Traditionally, direct sellers have never been an important retailing channel for Over-The-Counter (OTC) drugs. Recent developments are changing this view as direct sellers seek new ways to compete in a highly competitive environment in consumer health.
Understanding the direct selling framework in consumer health
Typically, direct sellers such as Amway Corp, Herbalife International Inc, USANA Health Sciences Inc and others have been successful in selling vitamins, dietary supplements and weight management products. Strong trends on health and wellness combined with innovative products and “word-of-mouth” have proven a positive strategy for these companies.
Consumers consult the company’s catalogues in print or online and also have a conversation with representatives, who are usually effective in convincing them on the benefits of the product and try to convince them to join the company’s multilevel model network.
This sales model has proved effective for planned purchases. After all, consumers can plan on purchasing their monthly supply of vitamins, dietary supplements and weight management products. However, this may not be the case for OTC drugs.
The majority of OTC drugs are considered impulse purchases as most people will buy them when they feel sick or when they need short-term treatment for a condition such as an allergy. Consequently, people usually need immediate access to a cold, pain or digestive remedy to treat their ailment. In the direct selling format, predicting when consumers will get sick and when to purchase OTC drugs is not very evident. If a consumer suffers from a cold today, he or she will need access to the medicine today. The person cannot wait a few days for the OTC drug to be delivered or have the representative take an order.
The leading steps of Amway Corp and USANA Health Sciences Inc
Amway has been expanding its line of OTC medicines ranging from basic analgesics to proton pump inhibitors (PPIs) and paediatric medicines under its own brand FormuCare and homeopathic brands from other companies. Amway owns a pharmaceutical manufacturing facility where it produces OTC drugs for third parties and their own brand. Prices offered to consumers are in line with those found in store-based retailing. Interestingly, the company offers bulk sizes available for consumers who regularly take OTC pain medication or like to stock up on medicines. Amway achieved an estimated US$4 billion in global retail value sales of consumer health products in 2010 according to Euromonitor International.
Alternatively, USANA Health Sciences Inc’s manufacturing facility recently obtained a pharmaceutical-grade registration from the Food and Drug Administration (FDA) in the United States in July 2011. Initially, it seemed that the company was preparing to sell OTC drugs. Yet, the company is more likely to use the pharmaceutical certification as marketing and promotional tools to convince consumers about the safety and efficacy of its products being manufactured in a pharmaceutical facility. USANA’s global retail sales are estimated at US$504 million in 2010 according to Euromonitor International.
The goal is to produce safe and efficacious products
The fact that direct selling companies are revamping their manufacturing operations to achieve pharmaceutical ranked operations is an important indicator of a shift in corporate strategy. Increased regulatory scrutiny is one of the main threats to companies that sell vitamins and dietary supplements around the world. Weak enforcement of good manufacturing practices (GMPs), tainted products and toxic ingredients are making consumers suspicious of some brands.
Apparently, pharmaceutical-approved operations can provide a competitive edge for direct sellers competing against other firms as direct sellers can offer products meeting the pharmaceutical manufacturing requirements of a drug. Moreover, it can represent a new threat to pharmaceutical companies such as Pfizer Inc and Bayer AG, among others, who have traditionally led the marketplace of pharmaceutical grade vitamins and dietary supplements.
Prospects of direct sellers selling OTC drugs are mixed. Most retailing channels for OTC drugs are highly regulated in most countries. One exception is the United States, where direct sellers face fewer regulatory hurdles in OTC drug distribution. An alternative for direct sellers is to manage OTC drug sales under a mail-order scheme similar to the one followed by pharmacies. In any case, the nature of OTC drug purchasing based on a timely access to reduce symptoms will not work for direct sellers following their current sales model.