April 30, 2007, 12:00 AM

Healthy, Wealthy and Wise

Seeking health information is big; buying products has only begun.

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.

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