Chemist Direct

Product Model






Chemist Direct

Chemist Direct is an online pharmacy that offers discounted prices on prescription and over-the-counter medications directly to customers. It purchases medications in bulk, and passes the savings on to consumers. Aside from products, it also provides a range of services such as health advice, online communication with registered pharmacists and doctors and fulfilling prescriptions using the NHS electronic prescription service. Chemist Direct operate a Product Business Model for the major part of their business. However, this runs in conjunction with a Work-for-Hire business model in the form of advice and contact with the company’s doctors and pharmacists. This write-up will focus on the product business model.

HISTORY

Chemist Direct is an online pharmacy that was founded in 2007 by entrepreneur, Mitesh Soma. The company received £3 million investment from the VC firm, Atomico. With this funding, Chemist Direct expanded its business by extending the product offerings and services, and recruiting more employees. It provided a number of products and services that were unprecedented. Foremost examples include medicine for pets, online health advice & prescription services. In 2011, the company’s founder, Mitesh Soma, appointed Stuart Rowe as a CEO of Chemist Direct. Stuart Rowe restructured the existing website and further developed the company, which is now the largest online pharmacy in U.K. by sales. With the 90% of growth rate in annual revenue, in 2013 the company secured additional funding of $10 million from Atomico, Lepe Partners and DMG Media. In 2011, revenue reached £12.3 million and it employed over 50 people.

CUSTOMERS – WHO THEY ARE

Chemist Direct’s customers are those who purchase their products online. The people most likely to do so are price conscious shoppers, as the store competes with other retailers on the basis of price. They are also time poor, and therefore appreciate the convenience of doing their shopping online as well as even talking with a doctor or pharmacist online. Customers must also have a reasonable level of computer literacy – and access to the Internet – to use this service.

ENGAGEMENT – VALUE CREATION PROPOSITION (INCLUDING NETWORK EFFECTS):

Chemist Direct create value for their customer by charging lower prices than high street retailers with the convenience of shopping online. The offer is made to customers on a standardized basis in that they can only select from a range of available items. Chemist Direct have also implemented a search function into their website that helps customers to find what they are looking for in the search bar. Customers who use the search function are 175% more likely to purchase from the Chemist Direct than who don’t use it, and 43% of total revenue of Chemist Direct generated from the customers who used this search function. The additional services of online doctors and pharmacists also increase their value proposition. This is a bespoke offering in that advice is tailored for each individual customer. Connecting with these professionals online gives customers a valuable alternative to visiting a clinic, as it can save a lot money, time and effort. This service-for-hire component of the business is free for customers to use. However, it adds value to the whole business by increasing sales of pharmaceutical products.

Given the general poor perception of online pharmacies and scams, Chemist Direct have built their business on a foundation of high standards of customer service, trust (Review Pilot score 8.9/10) and repeat business.

DELIVERY – THE VALUE CHAIN

The main business of Chemist Direct, posting healthcare products to customers, is a hierarchical value chain, whereby they buy products from distributors in bulk and then on-sell them to customers by way of third-party logistics providers. Inventory is held at the distribution centre in Birmingham, and then 3rd party logistics companies like Royal Mail deliver the products to consumers. Chemist Direct purchased the search function software for its website from SLI Systems, a company founded in New Zealand that sells searching software to web companies.

MONETIZATION – VALUE CAPTURE

The Chemist Direct model captures value at the point of sale. Customers add the items they wish to purchase into their “shopping basket”, and then pay Chemist Direct using a credit/debit card or PayPal. Upon confirmation of receiving the money, Chemist Direct assembles the order and ships to the customer, who receives it at the designated address.

Sources

Company Website: http://www.chemistdirect.co.uk/company

Telegraph Article: http://www.telegraph.co.uk/finance/festival-of-business/10162889/Online-pharmacy-

ChemistDirect-has-found-right-remedy.html

Startups.co.uk Article: http://startups.co.uk/startups-awards/mitesh-soma/

Trust Pilot Website: https://uk.trustpilot.com/review/www.chemistdirect...

SLI Systems Press Release: http://www.sli-systems.co.uk/resources/press-releases/customers-using-site-searchhave-

175-higher-conversion-rates-says-chemist

Disclaimer:

Written by Daniel Thrift and edited by James Knuckles under the direction of Prof Charles Baden-Fuller, Cass Business School. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. © 2016

Published 20 April 2016



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