Amazon is making waves once more with the launch of Amazon Pharmacy, an extension of the online marketplace that sells prescription medication easily, fast, and without middlemen or tiring processes. As a result, the e-commerce giant is bound to disrupt the pharmacy industry.
There’s no denying it: Amazon is known for disrupting industries left and right and has a very long track record of doing so. The internet behemoth, which started by disrupting the bookstore business, has consistently expanded its portfolio during its 27 well-lived years, significantly disrupting retailers and revolutionizing how humans research, browse and purchase goods and services. And not only that, but Amazon also rattled the online cloud computing and storage industry with Amazon Web Services, the company’s very own on-demand cloud computing platform. Not content with that, three years ago, they purchased PillPack. This full-service online pharmacy revolutionized the way millions of Americans engaged with the pharma business, helping them get their prescriptions fulfilled without stepping one foot on a doctor’s office or pharmacy. With the purchase of PillPack, the internet company started dabbling in the pharma and healthcare sectors and disrupted the prescription business with outstanding success–no surprise there. Flash forward to November 2020, when Amazon decided to further expand its presence in the healthcare industry with the launch of its very own pharmacy: Amazon Pharmacy.
The largest online company globally, with a market value of $1.7 trillion, and the American pharma ecosystem may seem like a mismatch. Yet, a company that has such an impressive breadth of resources could, without a doubt, disrupt the pharmaceutical industry and gain a foothold in the convoluted US healthcare system. The retailer’s 200 million Amazon Prime members, coupled with its extensive supply chain, virtual assistants, and data platforms, are the perfect breeding ground for the company’s path to disrupting the healthcare and pharma industries. And, since their mission is to be “Earth’s most customer-centric company,” Amazon is bound to transform medical care delivery and improve the entire patient experience, from the onset of illness to the fulfillment of prescriptions.
But, how will Amazon be able to disrupt the pharmacy market? Let’s find out.
What is Amazon Pharmacy?
The US pharmacy market is worth around $338.2 billion, a tempting figure for the online commerce empire to tap into. Bezos’s ambitions for Amazon are relentless, and rightly so; doesn’t everything he touches turns to…well, gold? That’s probably the reason behind the marketplace’s never-ending success: its founder’s Midas touch. Now, he has set laser eyes on the pharmaceutical sector, a move surely made to tap into the unmet needs of patients and the existing gaps in customer satisfaction that the industry has been known for. In this regard, his latest enterprise, Amazon Pharmacy, makes one thing abundantly clear: Amazon wants to redefine how people get their prescription drugs.
Amazon Pharmacy launched on November 17th, 2020, in the US after purchasing PillPack two years earlier. Amazon Pharmacy is a store inside Amazon that allows customers to order prescription medications online and get them delivered to their homes. Users can complete pharmacy transactions on their preferred device using Amazon’s app or website via their secure pharmacy profile. Using this profile, users can add their insurance information, manage their prescriptions, choose payment options, and select their preferred delivery method. Moreover, the marketplace is completely HIPAA compliant, meaning it securely collects user information and does not share Protected Health Information (PHI) or any other data without the customer’s permission.
To clear things up a bit, here’s how Amazon Pharmacy works: After creating their account on Amazon Pharmacy, the user enters all the data relevant to their personal and medical profiles, prescription data, and their insurance information. The patient then lets their doctor’s office know that they want their prescription filled through Amazon Pharmacy. The doctor’s office sends the prescription to Amazon, just as they would any other local pharmacy. Then, with the patient’s insurance information already in Amazon’s system, they send the patient the copay price (with insurance) or the total price (without insurance). Afterward, the patient can choose the better pricing option and get their medication discreetly packaged, delivered to their home.
Additionally, Amazon Prime members have access to free two-day delivery and, for those without insurance, Amazon Pharmacy offers up to 80% discount off generic and 40% off brand name medications. And, in addition to the online platform, Prime Members who can’t–or won’t– use the Amazon app will also be able to take advantage of these discounted prices at 50,000 participating physical pharmacy branches across the US. These incredible–and unheard-of–savings, coupled with the ease of delivery and hassle-free prescription filling, make access to medication as convenient as performing any other purchase on the online store.
In a press release, TJ Parker, Vice President of Amazon Pharmacy, said: “We designed Amazon Pharmacy to put customers first – bringing Amazon’s customer obsession to an industry that can be inconvenient and confusing,” He also stated: “We work hard behind the scenes to handle complications seamlessly so anyone who needs a prescription can understand their options, place their order for the lowest available price, and have their medication delivered quickly.”
The launch of Amazon Pharmacy was a bold move, but it was far from surprising. The PillPack purchase, Alexa becoming HIPAA compliant, and the launch of Amazon Care, among other healthcare-oriented actions, gave us a peek into Amazon’s intentions to disrupt the pharma and healthcare industries long before Amazon Pharmacy’s launch. Nonetheless, many were shaken by the announcement, starting with its competitors, who experienced firsthand the ground shaking from Amazon’s stomping footsteps. For instance, Walgreens’ shares fell more than 9% by the afternoon of Amazon Pharmacy’s launch, while CVS Health’s, the largest pharmacy in the US, dropped 9%. Rite Aid also took a hit with a loss of over 6%, and GoodRx’s, which offers pharmacy discounts, saw its shares fall by a whopping 20%.
But, what’s all the fuss about? Why is the market so shaken? Why is Amazon Pharmacy bound to disrupt the pharmaceutical industry and redefine how people purchase medications? We’ll try to answer these questions and offer a glimpse into why Amazon’s subsidiary pharmacy is becoming a springboard for the e-commerce giant to, once again, take over another industry.
How Can Amazon Pharmacy Disrupt the Pharma Industry?
Better Customer Experience
Long gone are the days when customer service was a bottom-of-the-barrel aspect of business success. Today, in the age of modern technologies, customer experience has become pivotal in business success. As a result, companies are beginning to understand the importance of organizing their operations around what customers want. On this front, Amazon is a pioneer. Since its birth, the e-commerce monster has always pivoted on the principles of offering superlative customer service and efficiency in purchasing products at accessible prices. Unfortunately (for us, not for Jeff Bezos), that’s precisely what the pharmacy industry lacks. Even after the industry took its business online and started experiencing a CAGR of 14.26%, with a forecasted $107.53 billion by 2025, the sector’s lack of customer service awareness still haunts it. Today, with the pandemic driving online commerce forward and chronic illnesses booming, the online pharmacy business has already become a gargantuan industry. Still, however substantial the industry’s growth, its shortcomings regarding customer service and fair pricing models are evident.
According to a survey conducted by e-satisfaction.com, from 23 online pharmacies and more than 58.000 user experiences, 20,81% of customers were dissatisfied with the experience and would not buy from the online pharmacy again. Moreover, these disappointed customers rated online pharmacies with a score of 4,32 out of 10 regarding customer service. They also gave them a 4,49 out of 10 when it came to shipping and delivery times. These figures clearly show a pervasive dissatisfaction with the way online pharmacies and traditional pharmacies, for that matter, handle customer service, which isn’t new nor surprising.
The traditional focus of the whole pharma industry, pharmacies included, has always been the product. Developing, launching, and selling a new drug has always taken the front stage; issues with customer satisfaction are tackled later on, if at all. As a result, customers and their journeys are being snubbed, and their pain points aren’t adequately addressed, creating a gap in customer satisfaction that can significantly impact the industry’s revenue. And this is precisely where Amazon Pharmacy gets the upper hand.
Since its inception, the internet giant has put the customer and their needs first. Amazon has consistently set the standard for customer service across all the industries it touches, and now, it has leveraged its success to edge forward in the healthcare sector. This customer-service-oriented approach to business is imperative in healthcare due to the sensitive nature inherent to the medical industry. In other words, poor customer service in healthcare could result in lives being lost. Moreover, healthcare users are usually under a lot of stress or afflicted by their illnesses and have no patience for poor customer service. And, with the proliferation of online commerce brought on by the pandemic, they are increasingly demanding higher quality services, especially when it comes to their medications. Additionally, users’ expectations for their online pharmacies are being shaped by experiences in other sectors, meaning that they are demanding the same quality of customer service across all the platforms they access daily. On this point, Amazon’s superiority is evident and is one of the main drivers of its disruption of the pharma industry.
TJ Parker, Vice President of Amazon Pharmacy, said in a statement: “We designed Amazon Pharmacy to put customers first — bringing Amazon’s customer obsession to an industry that can be inconvenient and confusing,”
If, as the VP said, the company manages to transfer their customer-first approach to their subsidiary, then Amazon Pharmacy will have a competitive edge over other online and brick-and-mortar pharmacies that will prove hard to beat. Likewise, the marketplace could also kindle a transformation in pharma’s traditional customer service inadequacies and force them to put the customer before the product. For most pharmacies and pharma companies, this hyper-focus on the customer represents a significant shift in thinking; it is business as usual for Amazon.
More Transparency in Prices
Aside from its outstanding customer service, Amazon’s pricing strategy is one of the main drivers of its neverending success. So, it is only logical that Amazon will maintain its popular pricing model to tackle the inefficiencies within the pharma and healthcare industries with its new venture into the pharmacy business. These inefficiencies can be a vexing problem for patients because prescription drugs sometimes are cheaper when paying in cash or without insurance coverage. However, pharmacists are barred from telling patients about these pricing discrepancies under the traditional pharmacy pricing model due to existing gag clauses between insurance companies and pharmacies. And even though a bill to ban gag clauses in specific plans has passed in Congress, the issue remains.
Another issue that plagues the pharma industry in the United States is the skyrocketing prescription drug prices. The US prescription medication spending exceeds $500 billion a year and grows three times faster than the country’s inflation. Furthermore, the prices for prescription drugs in the US are four times higher than those in other first-world countries. This phenomenon happens because prescription drug prices are relatively unregulated, enabling pharma companies to increase medication costs regardless of demand or inflation. Another reason for these pricing issues is a lack of information symmetry and availability. Take grocery shopping, for instance: you find different brands of coffee with their prices clearly labeled and the various products’ information available for comparison.
In contrast, patients and doctors don’t have medication pricing at hand in the point of care. They don’t know which drugs are covered by insurance, which are cheaper when paid out-of-pocket or if the price differs between pharmacies. Unfortunately, the US healthcare system’s labyrinthine workarounds and regulatory loopholes have not allowed for price transparency. Yet, with Amazon Pharmacy, this might change.
Since its dawn, Amazon Pharmacy has made waves thanks to the affordability of the medications they sell and the transparency of their pricing model. Like shopping on Amazon, where users have a stellar browsing experience, Amazon Pharmacy offers the same perusing experience, making it easy to discover available medications and compare them to check prices and savings benefits. Having this broad vision of what’s available helps users choose the best price option.
“Before checking out, customers can compare their insurance co-pay, the price without insurance, or the available savings with the new Prime prescription savings benefit to choose their lowest price option,” Amazon’s spokesperson said.
Amazon Pharmacy also has an interface that allows users to enter their Social Security number to visualize their insurance benefits. By doing so, they can pull up two price options: one with their insurance and one with their Prime discount or any other savings available for them at the time. In addition, the e-commerce giant also recently announced that Prime members would have access to a six-month supply of several prescription medications, starting at $6 per semester, and access to knowledgeable pharmacists 24/7 to answer questions regarding medications and prescriptions.
Amazon has the technology, infrastructure, capital, and frameworks to disrupt the pharma industry by lowering medication prices and giving patients access to complete drug information and comparison options that traditional brick-and-mortar pharmacies lack. And although Amazon Pharmacy is hardly the first online pharmacy to deliver these benefits, it is the first to combine outstanding customer service with affordable pricing models and browsing experiences that promote patient engagement and make access to medication easier. Furthermore, with the company’s potential to streamline their entire pharmaceutical supply chain, Amazon can (and probably will), at some point, get involved in the manufacturing of generic medications, just as they have successfully done with electronics, home goods, and office supplies. If this happens, Amazon could dramatically reduce generic drug prices, leading competitors to rethink the costs of their medications and revise their manufacturing processes to keep up.
Data Leveraging For Better User Insights
An undeniable aspect of our tech-ridden lives is that data is the new gold, a statement fully supported by research. According to McKinsey, companies that leverage user behavior data to generate insights surpass their competitors by 85% in total sales growth and more than 25% in gross margin. For companies of all sizes, shapes, and forms, the future now depends on using and analyzing data effectively. And no one understands this better than Amazon. For many years now, the company has effectively gathered Big Data from users’ browsing habits and used it to build its well-known recommendation engine. In plain English: the more Amazon knows its users, the better it can predict what they want. And, once Amazon identifies what a customer wants, its algorithm streamlines the persuading process by recommending specific products instead of generic, useless ones. Now imagine this process taking place within Amazon’s very own healthcare space.
As you can probably guess, Amazon doesn’t enter new markets solely for immediate revenue. Instead, the internet retailer focuses on amassing enough valuable user data to develop and escalate its future offerings. However, in this case, selling medications online, offering same-day delivery, and fulfilling prescriptions electronically has all already been done before. Other existing business models, like GoodRX, already provide significant discounts on prescription drugs for users with or without insurance. So, what is Amazon’s angle? Data. The more users who buy medication through the company’s platforms, the more data about them it gathers to process and collect insights to scale future business approaches. And now that Amazon has inserted itself in the healthcare space, it can leverage user health and personal information such as prescriptions, illnesses, medical records, and even questions asked to Alexa to garner priceless consumer insights.
Consequently, Amazon can use this data to suggest foods, supplements, vitamins, and other health-related products, to help users complement their treatments and tackle their conditions from several angles. In addition, the platform’s algorithms could also identify purchase patterns and compare them with the user’s health information and current medications to help prevent illnesses and improve outcomes. On this point, studies have found that almost 80% of health outcomes are determined by social determinants such as the food we eat or where we live. So, this data exchange can result in a win-win situation for both the platform and the user.
In other words, with its neverending data pool, Amazon is doing what other pharmacies can only dream of: it’s analyzing data from drug and health-related product purchases and searches to understand and predict user behaviors. By doing so, the company can design and offer desirable services for their users instead of creating a product first and then selling it, which is what pharma has traditionally done. And still today, we see drug manufacturers and sellers with a clouded, outdated vision of a patient’s healthcare journey. Most of them rely on old user segmentation studies and manufacture medication without understanding the modern patient’s needs. In contrast, Amazon has a clear view of user journeys and knows that consumers are willing to offer feedback and inform who they are and what they want. Tapping into this feedback and collecting valuable insights can help pharma companies and online and brick-and-mortar pharmacies rise to Amazon’s level and leverage the data within their reach.
The frame of reference that Amazon derives from their data pools can help the online retailer cross-sell medications and take charge of the customer experience, attracting more clients, suppliers and helping the company build its own pharma chain, from manufacturing to delivery. This way, it can set a new standard for online pharmacies and disrupt the pharma industry by doing what they do best: be the most customer-centered company in the world.
So...Will Amazon Disrupt the Pharma Industry?
Amazon or no Amazon, the truth is that the rising costs of medical care and pharmaceutical drugs are forcing patients to hunt for better, more affordable, and efficient alternatives. Unfortunately, the existing pharma model and most pharmacy supply chains are middlemen-heavy, inefficient, not user-centric, and increasingly expensive. This situation isn’t sustainable for long and has been exacerbated by the pandemic, forcing stakeholders to search for different ways of offering and accessing medical services and items. This situation has inspired the market entry of more agile and ambitious players like Amazon Pharmacy, igniting a novel demand for more user-centric medical care. This phenomenon is a huge wake-up call for the traditional pharma industry and their byzantine approaches to customer service.
Nonetheless, we can’t say for sure that Amazon Pharmacy will disrupt or represent a threat to the entire pharmaceutical sector without making a crucial clarification. First, the pharma industry as a whole is too broad. It covers large pharmaceutical companies like Pfizer or Novartis that research, develop, manufacture, and distribute their proprietary medications. It also covers pharma organizations that do the same as those mentioned before but with generic copies at significantly lower prices; other companies do not research or develop but make a profit packaging and selling the medications that other companies make. And then we have pharmacies, whose role is merely to dispense and sell medicines that other companies manufacture—the latter ones being the most potentially impacted by Amazon’s entry into the pharma realm.
With the entry of Amazon into the sector, the pharmacy industry is at risk of feeling the impact of an algorithm-driven e-commerce model that has been successfully amassing market shares and a growing client base for almost three decades. In fact, before Amazon Pharmacy launched, Forbes reported that three out of five surveyed Amazon Prime members said they would like to have their prescriptions delivered by the retailer’s pharmacy. Why are these numbers significant? Are they disruptive enough? Remember earlier when we said that the number of Prime members reached almost 200 million this year? Suppose 3 out of 5 of those 200 million users left their pharmacy of preference and switched to Amazon Pharmacy as their primary medicine dispenser. In that case, we’re talking about 60% of potential user adoption or 120 million people.
On the other hand, we have Amazon’s extensive supply chain and logistics network. Where other pharmacies had to build a supply and delivery system–nearly–from zero when they went online, Amazon already had a foothold on that front. Thanks to the internet giant’s long-established logistics empire, Amazon Pharmacy, from the onset, had the power to deliver prescriptions to patients in various ways. Some of these include mail orders, two-day free delivery, two-hour delivery with Prime Now, and even instant pickup physical points at Amazon Lockers (or at Whole Foods stores when pharmacies are established). Also, Amazon’s remarkable logistics undeniably simplify the complex supply chains inherent to medication distribution, meaning that where other pharmacies may experience hiccups, the e-commerce platform excels. On that same front, Amazon also leverages its existing user distribution networks, reducing supply chain and transportation costs. Amazon can transfer these savings to users to provide better discounts and improve the overall experience of buying on Amazon Pharmacy.
Additionally, with the increasingly popular customer-centric model in the healthcare sector, Amazon’s recognition of the friction within medical and pharmacy encounters can be highly disruptive. This way, Amazon’s obsession with positive customer experience, when transported to its affiliate pharmacy, will likely force the pharmacy industry and its leaders to follow suit. So, focusing on delivering superior or equal customer experiences will be pivotal for competing pharmacies to keep up with the internet giant. Furthermore, the existing undying loyalty to the Amazon brand, the convenience of having an established online platform, and the current state of things where mail order is crucial to retail has the potential to take Amazon to the top of the pharma industry.
So, is Amazon Pharmacy’s arrival a disruptive threat to the pharma industry? We think it can be depending on the type of companies it competes with and the benefits it leverages to remain above them. Namely, we don’t see large pharma companies such as Pfizer, nor monster pharmacies such as CVS or Walgreens being immediately threatened by the e-commerce company’s incursion in pharma. They are too big and will surely notice the giant’s steps and plan accordingly. However, Amazon has the upper hand when it comes to the relationship with the end-user, exerting some pressure on its competitors, who will have to keep up or suffer the consequences. Certainly, many other large pharmacies have an established loyal client base and even have a higher market margin than Amazon Pharmacy. However, the pressure is bound to increase with time as Amazon starts scaling its offerings and decides to delve deeper into the healthcare sector, maybe acquiring a generic manufacturer or even beginning to develop its proprietary medications. If this happens, it can revolutionize the entire pharma sector, from large manufacturers to suppliers and small pharmacies. It sounds far-fetched, but we’re all very familiar with Amazon’s track record.
Disruption is something Amazon knows too well, as we can appreciate the retailer’s proven impact on home entertainment, technology, voice assistants, books, and groceries. We don’t think its penetration of the healthcare and pharma spaces is any different. Why should it be? The massive company has everything to disrupt pharma. If it can efficiently and continuously respond to patients’ needs, it will improve the quality of care, which is the ultimate way of disruption. And whether now or further down the road, Amazon’s entrance into the healthcare and pharmaceutical ecosystems will do its part in creating an entirely different, better, and more inclusive healthcare experience.
As an internet company that made its name thanks to its user-centricity and efficient logistics, Amazon is a match made in heaven for the currently fragmented pharmaceutical industry. Everything Amazon knows about its customers, and its established supply and delivery chains can be applied to its new pharmacy enterprise to leverage its endeavors of disruption. Sure, it will take some time for Amazon Pharmacy to gain market share and dethrone its long-established competitors, but, as we’ve seen before, Amazon doesn’t play around when it comes to gaining ground on new enterprises. Furthermore, Amazon Pharmacy will likely challenge the status quo user experience within the pharmaceutical sector, promoting a reimagining of the pharmacy-customer interactions.
So, we do think Amazon Pharmacy will disrupt most aspects of the existing pharmacy industry. Will it happen today? No. But we don’t have to wait to conclude that the internet retailer is bound to become a wrecking force in the healthcare and pharma ecosystems. We already know how Amazon functions, its technology, logistics power, supply chain, and loyal customer base. We don’t need a crystal ball to know that Amazon will position itself as a disruptor in yet another industry: healthcare.