Back when my father-in-law first went to work as a pharmacy student, there were no fewer than 4 different independent pharmacies in downtown Iowa City, Iowa. There were numerous other independent pharmacies in the area, as well as a few different local and national chain pharmacies. Pharmacies were local businesses. Each pharmacy primarily serviced its immediate area in town. If you lived in one part of town, you were very likely to utilize one of the apothecaries nearest to your home or work.
Today, we are one of the only remaining independent pharmacies in the area, and chain pharmacies are on most every major intersection. More importantly, we have entered a very different era in pharmacy. While there are still a significant number of pharmacies in Iowa City, we also have a large number of other pharmacy competitors: mail order and internet pharmacies have proliferated wildly in the past few years. None of these competitors reside in our area.
This very fundamental change in our competitive landscape makes it important to ask ourselves an important question: are we, as an independent pharmacy, ready to compete with pharmacies that do not even have a local presence? Or, to put it another way — does an independent local pharmacy want to compete, and how does it do this?
These are not easy questions, and there is no one right answer. Because many of these newcomer pharmacies offer services like compliance packaging, something that we have used as a competitive advantage for years, we must compete. We must have a plan.
We decided awhile back that we could not let zip code define our pharmacy. In today’s market, our reach has to be far broader than it has ever been. Before we serviced patients in a 5 mile radius. If we are to compete today, our service area needed to grow at least by a factor of 10.
To accomplish this, we expanded our delivery service. We went from one vehicle and a part-time driver, to having two vehicles and multiple drivers available. Before, a long delivery was 10 miles round trip. Today, we routinely will make deliveries 50 miles away or 100 miles round-trip. We also still leverage mail and parcel services for less time-sensitive needs, or where it makes more economic sense.
This increase in service area has, of course, increased our delivery and postage expenses. For delivery, if you use a rough approximation of delivery costs at $0.58/mile (the standard IRS mileage rate for 2019) and add in salary plus fringe, our per-delivery cost works out to $5-7. This may seem high, but in fact it is a value if you compare it to postal or parcel services. USPS Priority Mail Flat Rate pricing starts at $7.50 and goes up from there. Local delivery has the additional advantage of being more prompt: same day service beats even Amazon’s best delivery options in my area of the country.
One note on our delivery service: we offer free delivery. For this reason, we have to put some reasonable restrictions on delivery so that we are not delivering one item to a location 5 different days each week. We delivery at no charge to a given patient once a week. Additional deliveries are billed at $5 each unless the reason for our repeat delivery is due to issues on our side. This has been a nice compromise for our patients, and it helps optimize our deliveries as well.
There are two main upsides to expanding your zone of influence your pharmacy maintains. First, you can more easily maintain your current customers as you can meet or exceed expectations of the new competitors. Second, it opens doors to new customers that were previously outside your zone of influence.
Additionally, delivery has an additional and significant potential bonus for a pharmacy. Our drivers are our employees, and they are directed to be observant. When they deal with a patient, they are to assess if there has been any notable changes since their last visit. This allows us to become alerted to social determinants of health issues, or other health changes in these patients and potentially refer the patient to help if needed.
In our case, our willingness to expand our zone of influence has gained us many new patients we previously would never have seen. Each patient has not only potential prescription revenue, but they are also a new target for our other services and offerings, many of which are more profitable to our business than prescriptions alone.
All of this has happened without us actually advertising our extended service area. Admittedly, a lot of this is because we are well known regionally for some of our unique service offerings as well as our overall customer service. In fact, this has actually created a few problems, as we are now receiving solicitations to service customers that are outside of our state. If we wish to service these customers, we will need to license our pharmacy into additional jurisdictions.
Expanding your pharmacy’s zone of influence outside of your zip-code is something all independent pharmacies need to consider. It is an opportunity to pick up profitable new opportunities. It is just another way to Make Every Encounter Count!