Robert J. , Founder and CEO

While pharmaceutical companies are heads down on digital transformation and spooling up their initial Amazon market entry strategy, other industries are working on their exit strategy.

Nike has called it quits with Amazon. Effective November 2019, the athletic giant said it will no longer sell its products on the world’s largest e-commerce website. Thus ended a pilot program started in 2017 wherein Nike acted as a wholesaler to Amazon, instead of just allowing third-party merchants to sell its products on the site. In a statement, Nike said:

“As part of Nike’s focus on elevating consumer experiences through more direct, personal relationships, we have made the decision to complete our current pilot with Amazon Retail. We will continue to invest in strong, distinctive partnerships for Nike with other retailers and platforms to seamlessly serve our consumers globally.”

Wow. Nike’s estimated annual sales on Amazon amounted to almost $3.3B in 2019, or 30% of its global revenues. And Nike isn’t alone in its decision to part ways with Amazon. The growing list of brands breaking ties with Bezos and company includes Ikea, Birkenstock, Ralph Lauren, Rolex, Louis Vuitton, Patagonia, and North Face. It looks like a new megatrend has started.

So, why are all of these global brands deciding to leave Amazon? And what does it mean for pharmaceutical manufacturers in the new era of digital pharmacy where Amazon is set to be a major player? Let’s take a closer look.

The Amazon Exodus

Until recently, most major retail brands depended on Amazon to sell online. As the largest online marketplace, Amazon makes up more than half of all online sales in the U.S.

Of interest, the majority of products listed on Amazon are not actually Amazon products. Rather, they come from third-party sellers, who pay a fee to stock Amazon’s shelves with their products.

In 2007, only 26% of the products that were sold on Amazon came from third-party sellers. Today, that figure has doubled, as more than half of all Amazon products are from third-party sellers.

Nike’s ostensible move toward “more direct, personal relationships” with its customers is one reason it left Amazon. But it’s certainly not the whole story.

Brands have long complained that Amazon isn’t doing enough to curtail the widespread problem of counterfeit products available on its site. A marketplace awash in cheap knockoffs of their products is not a place where brands are highly incentivized to sell. In fact, Amazon has a history of helping generic products become category leaders only to be replaced by the Amazon brand once successful.

Beyond the counterfeit problem, though, is Amazon’s strict control over branding, merchandising models, pricing and data. The inability of companies to control their brand and dictate their own prices on Amazon can commoditize the value of their products in the wider global marketplace. The consumer is trained to see Amazon and not the actual manufacturer product’s brand.

Another glaring problem for retailers who sell through the Amazon marketplace is that Amazon maintains a stranglehold on all of their customer data.

Regardless of whether brands use Fulfillment by Amazon (FBA) or not, they are still ultimately responsible for customer satisfaction, despite the fact that Amazon essentially owns the customer relationship.

Ultimately, the downsides of selling on Amazon have begun to outweigh the benefits for a growing number of the world’s top brands.

The question is, what does the growing Amazon exodus mean for pharmaceutical manufacturers?

Drug companies will soon be faced with the same decision that brands like Nike and Ikea have had to make: sell their products on Amazon or develop independent online channels to reach customers directly?

Let’s look at what each of these options entails.

Amazon Pharmacy

With its acquisition of PillPack in 2018, Amazon now has pharmacy licenses in all 50 U.S. states. And no fewer than 85% of Amazon Prime’s 100 million members say they’re ready to start filling their prescriptions on Amazon.

Amazon’s access to all of that consumer data has the potential to fundamentally change the pharmacy industry. In the coming decade, the Prime algorithm could replace PBMs and retailers altogether. Hyper-targeted marketing based on a prescription history could redraw the boundaries of patient privacy.

Amazon’s algorithmic approach has a tendency to commoditize the brands in the industries it enters. In the wake of the now-familiar Amazon Effect, brands are incentivized to cut costs in a race to the bottom.

Generic alternatives make the pharmaceutical marketplace particularly ripe for an extreme version of the commoditization inherent to the Amazon Effect. In the Amazon model, pharmaceutical brands risk losing the brand equity they’ve spent billions of dollars to build over the lifespan of each brand franchise.

A Move Toward Independence

The list of companies leaving Amazon doesn’t end with large global retail brands like Nike and North Face. Smaller mom-and-pop brands are joining the exodus as well, thanks to a growing crop of services that lets them run independent online stores with many of the same features as Amazon.

Retailers today can farm out every step of the online store process—from shipping to returns and even one-day delivery. Services like Shopify, Stripe, Returnly, ShipBob and DarkStore are freeing retailers from the clutches of Amazon.

Pharmaceutical brands have similar options when it comes to determining their fate in the Amazon era of online pharmacy. A growing number of direct-to-patient (DTP) providers are giving manufacturers independent ways to engage patients directly.

Direct-to-patient is a fundamentally different approach to the traditional pharmacy supply chain. The traditional supply chain is rife with complexities, intermediaries, and inefficiencies. DTP collapses the supply chain and connect with patients directly—without the need for costly and inefficient middlemen.

In addition to giving drug companies independent ways to avoid the commoditization of Amazon and retain valuable patient data, direct-to-patient also offers solutions to two of the most existential threats that any pharmaceutical brand has to face: loss of exclusivity (LOE) and PBM formulary exclusion.

By giving manufacturers an independent way to connect with patients directly, direct-to-patient ensures that patients continue to have access to the brand drugs they know and trust, even when those drugs lose their patents or are blocked by formularies.

Not all direct-to-patient brands are created equal, however. When selecting a DTP partner, pharmaceutical manufacturers are advised to look closely at which offer proven, scalable platforms complete with pharmacy licensure and robust logistics, and which are just e-commerce telehealth providers.

The Future of Pharmacy

As pharmacy moves inexorably towards a future in which every stage of the patient journey will transpire online—a future dominated by Amazon’s presence in the industry—pharmaceutical manufacturers have a choice to make.

Accept their fate as just another commoditized product in the Amazon marketplace, competing against Amazon-brand generics at Amazon-brand prices, or secure an independent future where they can continue to leverage the brand equity they’ve built investing billions of dollars into each of their brand franchises?

The former scenario will be the future for drug companies who don’t secure independent ways to connect with patients directly. The latter will be the reality for pharmaceutical brands who invest in direct-to-patient channels, especially those that include dedicated e-commerce websites, anticipatory pharmacy services, and innovative final-mile delivery.

Specifically designed to bolster patient choice and enhance patient experience, direct-to-patient is how tomorrow’s pharmaceutical brands will connect with the patients who need them: efficiently, personally, directly.

Schedule your Direct-to-Patient consultation today