Growth of the e-pharmacies in the market

“1mg may have burned less money but even though it had all the advantages, it could not take the market leader position,” he added.

Most e-pharmacies have followed Medlife’s style of acquiring customers over 1mg’s more sustainable approach. All of them rely on digital marketing via Google. Netmeds, backed by Orbimed and Systima, is focusing on the two most expensive forms of mass marketing—TV advertising and hiring a brand ambassador. They’ve gone all out too, with Indian cricket icon MS Dhoni the company’s brand ambassador. LifCare has gone a different route, focusing on heavy discounts instead.

The Market

However, these approaches aren’t without drawbacks, says Tandon. The market for e-pharmacies lies in selling drugs for chronic diseases like diabetes, hypertension and asthma, which constitute close to 40% of the pharmacy market. And these are mostly sold on prescriptions renewed month after month. The problem though, Tandon points out, is that Google does not allow promotion of prescription drugs in India. Although e-pharmacies can position themselves as sellers of medical or health products, they cannot promote prescription medicines online.

Huge discounts and mass advertising are only pushing online pharmacies further away from becoming profitable, says Rajpal*, who is now setting up another venture in addition to LifCare. “Even today, we are working on burn model because it has become a price war. The discounts are as high as 30% when branded generics offer 24-28% margins. It is not sustainable as e-pharmacies lose money on every order,” he said. This isn’t even taking into account the additional cost of logistics.

Finally, the jury is still out on offline methods for acquiring customers, such as enlisting doctors to encourage patients to buy medicines online, telemarketing and offline centres. PharmEasy became the first e-pharmacy to try the last option when it started opening stores six months ago. A typical store looks like a garage, where one or two PharmEasy employees note down orders for home delivery.

For offline, it is still early days, says Shah. “We are a chronic care platform and we realised that people had problems navigating technology, downloading the app and placing an order. Offline stores ease the resistance from a first-timer and build a relationship like a local pharmacist,” he added. PharmEasy has opened about a dozen such stores in Mumbai, and is still evaluating whether they work.

The Strategy

Contrary to the popular strategy, 1mg has proved that content is the least expensive way of effectively getting people to buy medicines online. “We are like Wikipedia on medicine information and the lion’s share of traffic comes for that content, which now brings us more than 1 billion page views every year,” said Tandon. It is these users who have led to 5X growth for 1mg in the last financial year, he claimed. 1mg may not be the market leader like Medlife, but having 2.4 million monthly active users definitely increases the likelihood that it will acquire paying customers.

E-pharmacies are also betting on services like e-diagnostics and e-consultations to help drive revenues. Health insurance provider Max Bupa’s recent tie-up with 1mg and Practo for use of their allied health services as part of an insurance product is indicative of the potential these services hold. In the next three years, Tandon expects the share of revenue from allied health services to increase from the current 20% to 40%, driving up profits as well since these pack larger margins.

Even with these though, profitability is still a while away. Tandon predicts 1mg will be profitable in three years. Medlife, meanwhile, intends to turn a profit in half that time. However, the fact that they’re both this optimistic is proof that the e-pharmacy genie is well and truly out of the bottle.

 

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