The COVID-19 pandemic created an explosion in e-commerce growth. The health care e-commerce space, in particular, experienced massive growth and is estimated to reach $435.8 billion in revenue by 2025.

Andrea Leigh

Despite surging growth, this category faces a huge challenge: profitability. Health care products have narrow margins due their low retail selling prices and often find themselves in retail pricing wars. Success in this space is largely dependent on managing profitability.

Here are a few profitability tactics to help retail pharmacy brands protect profit and drive sustainable growth in ­e-commerce:

• Expand advertising strategies to focus on more than high-traffic keywords

With intense competition for keywords, especially broad search terms like “pain relievers,” brands should consider a more comprehensive and nuanced approach to their ­advertising.

Successful brands make use of Amazon’s Demand Side Platform (DSP) tools, which provide brands with enhanced targeting capabilities and access to customers across different Web properties. For example, these tools allow brands to target people who have shopped in that category or who have looked at a competitor’s products. There’s less competition within the DSP advertising space right now, and it offers an alternative to the competitive keyword bidding process.

Brands should be aware that Amazon uses profitability as a factor when deciding which products to put in front of customers. If the products aren’t profitable for Amazon, they might get blocked from advertising or suffer other negative effects, such as lower search rankings. While other platforms do not currently factor profitability into their advertising algorithms, keeping an eye on retailer profitability is a good cross-platform best practice.

• Reduce and rethink assortment

Many brands are still experiencing supply shortages due to a wide range of pandemic-related shipping issues, such as not having enough long-haul truck drivers to move product between warehouses and shortages of shipping containers. Brands may consider strategically reducing their assortment to ensure they have enough of their most important items. For example, if a brand sold 100 SKUs of vitamins, they could reduce it to 75 to ensure they can meet demand for their most profitable SKUs.

Driving cost out of the product is another critical component of e-commerce assortment planning. Brands can sometimes make their products more profitable by changing the packaging to reduce bulk or weight. For example, supplements sold in glass jars, which are heavy and expensive to ship, may be replaced with plastic. This may not be the most sustainable option, but will improve e-commerce profitability.

• Synchronize promotions

The traditional method of promotions where each retailer gets its own week to be on sale is no longer a sustainable strategy. Now, e-commerce retailers scrape one another’s sites and price match one another, resulting in a product being on sale for several weeks.

Brands should consider moving to synchronized promotions, where each retailer holds a brand sale at the same time. This aids the retailer’s profitability because it doesn’t have to price match promotions that it’s not receiving funding for and it reduces the amount of price matching that occurs. Synchronized promotions also leads to less confusion for consumers since they can search on Google and see that all the retailers are at the same price.

• Differentiated assortment for cross-platform success

Brands will want to tailor products to the unique needs of each retailer. For instance, Target is known for prioritizing brands that are fresh and on trend. Brands should consider offering Target their new and upcoming products, particularly in the health and beauty categories. For Target, it’s about understanding customer preferences and industry trends, then building assortment and product development accordingly.

Walmart, on the other hand, is focused on value-driven products. Since Walmart seeks products with the lowest cost, a brand will want to focus on bulk quantities to maximize profitability. Brands should also consider removing features or ingredients to give Walmart a version of the product that has the most value for the consumer. For example, a supplement manufacturer might offer Target an organic line of protein while giving Walmart its nonorganic line.

• Focus on long-term strategy

Best-in-class brands have found ways — throughout the pandemic — to increase their profitability by working on their long-term strategy.

There was an enormous lift in supplements related to wellness and immunity during the pandemic. Many brands that operate in this space saw a large uptick in e-commerce sales as a result. Those that took this sustained lift as an opportunity to focus on longer-term strategies put themselves in the best position to come out ahead post-pandemic. For example, consider a brand that sells immunity gummies. During the pandemic, it prioritized production of this SKU and had plenty of supply to meet the increased demand. It then used this opportunity for increased profitability to address a key consumer expectation, like sustainable packaging.

Brands that sell in the health care and pharmacy space can expect to see continued growth in e-commerce. This is a great opportunity, but it also comes with several challenges, profitability being one of them. Brands that proactively rethink their advertising, assortment, promotions and cross-platform strategy are ultimately setting themselves up for long-term success, now and in the future.

Andrea Leigh is vice president of strategy and insights at ideoclick.