Joint IRI/NACDS Study Identifies Concerns Over Healthcare Market Volatility

CHICAGO -- Retailers are vulnerable to lost sales and unhappy customers, because manufacturing planning processes and support levels for Rx-to-OTC (over-the-counter) switches and drug recalls/withdrawals are sub-par, said healthcare executives from the country's leading chains in a new survey from Information Resources Inc., and the National Association of Chain Drug Stores (NACDS).

The survey results were unveiled in the wake of recent unplanned and unprecedented events in the healthcare arena, including the multi-billion dollar global withdrawal of Vioxx, the FDA's review and subsequent denial of OTC status for the cholesterol lowering drug Mevacor, and pending state legislation requiring behind-the-counter status for pseudoephedrine.

IRI, a provider of enterprise market information solutions for the consumer packaged goods (CPG), retail, and healthcare industries, conducted the Retail Executive Survey in partnership with NACDS to assess the industry's present ability to protect and grow revenue and profits, and identify opportunities to improve planning processes whenever such disruptive events arise.

The survey, which included feedback from many leading retail chains across all major channels, is a key component of a broader study that analyzed sales trends across a multitude of categories and consumer segments that have already been or are projected to be affected by recent and potential industry events.

The survey revealed a growing need in the healthcare industry for a new planning approach. Specifically, respondents identified four key gaps that are siphoning sales and leaving consumers without the products and information they need. These are gaps in: multi-dimensional forecasting; sustained trade promotion support; timely, direct communication; and demand-driven inventory management.

The inability to accurately predict consumer behavior after switches, recalls, and withdrawals was voiced as a major concern for retail executives, who noted that this deficiency was largely due to a failure to account for other external forces (e.g. changes in third-party reimbursements) that would impact behavior. Manufacturers must be generating sales forecasts that are driven by actual consumption and incorporate promotion/pricing plans that are aligned with supply chain realities, particularly during times of high volatility.

Regarding promotional efforts, retail executives commended manufacturers for their aggressive post-event marketing plans and merchandising support during the initial product launches of recent Rx-to-OTC switches. However, they also expressed disappointment in the lack of ongoing trade promotion support for most switches.

The most significant gap, according to retail executives, is due to manufacturers' insufficient communication to both consumers and retailers. Retailers explained that relying on the pharmacist to inform consumers on the issues regarding OTC medications raises a conflict-of-interest red flag and is unrealistic, given pharmacist's other responsibilities and time constraints. Retailers need manufacturers to reach out directly to consumers after recalls and withdrawals, through advertisements that announce the event, help allay fears, and inform consumers of their options. Furthermore, manufacturers have to inform retailers of recalls or withdrawals in a more timely fashion.

In recent major Rx-to-OTC switches, retailers lost substantial sales due to insufficient supply. Manufacturer's inability to provide an adequate supply of the new OTC solutions resulted in significant frustration for both consumers and retailers, particularly mid-sized, regional chains.

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