December 10, 2020
growth opportunities appear to be in store for branded over-the-counter (OTC)
drug companies in China as multiple factors are reshaping the industry
This could mean the OTC drug industry might be at an inflection point, at a
time when consumers in China are increasingly choosing to buy their medicine
online instead of from brick-and-mortar pharmacies.
Given the changes the industry faces, OTC drug companies’ distribution strategy
may shift from the number of stores carrying their products to the quality of
stores, and they are also likely to diversify from brick-and-mortar
distribution channels to online distribution channels.
that plagued OTC drug companies in the past
In the past when consumers could not buy medicine online, they had to purchase
them from medical institutions and pharmacies, and this placed constraints on
how much OTC drug companies could market their products and grow.
First, it was difficult for OTC drug companies to establish a nationwide
presence. Complicated distribution channels and outdated logistics systems made
it difficult for OTC drug companies’ products to effectively reach the
nationwide end market.
Second, it was difficult for some branded OTC drugs to reach consumers
due to factors such as information asymmetry (most patients would take the advice
of doctors or pharmacists when buying medicine).
Furthermore, traditional retail pharmacies tend to focus on high-margin
products. As such, branded OTC drug companies’ low-margin medicines tended to
be replaced by higher-margin products at end-market stores.
Third, it was difficult for OTC drug companies to interact with consumers.
for OTC drug companies
The purchase of medicine online and improvement in logistics systems make it
possible for OTC drugs to be efficiently delivered to consumers across China in
a timely manner.
This could increase the penetration rates of branded OTC drugs in online
distribution channels and point to greater opportunities for OTC drug
Online medicine purchases
The internet allows consumers to freely choose which OTC drugs to purchase and
from where to buy them. It also reduces information asymmetry and online
platforms could allow pharmacists to make recommendations that are free from
traditional retail pharmacies’ focus on high-margin products.
For example, if a consumer goes to a pharmacy to buy CR Sanjiu’s Ganmaoling (a cold medicine), shop assistants
may instead recommend other cold medicines. In contrast, online platforms can offer
information on pharmaceutical products (such as their specifications, prices,
any sales promotions at stores, sales volume at stores, customer reviews for
stores and delivery fees) to consumers.
New forms of marketing
Marketing and sales of OTC drug companies could be effectively combined via
digitalization, and OTC drug companies could to be freed from physical-space
constraints of brick-and-mortar pharmacies with the help of online platforms.
Such efforts could help OTC drug companies to market and promote their
brands to consumers, and allow these companies to establish stronger ties with
them. The companies could achieve this by providing information on specific
products to consumers, and having effective interactions with consumers,
thereby boosting their brand value.
OTC drug brands may expand product categories and diversify into products such
as dietary supplements
As a result of the COVID-19 outbreak, consumers may pay greater attention to
the prevention of diseases and the scope of consumers’ demand for healthcare
products and services may expand from treating diseases to preventing them, and
maintaining good health.
This could accelerate branded OTC drug companies’ expansion across distribution
channels and prompt them to further expand their product categories.
As such, branded OTC drug companies may explore new product categories, expand
their presence from pharmaceutical products into healthcare products in a broad
sense (or even chemicals for everyday use), and diversify into new products
such as dietary supplements.
Branded OTC drug companies could build up their product and service offerings to
meet consumers’ healthcare needs at every stage of their lives, which could
lead to a further boost to their growth.
Figure 1: OTC drug brands may expand their product categories
Source: CICC Research
more details, please see our report Branded
OTC drugs: Industry at an inflection point; a promising future published
in December 2020.