Researching health concerns is big, but buying related products has only begun
By MargaretAnn Cross
Come tax time, logging in to a private account on Drugstore.com and printing a list of all reimbursable medical products purchased the previous year beats going through a shoebox full of receipts. And offering this kind of convenient, easy-to-use tool is one way to convert the gigantic number of online health care information seekers into shoppers.
E-retailers are capitalizing on what makes shopping for health products on the Internet different from stopping at a corner drugstore. In addition to using services unique to health care (such as a flexible spending account tracking tool offered by Drugstore.com Inc.), consumers find the privacy of Internet shopping appealing (no cashier, no blushing) and appreciate the availability of hard-to-find medicinal and related items, e-retailers and consultants say.
“We are trying to reinvent the way people buy health products,” says Jonathan Tinter, chief marketing officer at Drugstore.com. “And more and more customers are becoming comfortable online.”
Fortunately for health and beauty e-retailers, Internet users already are very comfy online when it comes to learning more about disease and illness. Health information is one of the most popular categories researched online today, according to Manhattan Research LLC, a research and consulting firm that specializes in analyzing the use of technology by physicians and consumers.
“The growth curve has been straight up over the past decade—the population looking for health information online has grown from approximately 10 million U.S. adults in 2000 to more than 100 million today,” says Mark Bard, president of Manhattan Research, a health care marketing and research firm. In 2006, for example, cancer and autism were two of the top 10 Google News searches. And eight of the top ten “what is” searches on Google were pharmaceutical products, Google reports.
Seekers into buyers
But what may seem like a logical step of turning these online information seekers into online product buyers actually is a challenge possibly as big as the market potential. Still, while 18.3 million adults last year purchased health-related products online, according to a Manhattan Research survey, that’s only the beginning. The challenge is finding connections between complex medical issues and health care retail products.
“When someone is asking, ‘What is the prognosis for this condition,’ that’s very different from seeking to buy a product,” says Sucharita Mulpuru, senior retail analyst at Forrester Research Inc. “Such people are similar to those who look at The New York Times or entertainment web sites. They want information that won’t necessarily lead to a financial transaction.”
The e-commerce market for health care encompasses a broad range of products, including pharmaceuticals, medical supplies, vitamins and natural health remedies, vision care, and beauty items.
“Customers are defining health more broadly,” Drugstore.com’s Tinter says. “It’s not just about prescriptions and over-the-counter drugs. Customers’ views of health include all aspects of how they look and feel.” That view is fueling revenue increases in several areas at Drugstore.com, he adds. “Natural products, both homeopathic medicines and natural cleaning, hair and makeup products; vitamins and supplements; and beauty products have seen huge growth.”
There are many product categories overall in health care e-commerce. For over-the-counter and personal care items, consumers spent $1.3 billion online last year; this is expected to reach $3.3 billion by 2011, according to Forrester Research. Online sales accounted for 5% of total sales in 2006 and will make up 10% in 2011, the firm predicts. While that’s much less than the 53% of computer hardware and software that consumers will be buying on the Internet four years hence, it’s a greater share than the 2% of groceries or the 5% of pet supplies that consumers will purchase online, the research suggests.
“Health care is growing like everything else is growing,” says Mulpuru, the lead author of Forrester Research’s five year e-commerce forecast. Online health care merchants are increasing revenue by retaining existing customers and gaining from online shoppers who have not been purchasing health care products via the web, she says.
A complex
Because of the complexity of the market, Forrester doesn’t estimate overall online pharmaceutical sales, though they do make up a giant portion of health care products sold online, says Elizabeth W. Boehm, principal analyst. Consumers ordered close to $170 million in prescription drugs through Drugstore.com alone last year, the merchant says.
JupiterResearch also tracks health care products sold online. The research and consulting firm puts annual web sales of nutrition, natural and vitamin products today at $696 million, predicting 18% annual growth through 2011 to $1.6 billion, and medical supplies at $652 million, growing 17% annually to $1.4 billion in 2011, says Patti Freeman Evans, senior retail analyst at JupiterResearch.
Growth overall has been strong, especially considering over-the-counter health care products had very little catalog-purchasing history to translate into online sales, Freeman Evans says. “A lot of these products also are immediate-need, low-priced products that people aren’t willing to wait for or pay shipping for,” she says. “Drugstore.com, for instance, has done a great job of making those things easy to buy on a repeat-purchase basis. I can set up my account so that every three months I can quickly order them again.”
These kinds of services and product scope are leading customers to step up their buying. “I’m a good example,” Freeman Evans offers. “Last year, I bought one prescription online. This year I have two I am getting on a regular basis. And because I’m getting them on a regular basis I’m thinking about what other products might be appropriate for me to buy. It’s a convenience-driven business, so as customers get more aware of how this serves their needs in terms of finding the products they want as well as convenience, they begin to buy more online.”
At Drugstore.com, repeat customers represented 81% of sales last year; average sales per order were $75. The public company had sales of $415.8 million in 2006 and predicts that number will surpass $500 million in 2008.
On the pharmacy side, top competitors are retail pharmacy chains and companies such as Wal-Mart Stores Inc., many of which are not focusing their health care sales efforts on the online channel. “There are a lot of big players in the marketplace, but they are not as aggressive about that part of their business yet,” Freeman Evans adds.
Order online/pick up in store
Most pharmacy chains, however, are using their web sites to help customers manage prescriptions, offering the ability to order prescriptions online and pick them up at local stores, akin to the order online/pick up in store trend in big box electronics and appliances. Since 1999, Drugstore.com has partnered with Rite Aid Corp. to enable consumers to pick up prescriptions at stores.
“When this market opened up in 1999, we heard a lot of talk about changing the pharmacy landscape. But sites like PlanetRx didn’t succeed,” Forrester’s Boehm says. “It’s just not that difficult to go to a bricks-and-mortar pharmacy, so we haven’t seen a massive revolution. What we have seen is a change in what people are doing. Where they might have called in a refill before, they now do that online.”
Other health care subcategories are served by e-retailers that have a narrower focus. MotherNature.com, for instance, offers natural and organic vitamins, supplements and self-care products, and its customers are mainly women over 40, says R. Whitney Anderson, CEO of Mother Nature Inc. Mother Nature, a public firm in the late 1990s, is a private company backed by venture capital from Quadrant Capital Advisors Inc.
MotherNature.com has maintained annual growth of about 100% over the last three years by improving its web site and the products it offers, purchasing two other online vitamin companies, and capitalizing on the fact that more people are recognizing the convenience of the Internet and the privacy—a key factor in health care retailing online—it offers, Anderson says. “There is a decent migration of offline purchasers to online purchasers, and that is especially true for the vitamin/supplement and personal care areas,” he says.
The e-retailer learned that for newcomers, making it easy to purchase a product and return it is important, Anderson says. “When a person researches a consumer electronics product online, he knows exactly what it’s going to do for him. It’s a little bit different in this segment,” he says. “We have put policies in place so people can try an herbal supplement and return it if they don’t like it.”
Start over
The need to enhance ease-of-use and presentation of policies drove TheMedicalSupplyDepot.com to redesign its web site in September, mere months after it launched, says Meir Tsinman, president. Individuals purchasing health care products online often are elderly and may be making a significant investment in something such as a wheelchair or walker, he says. “We had to make the site easier to navigate, and customers wanted clearer images and clearer policies.”
The e-retailer also embedded technology from LivePerson Inc. into the site so people could ask important medical-oriented questions with a click of a button. While many customers still prefer to use the telephone to discuss the details of how products work, for example, use of the online chat tool is growing, Tsinman says.
TheMedicalSupplyDepot.com expects the aging population to fuel the need for medical supplies over time and is counting on people looking for medical content online translating into retail sales. “When consumers are looking for medical information online, they might say, ‘Hey, I should check my blood sugar,’ and buy a product to do that,” Tsinman says.
The vast amount of health care information online, however, often confuses people and may make it difficult to find the right products, suggests Michael I. Brown, president and CEO of HealthPricer Interactive Ltd., which operates HealthPricer.com, a comparison shopping site for health care products.
The company’s goal is to make purchasing health care products online simpler. Working with inventory data from 70 merchants, HealthPricer.com offers product searches in five categories: prescription drugs, contact lenses, supplements, over-the-counter medical products, and beauty and hygiene. Consumers can compare more than 163,000 products in the Medicine Cabinet section, for instance, and view HealthPricer.com’s review and rating of each merchant.
Looking for a remedy
“Most people search health care because they have an issue, and the remedy to that issue often is a medical procedure, a pharmaceutical or an over-the-counter health care product,” Brown says. “If someone is researching their health concern online, they also can research related pharmaceuticals and products. If we make it easy for them, they will buy them online.”
Some companies combine health care content with product sales. AOL co-founder Steve Case’s startup, Revolution Health Group LLC, launched RevolutionHealth.com earlier this year. The site offers more than 125 free tools and services for health care consumers and is paired with an online store operated by Drugstore.com—RevolutionHealthStore.com.
MotherNature.com, however, has found getting people to move from browsers to buyers isn’t a small feat. “We have about 1.5 million people coming to our site to research health concerns in our large natural health library,” Anderson says. “But in general, the conversion of people from researchers into buyers is a tall order. We make some efforts to get them to sign up for e-newsletters and convert them into purchasers, but we really view it as a free resource for browsers and early-stage potential customers. We let them come and research and we hope they will remember when they are ready to buy that MotherNature.com was helpful.”
MargaretAnn Cross is an Ann Arbor, Mich.-based freelance journalist who specializes in business, technology and health care.
