August 20, 2020
Inside: Strategically taking a financial hit on front-end items can make your pharmacy more profitable.
With slim margins on prescriptions, independent pharmacy owners strive to maximize the profit on their front-end products. But by strategically selling select front-end items at below cost, pharmacies can actually grow their business.
These below-cost items are called loss leaders, and picking the right loss leaders can convince new patients to come into the store and not only buy the discounted item but additional full price products as well.
If you choose the right loss leaders, patients will come in to buy the discounted product and then purchase full price products that will make up for the loss, and then some.
Not every product in your pharmacy is well-positioned to be a loss leader. Obscure products won’t draw people into the store even if they are offered at bargain barrel prices. Good loss leaders inspire people to keep browsing and add complementary full price items to their basket.
Use these approaches to loss leaders to help you choose products that will both bring people into the store and encourage them to buy more.
By offering free samples of products, won’t be able to sell the merchandise you opened, but you may convince patients to purchase items they wouldn’t normally add to their basket after giving it a try.
Free samples give patients experience with products they didn’t realize they needed, turning ambivalence into enthusiasm. In your pharmacy, cosmetic and skincare items benefit from free sampling, as patients can see how they feel when they are applied. Even though you’re technically taking a loss on the opened sample products, you’ll make up for it with additional sales.
If you are launching a new service or trying to increase participation in an existing one, a trial period can provide the same enticement as a free sample.
This strategy works best for services that recur over time, like smoking cessation or diabetes management. You don’t even have to offer the service as a free sample — you can convince patients to give it a try using an introductory promotional price that’s lower than the sticker price.
While you may lose some patients after the introductory pricing period is over, many will see the value it brings during the trial and keep on paying for the service at full price.
Costco is famous for selling its rotisserie chicken at the reliable low price of $5 year after year. Even as food costs rise and all the other grocery items become more expensive, customers can count on getting their $5 chicken. Costco has found this item to be in such high demand that it’s worth it for them to lose money knowing customers will pick up plenty of other grocery items along the way. And this gets people come to them instead of their competitors.
What items in your front end do patients always want or need? One of these items could make for the perfect loss leader.
As the seasons change, you can use loss leaders to clear out old merchandise while making room for more relevant products. After Halloween, not many people are in the market for spiderweb decorations, so you can offer them at a bargain.
While patients are at the pharmacy stocking up on their half-price candy, they’ll also have a chance to peruse the Thanksgiving and Christmas decorations.
Holidays are a good time to employ loss leaders regardless because people are often primed to shop. They aren’t just looking for one stocking stuffer, so they may throw your loss leader into their basket, then top it off with regularly priced items.
Teaser products are deals that are too good to pass up — they get people rushing through the door, and once patients are inside the pharmacy, they will stay and shop for more.
At the grocery store, staples like milk and eggs are offered at competitive prices, then placed at the back of the store so customers will have to walk through several aisles of other tempting products to get to that great deal.
You can hook your patients with excellent prices on common supplements or select items from your gift section. Perishable items are particularly good teaser products because if they expire, you’ll end up losing the sale anyway, so pricing them low will make sure they make it off the shelves.
Not all loss leaders will inspire patients to increase their basket size, so it’s crucial to keep an eye on the sales of products positioned around your loss leaders to make sure they are pulling their weight.
The biggest risk of loss leaders in cherry-picking — that is, when patients come in and only buy the discounted item, nothing else. A loss leader can only lead to profits if patients are buying enough full price items to make up for the loss caused by the discounted one.
Plus, if you are relying too heavily on loss leaders, your patients may wait to buy when products are full price because they assume it will be discounted in the near future.
If prices are too competitive, it might encourage patients to stockpile the item while it’s at a lower price, meaning they won’t be visiting the store to stock up on the full price item. And if one patient buys you out of a low-priced product, you won’t be able to draw in additional customers with a great deal.
You can keep this behavior at bay by limiting the quantities patients can purchase. One of the reasons perishable items make good loss leaders is because they can’t be stockpiled.
As a small business with limited funds, you may not be able to rely on loss-leading products the same way big box stores do. Chains can purchase larger volumes at cheaper prices, so their losses on loss leaders aren’t quite as steep. However, if you choose high-demand products and cut prices strategically, you can make a profit with loss leaders.
PBA Health is dedicated to helping independent pharmacies reach their full potential on the buy side of their business. The company is a member-owned organization that serves independent pharmacies with group purchasing services, expert contract negotiations, proprietary purchasing tools, distribution services, and more.
An HDA member, PBA Health operates its own NABP-accredited (formerly VAWD) warehouse with more than 6,000 SKUs, including brands, generics, narcotics CII-CV, cold-storage products, and over-the-counter (OTC) products.