers say your user interface is a forethought or afterthought? If an afterthought, then the situation is probably worse than you think. You’ve experienced intuitive user interfaces. Your customers expect that from you to earn their business.
- Do we, every day, test ideas, measure results and deploy improvements? If not, someone else is. They will be making the user experience more productive at a faster pace than you and will ultimately attract your customers to their platform. A-B testing is a specific capability that many historically brick-and-mortar retailers have underdeveloped even as they have improved digital capabilities.
To create outsized value greater than the sum of the parts, you must unlock the surplus value that high-value customers would offer. In turn, that will allow you to attract more of those customers, growing value significantly further.
Commoditization pressures will persist. In health care, it will persist for a generation until our health care spend as a percentage of GDP is in line with other countries and Americans become satisfied they aren’t overpaying for quality health care. For brick-and-mortar retail, it will persist as long as Amazon continues to gain market share. As the leader responsible for growing value, you must accept commoditization where you see it and compete accordingly. Simultaneously, you must embrace customer-centric capabilities to integrate and reorient commodity parts in order to deliver value beyond the sum of your company’s existing parts.
Todd Huseby is a partner at Kearney. He can be contacted at [email protected]