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When we at Clavis Insight talk to over-the-counter medicine manufacturers about managing their presence and performance in online stores, there are often still team members who consider the online channel irrelevant for their category. Their perception is that O-T-C products fill an immediate need that can be met by walking or driving a few minutes to a local store, and that the online channel can’t offer that speed or convenience.
Katherine Wilson, Clavis Insight
However, the facts tell a different story. According to market research firm Euromonitor, 10% of the $25 billion spent on O-T-C products in the U.S. in 2015 were spent online. This is ahead of a number of other categories, including packaged food, at 1% sales online, and beauty and personal care, at 8% sales online. Online O-T-C sales also grew 8% between 2014 and 2015, double the growth rate in total U.S. O-T-C sales during the same period.
Digital channel presence and performance is relevant to more than online sales alone: Some 39% of in-store health and wellness purchases are influenced by the digital channel, with shoppers researching online in advance of their trip to the store or using their mobile devices to do the same in-store, according to Deloitte, making management of online prices, product content and product reviews increasingly critical even for in-store O-T-C sales.
Today almost half of all O-T-C sales, over $11 billion, are either sold through or influenced by the digital channel, and in the not-too-distant future, new delivery and purchase models are set to accelerate growth in the online channel further.
Fast delivery will be tipping point
While O-T-C sales have been moving online, outpacing other categories such as packaged food and even beauty and personal care, we expect to see accelerated online growth as faster delivery models proliferate to meet the need for speed in O-T-C delivery.
Delivering fast relief to consumers’ doors
Retailers are in a fierce battle over the last mile of delivery that will result in same-day delivery — even one- to two-hour delivery — becoming table stakes. For consumers suffering from a headache, an onset of allergy symptoms and other sudden or unexpected ailments, these fulfilment models will match or exceed the speed and convenience of walking or driving to their local store to purchase O-T-C relief.
Amazon.com is setting a new standard for fast delivery that other retailers will scramble to match. The retailer offers a number of options for getting relief to consumer doors within a day or even an hour. Consumers in almost 30 U.S. cities who order by midday can elect to have a selection item delivered by 9 p.m. Amazon Prime members can enjoy this speedy option for free with a $35 minimum order.
In a smaller but expanding selection of U.S. cities, Amazon will deliver orders in two hours for free to Prime members through its Prime Now program, often in one hour for $7.99. Amazon has noted that O-T-C products are among the most popular purchases through Prime Now, proving that this delivery model does meet the O-T-C consumer desire for speed and convenience. AmazonFresh, Amazon’s grocery arm, offers one-hour delivery as well. Amazon’s future Prime Air, delivery via drones, will shorten the window even further to 30 minutes.
Google Express offers similar speed and convenience in a number of U.S. cities, delivering service on the same day or within two hours to subscribers at a cost of $95 a year, or for a $4.99 flat fee. Some of Google Express’ earliest partners were drug and grocery chains, such as Walgreens and Stop & Shop. This allowed Google Express to offer items that consumers don’t want to wait to have in hand, such as cold medicine and other O-T-C relief items.
Managing availability and reacting to outages quickly will become a key performance differentiator for brands as delivery timing gets shorter. Consumers looking for fast delivery for quick relief will quickly lose patience with out-of-stock products and will shift loyalty to brands that manage their online inventory better.
Easy in-store or curbside pickup
While we wait for Google Express and Prime Now to expand to more locations in the U.S. and for drone delivery to launch, omnichannel retailers are using a powerful resource — their own physical stores — to fulfill online orders.
The option to shop and pay for items online and then pick them up in or outside of a local store is proliferating across channels. Consumers can avoid roaming the store aisles looking for their item as well as the checkout line and pick up their item, often one or two hours after ordering. This is particularly appealing to people who aren’t feeling well and are eager to pick up their O-T-C medicines with minimal effort.
The drug chain CVS Pharmacy, which allows consumers to buy products online and pick them up in stores, is trying to make store pickup even more convenient by partnering with Curbside, a Silicon Valley mobile commerce firm, to offer curbside pickup at almost all of its 8,000 stores by the end of the year. The program, CVS Express, will allow consumers to use the CVS mobile app to order items for pickup. Arrival detection software will let CVS workers know when the consumer is on the way so that the order is ready in minutes. If executed well, this will be a fast O-T-C purchase option for a parent of a child with a fever or an office worker who feels a headache coming on.
Mass retailers Walmart and Target Corp. are also aggressively expanding “buy online, pickup in store” options to compete with an encroaching Amazon. Both retailers offer in-store pickup of online orders, an option that now accounts for 15% of Target.com orders. Walmart is taking this further by offering curbside pickup to 200 stores in 30 cities, with plans to expand.
Grocery retailers are also jumping into the fray to compete with emerging online grocery retailers. Kroger Co. and Meijer Inc. also offer in-store pickup at dozens of locations, with plans to expand rapidly. Brands need to work with online stores that are facilitating the shift to online by offering a robust product portfolio and managing both in-store and online availability.
New models smooth path to purchase
A proliferation of subscription models across online stores will enable expectable O-T-C purchases. Consumers with certain conditions can easily predict the timing of their next O-T-C purchases. Sleeping aids, laxatives and respiratory medicines are among those O-T-C products taken regularly and predictably. These categories lend themselves to subscriptions, which are now offered at most major online stores.
Amazon, Target.com, CVS.com and Drugstore.com are among the many stores that offer discounted prices for shoppers who subscribe to purchase a product at a regular interval, such as monthly. This benefits the consumer by offering the option to “set and forget it” and not have to think about when they need to reorder their O-T-C item. It also benefits stores and brands by locking in consumers’ repeat purchases, minimizing store and brand switching risks.
For some categories, such as vitamins, Amazon urges brands to have at least 40% of their portfolio available through its Subscribe & Save program, and O-T-C brands would be wise to set similar or more aggressive targets and monitor their portfolio’s participation in such programs across online stores.
Amazon’s Dash button allows consumers to reorder household staples with Wi-Fi connected push-button devices placed in consumers’ homes. There are Dash buttons for everything from Tide laundry detergent to Orville Redenbacher popcorn, allowing consumers to reorder items from Amazon as soon as they notice that they are running low.
The e-commerce giant has over 100 Dash buttons available today and claims that orders via Dash increased by 75% in the first quarter of 2016.
Despite the proliferation of Dash buttons, very few O-T-C brands have taken advantage of the technology. Exceptions include Airborne and Mucinex, but so far there are no analgesics, heartburn or laxative brand Dash buttons. If consumers are ordering Burt’s Bees and O.N.E. Coconut Water Dash buttons because these items are so critical to the household that they never want to run out, surely O-T-C remedies that improve consumers’ health and well-being are Dash-worthy as well.
O-T-C brand participation in subscription programs and innovative ordering models like Amazon’s Dash is growing, but there is still an early mover advantage to be won for O-T-C brands that move quickly to participate in these programs and win current and future consumer purchases. O-T-C brands should lock in a predictable revenue stream by offering consumers the right O-T-C purchase options through retailer programs.
Brands must skate to where puck is going
It’s hard to play catch-up in online stores if you aren’t a first mover, particularly at the online behemoth Amazon, where niche brands and marketplace sellers compete on an equal footing with historical market leaders.
Don’t be caught off guard as online O-T-C continues to tip. Gain an advantage in the growing online channel by partnering with online stores to make sure your products are in stock as delivery speed improves, and be an early brand adopter of innovative delivery models — such as curbside pickup and Dash — that meet the O-T-C consumer’s shopping missions.
Katherine Wilson is director of marketing insights at Clavis Insight, an analytics firm that provides daily online store and digital channel analytics for global consumer products brands.
