Clinics find that opening online stores can keep their prices down and their clients close.

May 2007 was the best month that Intermountain Pet Hospital in Meridian, Idaho, ever had. “Things were going along great,” says Dr. Bob Beede, partner.

But that changed, with the economy. People in the state of Idaho, like those in most of the other 49 states, got knocked around pretty badly. A big computer-chip manufacturer laid off thousands. The housing industry tanked. ÒA lot of people were out of work. A lot still are.”

Who knows whether there is a direct cause-and-effect relationship between the economy and what happened next among Intermountain’s clients. But the fact is, requests by clients for Intermountain to write prescriptions, which they could then fill elsewhere, presumably at online pharmacies, began to climb. “We used to get one or two a week,” recalls Beede. But the number kept going up. Then, in May 2009, Intermountain had 15 requests in one day. “I said, ‘We’ve got to do something, because we’re losing business,’” he says. Later that month, Intermountain implemented an online store, through MWI Veterinary Supply.

The store generated $30,000 in sales over the next 12 months. “But that’s a drop in the bucket of the potential,” says Beede. His goal? To generate $20,000 in sales each month.

Face to face
Small-animal practitioners are coming face to face with something their large-animal comrades have been facing for several years, says Jim Guenther, DVM, MBA, MHA, CVPM, and vice president of the consulting firm VetPartners. “There are so many sources of medications for the food-animal practitioner other than the veterinarian,” he says. One of his food-animal clients dispenses virtually nothing. “The reason is, he can’t compete with all the sources that are available to the farmer or rancher,” says Guenther. “So he’s opted not to.” Yet the veterinarian’s practice is very profitable.
If large-animal practitioners have come to terms with online competition, small-animal practitioners are still struggling a bit.
“My rural customers don’t seem too concerned about it,” says MWI rep Paula McMullen, who services southwest Idaho and eastern Oregon. But city-based customers are beginning to have some concerns. “They’re seeing more requests for prescriptions to be filled by other companies, and not all of them have figured out how they’re going to deal with that,” she says.
Indeed, the competition from online companies, with their well-oiled advertising and marketing campaigns, can be intense. “Their obnoxious ads saying veterinarians were ripping [consumers] off irritated me,” says Beede, referring to one well-known Internet supplier.

Meeting the challenge
Veterinarians are meeting the challenge of online companies a couple of ways. “I think it’s evolving,” says Guenther. “For the first couple of years PetMed Express was around, the majority of veterinarians felt it was a threat. ‘How dare they come into our profession?’” But today, consumers have many options other than the veterinarian from which to get medications and products, including grocery stores, drug stores, catalog companies and online pharmacies. “I think what’s happening is that [veterinarians are] beginning to say, ‘How can I embrace this rather than fight it?’”

In fact, says Guenther, maybe the online pharmacies are more of a plus than a minus for clinics. Some veterinarians have discovered that as clients save money on the pharmacy side, they’re more inclined to spend a few dollars more on the services side, he says. “I think writing scripts has helped our practices.”

What are we all about?
Indeed, the rise of online pharmacies has once again raised the issue, “What is the true role of the veterinarian, and what is the proper mix of services and products he or she should be providing?”

“You have to go back to the original premise of, ‘Why am I a veterinarian?’” says Guenther, who still owns two practices in Asheville, N.C. “‘I’m here to help pets and their owners, as well as make a profit for my own practice.’” If the veterinarian makes it easy for the client to buy pharmaceuticals or other products from a retailer or online company, then the veterinarian is helping accomplish the first two goals. Besides, “I can’t compete [on price] with Walmart,” he says. “They’ll beat me every time.” But the client will return to the veterinarian for services, which the retailers can’t reproduce.

Beede agrees on the pricing issue. “Veterinarians who are dropping their prices to match PetMed Express are losing their shirts,” he says. Such veterinarians fail to take into account the significant costs associated with acquiring, inventorying and dispensing pharmaceuticals.

Beede became aware of those costs thanks to an analysis of his inventory process by Cubex and MWI. “They calculated what it costs us to actually sell a product,” he says. “It was considerably more than we realized.” Those costs include handling and storing products, the cost of money (to acquire them), bank card fees, shrinkage, failure to charge clients for every item taken from inventory, and outdating.

“You have to remember: If you don’t have a product in stock, you don’t have to pay for it,” adds Guenther. “That means you don’t have to manage that portion of the inventory. At the same time, you may have freed up an area in your practice in which you might be able to perform an additional service.
“DVMs and practices are tying up too much money in inventory that’s not necessarily making them any money right now,” he continues. “To me, that’s saying we’re having difficulty controlling or managing inventory.”

Alternatives
Yet many veterinarians want to be able to continue to provide medication and products at the hospital. In some cases, it’s what their clients prefer, even if it costs more. The fact is, says Guenther, clients become less price-sensitive as they become more trusting of their veterinarians and staff.

Beede continues to dispense medications from the hospital pharmacy. “You can’t shut it down,” he says. “We have clients who would rather buy [medications] from us and walk away with them that day.” And some are still skittish about transmitting their credit card numbers over the Internet.
That said, for more than a year, Intermountain has offered its clients the ability to order products online through Vetstreet, a communication platform that links the client with the veterinary hospital as well as a source of products and medications. MWI is a distributor of Vetstreet.

With Vetstreet, clients can order their medications online, that is, through the hospital’s website, explains John Francis, vice president and general manager of MWI’s specialty resources group. Through an interface with the hospital’s practice management system, the system searches for an approved prescription. If a prescription is in the system, the order is transmitted to MWI, which delivers the product directly to the client’s home. If there is no prescription, the hospital is alerted to the request, so it can follow up with the client. The hospital establishes the prices it charges for all products.

“It’s a pretty complete electronic communications interface, not only with the practice, but with the pet owner,” says Francis. In addition to online ordering, the system allows the hospital to send automated emails to clients to remind them when services are due or when medications should be refilled, or to offer seasonal pet-related tips and other educational offerings.

MWI offers a similar service (minus the communication and education features), called Equine ProxyRx, for equine practices. “There’s no question the horse owner is very interested in Internet options,” says Francis. “To that extent, it’s vital the equine specialty practice has an alternative vehicle that’s equal to or better than the options the client can find elsewhere.”
Manual Proxy – a third option offered by MWI – allows the client to call the clinic and request a refill. The clinic takes the client’s credit card number and bills the client directly. Meanwhile, the clinic faxes or e-mails the request to MWI, which delivers it to the client’s home.

Webster and VetSource
In April, Webster Veterinary took a step toward offering its customers a home delivery solution by acquiring minority ownership in VetSource, a Portland, Ore.-based company providing home delivery of companion-animal pharmaceutical and nutrition products. The veterinary hospital is free to set its own prices or to allow Webster VetSource to set pricing for it.
Webster VetSource allows clients to visit the veterinarian’s website and request refills or new prescriptions, says Webster President George Henriques, speaking with Vet-Advantage. The products are delivered to the pet owner at home. Henriques refers to this as “passive home delivery.”

“But the more exciting and compelling aspect is what we’re referring to as proactive home delivery,” says Henriques. For example, a pet owner with a 12-month prescription for a flea-and-tick product would be notified every month that a shipment will be arriving in the mail soon. Then the product arrives at the pet owner’s home. “That’s where we think the big opportunity is – to build compliance and improve medical outcomes through a more compliant client and pet.”

Both MWI and Webster see their online offerings as a way of keeping their veterinarian customers in the ballgame, that is, in touch with their clients during those months in which the client and pet are not scheduled for an in-person appointment.
“There’s nothing as strong as the pet owner being at the clinic and walking out with all their medication needs,” says Francis. “But once the [veterinarian/client] relationship has been established, the question is, ‘What do I have to do as a practice to provide service between visits?’” The online pharmacy offering is not meant to displace what is done in the clinic, he adds, but rather, to maintain business the clinic might otherwise lose to Internet pharmacies and other retail outlets.
“The logic to the veterinarian is this,” says Francis. “You have the well-being of the pet in mind. [With the online offering], you have the opportunity to see to it 12 months of the year. Frankly, our objective and focus is to provide an opportunity to increase compliance and, while doing so, generate new revenues.”

‘We’re in a tough economy’
Beede sees Intermountain’s online store in much the same light. “I like the concept of the online store,” he says. “We incur a minimal card fee; we pay a small inventory markup to MWI. But we don’t touch anything.”
Intermountain stresses the advantages of the program to its clients. “When we started it, we told our clients, ‘We’re in a tough economy; we want to help you; we’ve started an online store to save you money and to make our prices competitive with PetMed Express and other Internet pharmacies,’” explains Beede.

On its website, Intermountain has a list of FAQs, which demonstrate to clients the advantages of the online store. The FAQs not only stress convenience, but the hospital’s promise to keep its prices competitive and to stand behind its products, a claim that some online sellers can’t make. “The small profit from the online pharmacy is kept locally and invested in our hospital, so that we can continue to provide the highest quality of technology, medicine, and surgery for your pet,” says the website. “We can also keep the best-qualified staff as we strive to provide exceptional care to you and your pet.”

For Beede, the online store was not only a necessary response to competition, but an opportunity to rethink Intermountain’s approach to profitable patient care. “The days of hospitals making up to 30 percent or more of their income from product sales will disappear,” he says. “We need to make 90 percent from the better profit margin of services, and let clients buy from our store, which they see as a whole different transaction.”

Beede has found that by separating the purchase of medication and supplies from the patient visit, clients feel freer to spend more on services. In other words, if the cost of the visit is $150 and the cost of medication is $60, clients might flinch at paying $210 in a single day. But they don’t when the two are separated.

“To date, we are not even getting 10 percent of our pharmacy sales moved to the online store, so there is a large potential for growth,” he says. Besides, if we do not compete with these online pharmacies, we will actually see a decrease in total sales from our in-house pharmacies. Why not send that business to our own site instead of losing it altogether?

“But you have to keep at it,” he says. “We did almost $30,000 in online sales in the last 12 months. We should be doing five to 10 times that over time. But it will take a lot of continual work talking to our clients every day.” There must be continual reinforcement among the staff as well, he says. “You have to work as a team,” he says. “You have to have a strategy about how to implement it and how to market it to your clients.” Veterinarians need to be reinforced too.
“It’s work for the staff, it’s work for the doctors,” says McMullen. “Everybody has to believe in it, push it.” Some of her customers have the online store, but their sales don’t approach those of Intermountain. “Dr. Beede makes sure his staff is talking to their clients from start to finish,” she says.

Programs such as Vetstreet and VetSource have created a new role for the field rep. “The online store is another tool for the veterinary practice,” says Francis. “As such, the outside sales rep plays a pivotal role in its introduction, in explaining it, in answering questions. And if someone needs help, the rep is responsible for getting word to whoever can provide an answer or solution. In our world, it’s very much a par.