In this interview with ComputerTalk senior editor Will Lockwood, PharmacistsOnLine CEO David Knaggs offers his views on how independent pharmacists can improve their competitiveness by turning their attention to tested marketing tools and to product lines that have not traditionally been a big part their business.

CT: David, what do you see as the significant challenges facing independent pharmacists?

David Knaggs: The main challenge is the reality of trying to run a profitable business in an increasingly regulated environment while competing with the drug store chains on commodity products and facing declining margins on prescriptions.

CT: What might independent pharmacists be missing out on that can help them succeed in this business environment?

Knaggs: They can add profitable products to their OTC [over-the-counter] mix, for one thing. For example, there's a massive shift going on to natural health products and independent pharmacists should not miss out. Tens of millions of baby boomers are getting set to retire, and in many cases they are looking to make healthier choices in their lives. This includes using natural health products, which are often unique, in high demand, and generally much more profitable than commodity items. Natural health retailers have been making high single digit net margins since WWII, generally with less health knowledge and less sophisticated business practices than pharmacists. The independent pharmacist is perfectly positioned to cater to this market.

CT: How do you see natural products fitting in, particularly considering that prescription drugs and the therapies that go with them are the traditional mainstay for pharmacy?

Knaggs: There are several ways. Adding natural health allows an independent pharmacy to carry new and innovative products that aren't yet picked up by the mass market. The pharmacist can also leverage his or her vantage point as a trusted health advisor in the community by helping patients make healthier life choices with natural health products. A well-designed web site that features appropriate health content and that helps with the education effort is a great way to start here. Pharmacists and their staffs can also invest in developing the expertise to offer advice about natural products, which can lead to improved health management by patients and higher use of these high-margin products.

CT: So offering something that their big competitors don't is one way that independents can try to separate themselves. What about learning from the chains? Is the independents' business model too different to allow them to benefit from implementing certain chain practices?

Knaggs: I think the chain drugstore business model is very different. Independent pharmacies need to leverage the things that make them unique, including product differentiation, quality of service, and commitment to invest in technologies that support these objectives and drive superior financial performance. But there is one key area that I think is important and that independent pharmacies can learn about from chains: customer loyalty programs.

CT: What's the rationale behind these programs and how do they apply to independent pharmacy?

Knaggs: The average retailer loses 25% of its customers each year, so customer loyalty is important to any retail business. Well-implemented pharmacy loyalty programs can do three things. First, they can enhance the pharmacy's brand. Second, they can reduce customer attrition. And finally, they can increase sales. These are all critical areas for any pharmacy today, and in particular for independents, which have had to weather the massive expansion and competition from the chains.

CT: And an independent pharmacy can reasonably expect to run a customer loyalty program?

Knaggs: Yes. In fact, these programs aren't all that complicated today. Independent pharmacies have the opportunity to invest in technology that will help them develop a complete electronic customer database, track customers that are "missing in action," and run outbound promotions to bring them back into the store. This technology can also perform targeted marketing to drive in-store traffic and sales. Our company, for one, has a very compelling, packaged loyalty program that can help independent pharmacies achieve all of this at a very affordable price.

CT: Switching topics, you mentioned the value of a well-designed web site earlier. Can you expand on what you mean?

Knaggs: A successful web presence is important now, and I believe it is going to be even more important for the patient of tomorrow. This patient is going to be more health conscious, more educated about health, more interested in managing his or her own healthcare, and more Internet savvy. When people think of a web site, two types often come to mind. The first is a group of simple pages with basic business information. That isn't really sufficient these days. A more complex version has e-commerce. But that is only one aspect of a web site. There are other key components that make your web presence something that is going to encourage repeat visitors and appeal to the patient of tomorrow. You need search engine placement, so your pharmacy can be found online. You need health content information that supports patient education and health assessment tools that allow patients to better manage their health. You need communication tools so that you can be in regular contact with your patients. And you need web features that offer convenience to your patients, such as online prescription refills.

CT: Is this kind of web presence realistic for an independent pharmacy? What kind of expertise does it require and how much time?

Knaggs: It's true that it isn't generally cost effective or time efficient for pharmacies to undertake custom web site development projects. But this doesn't mean you can't have a solid web offering for your pharmacy. For example, PharmacistsOnLine offers a number of turnkey web site packages for independent pharmacies that require very little setup and minimal ongoing effort, yet offer the kind of content that can make a pharmacy's web site a real destination.

CT: What return can a pharmacy expect from the investment of implementing a loyalty program and creating a real web presence? Will a pharmacist or store owner get results that are visible on the bottom line?

Knaggs: Yes, these are both investments that can offer real financial results. Generally, the implementation of a loyalty program will lead to a 1% to 2% increase in sales with double-digit sales growth potential if the marketing tools provided with the program are used effectively. And a robust web site can lead to more educated patients and customers, greater customer loyalty, and ultimately greater sales.

CT: So summarize your recipe for independent pharmacies in the current competitive environment.

Knaggs: Overall, I think independent pharmacies that can put a strong emphasis on quality and differentiation of products, customer education, customer service, and cultivating customer loyalty in ways that lead to better profitability are going to be successful. And it's important for pharmacists to know that there are technology tools out there that can help them thrive.

CT: Thanks for your perspective, David.