Research in Social and

Administrative Pharmacy 10 (2014) 459–468

Commentary

Future-proofing the pharmacy professionin a hypercompetitive market

Judith A. Singleton, B.Pharm., M.B.A. (Hons.)a,b,*,Lisa M. Nissen, B.Pharm., Ph.D.a,c

aSchool of Pharmacy, University of Queensland, Brisbane, AustraliabAsia Pacific Centre for Sustainable Enterprise, Griffith Business School, Griffith University, Brisbane, Australia

cSchool of Clinical Sciences, Queensland University of Technology, Brisbane, Australia

Summary

This paper highlights the hypercompetitive nature of the current pharmacy landscape in Australia and to

suggest either a superior level of differentiation strategy or a focused differentiation strategy targetinga niche market as two viable, alternative business models to cost leadership for small, independentcommunity pharmacies. A description of the Australian health care system is provided as well as

background information on the current community pharmacy environment in Australia. The authorspropose a differentiation or focused differentiation strategy based on cognitive professional services (CPS)which must be executed well and of a superior quality to competitors’ services. Market research todetermine the services valued by target customers and that they are willing to pay for is vital. To achieve

the superior level of quality that will engender high patient satisfaction levels and loyalty, pharmacy ownersand managers need to develop, maintain and clearly communicate service quality specifications to the staffdelivering these services. Otherwise, there will be a proliferation of pharmacies offering the same

professional services with no evident service differential. However, to sustain competitive advantageover the long-term, these smaller, independent community pharmacies will need to exploit a broad corecompetency base in order to be able to continuously introduce new sources of competitive advantage. With

the right expertise, the authors argue that smaller, independent community pharmacies can successfullydeliver CPS and sustain profitability in a hypercompetitive market.� 2014 Elsevier Inc. All rights reserved.

Keywords: Hypercompetition; Pharmacy; Hypercompetitive pharmacy market; Differentiation; Strategy; Professional

services; Community pharmacy

Purpose

This paper highlights the hypercompetitive

nature of the current pharmacy landscape inAustralia and suggests either a superior level of

* Corresponding author. School of Pharmacy, Pharmacy A

land, Brisbane, Australia. Tel.: þ61 7 3346 1947; fax: þ61 7 3

E-mail address: judesingleton@gmail.com (J.A. Singleton).

1551-7411/$ - see front matter � 2014 Elsevier Inc. All rights

http://dx.doi.org/10.1016/j.sapharm.2013.05.010

differentiation strategy or a focused differentiationstrategy targeting a niche market as two viable,

alternative business models to cost leadership forsmall, independent community pharmacies. The

ustralia Centre of Excellence, The University of Queens-

346 1999.

reserved.

460 Singleton & Nissen / Research in Social and Administrative Pharmacy 10 (2014) 459–468

descriptor, ‘small independent community phar-macies,’ refers to single pharmacies that are in-dependently owned or a small group of pharmacies

(five pharmacies or less) owned by either onepharmacist or a small group of pharmacists. UnderAustralian Government legislation, only pharma-cists whose qualifications are recognized by the

Pharmacy Board of Australia can own communitypharmacies in Australia.

Following a differentiator strategy involving

the development and implementation of cognitiveprofessional services (CPS) is not new to commu-nity pharmacy in Australia or elsewhere. In fact,

the viability of Australian community pharmacymay well depend on this diversification intoexpanded CPS.1 As more and more of the smallerindependent community pharmacies in Australia

implement professional services and follow a dif-ferentiator strategy to compete against each otheras well as against the warehouse and discount

pharmacies with their cost leadership strategies,sustaining competitive advantage will become in-creasingly difficult. In this paper it is proposed

that these smaller, independent community phar-macies adopt strategies to further differentiatefrom the ‘differentiators’2 to gain competitive

advantage.

Background

The Australian health care system

Australia has a universal health insurancescheme called ‘Medicare’ which was introducedin 1984. Medicare provides Australian citizens

with free treatment and accommodation as a pub-lic patient in a public hospital and free or sub-sidized treatment by practitioners such as doctors

(including specialists), optometrists, dentists andother allied health practitioners (in special cir-cumstances only). Australia’s public hospital sys-

tem is jointly funded by the Commonwealth, Stateand Territory Governments and is administeredby State or Territory Health departments, whichsit under the jurisdiction of their relevant State or

Territory governments.3 To help fund the Medi-care scheme, Australian taxpayers pay a Medicarelevy of 1.5% of their taxable income (this levy is

waived for low-income earners). Australia alsohas a private health sector that is comprised pri-vate hospitals, health care professionals in private

practice, not-for-profit organizations, and privatehealth insurance funds. There is a certain degreeof crossover between these two sectors e.g., the

government (State or Commonwealth) may payfor services provided to patients by practitionersin private practice and private health insurers

may pay for services provided to patients in publichospitals. The difference between the two sectorsis that public patients waiting for elective surgerygo on to waiting lists (which can be lengthy) with

precedence on the basis of clinical need whereaspatients with private health insurance who electto go privately and pay (with reimbursement

from their health insurer) have much shorter wait-ing times for their procedures.4 To reduce thepressure on the public hospital system, the Aus-

tralian government has endeavored to increasethe number of Australians who have privatehealth insurance. One strategy is the MedicareLevy surchargedin addition to the 1.5% Medi-

care Levy, individuals and families on higherincomes who do not have private hospital insur-ance cover are charged an additional Medicare

surcharge of 1% of taxable income.

Community pharmacy in Australia

The pharmaceutical benefits scheme

With regards to medicines, Australia has thePharmaceutical Benefits Scheme (PBS), a govern-ment-subsidized scheme that is part of the broader

National Medicines Policy. The PBS comprisesa list of medicines used in the treatment of mostmedical conditions.5 Patients obtain these medi-cines from community pharmacies and public or

private hospital pharmacy departments. Patientspay a proportion (co-payment) of the cost of thePBS-subsidized medicine and the government

pays the rest. The patient co-payment has twotiers – one tier consists of a lower co-paymentfor those patients holding a concession card

(war veterans, pensioners, low-wage earners andunemployed) and the second tier is for ‘General’patients. It is illegal for any Australian pharmacy

to offer discounts to patients on any PBS medi-cines that are subsidized by the government.Some medicines on the PBS are cheaper than theGeneral patient co-payment – they still attract

a government subsidy for concession patientsbut not for ‘General’ patients. These medicinesdo not command a price set by the government.

In 2007, the Australian Government com-menced a process of PBS reforms (called pricedisclosure) to cap the rising PBS costs and keep

the PBS sustainable. These reforms were aroundthe payments community pharmacies would re-ceive from the government through Medicare for

461Singleton & Nissen / Research in Social and Administrative Pharmacy 10 (2014) 459–468

certain PBS-listed medicines dispensed to thepublic. From December 2010, the original pricedisclosure reforms were expanded to includea greater number of medicines listed on the PBS.

This policy was called the ‘Expanded and Acceler-ated Price Disclosure’ (EAPD) mechanism and itinvolved the progressive reduction of the price of

medicines for which there were generic brandsavailable.6 Prior to this mechanism being put inplace, when community pharmacies dispensed

a PBS-listed medicine the government would reim-burse them for the price negotiated for the ‘origina-tor’ brand. Should the pharmacy dispense a generic

brand of the medicine (after prescriber and patientconsent obtained) they would still be reimbursed atthe higher amountdsince generics manufacturerssupplied their medicines at a much lower cost to

pharmacies compared with originator brand com-panies, community pharmacies were able to gener-ate significant profits from generics substitution.

Prior to the implementation of this pricedisclosure mechanism, community pharmacies’gross profit margin dollars have been increasing

on the back of generous discounts and tradingterms from generic manufacturers. With the in-troduction of the ‘Expanded and Accelerated

Price Disclosure’ mechanism and the subsequentprice reductions to many prescription medicines,it is predicted that community pharmacies’ dis-pensary profits will start to decline.7 Currently,

the effects of the price disclosure mechanism ondispensary profits are being masked to some ex-tent by some high-volume molecules coming off

patent (with generic brands of the molecule nowbeing available) and not yet falling under the pricedisclosure process. Generic substitution with these

molecules will provide substantial dispensaryprofits in the short term. Another effect of theprice disclosure mechanism is that the costs ofmany PBS-listed medicines now fall below the

general patient co-payment and are no longer sub-sidized by the government. Patients pay the fullcost of these medicines themselves – discounting

the prices of these medicines is not illegal andtherefore this has become one area of competitionamong community pharmacies. The discount

pharmacies are pushing the prices on these medi-cines right down with the result that small, inde-pendent community pharmacies have now lost

profits on a large number of medicines.There are also indirect effects on community

pharmacies’ profits – upstream components of thevalue chain (wholesalers and suppliers) have also

experienced profit decreases as a result of the price

disclosure mechanism as well as other governmentfunding cuts with the flow-on effect to pharmacyevidenced in less favorable trading terms.7 The tra-ditional Australian community pharmacy model

(as still seen in the smaller, independent communitypharmacies) is now extremely vulnerable to pricecompetition due to its lack of “sophisticated retail

and servicemodels that extendbeyond simple prod-uct supply” and homogeneous product mix.8 Thesepressures on dispensary profits are continuing

against a background of falling ‘front shop’ (retail)gross profit margin dollars.7

The 5th Community Pharmacy AgreementCommencing in 1990, the Australian phar-

macy profession has negotiated 5-year Commu-

nity Pharmacy Agreements with the AustralianGovernment covering all aspects of communitypharmacy remuneration.9 Increasingly these nego-tiations have included discussions around the de-

livery and remuneration of CPS.10 The 5-yearFifth Community Pharmacy Agreement (CPA)between the Australian Government and the

Pharmacy Guild of Australia (PGA) commencedon 1 July 2010. The PGA is the national peakbody representing community pharmacy in Aus-

tralia. It was established in 1928 through theamalgamation of several small retail pharmacy or-ganizations then operating in various States and isregistered under the federal Fair Work Act (regis-

tered organizations) Act 2009 as an employers’ or-ganization.11,12 The 5th CPA provides AUD15.4billion in funding over the life of the agreement

to more than 5000 community pharmacies forthe delivery of a suite of programs, remunerationfor functions such as the dispensing of PBS med-

icines and the support of full line wholesalers toensure pharmacies have timely access to PBS med-icines.13 The 5th CPA also acknowledged that the

Pharmaceutical Society of Australia (PSA), whilenot a signatory to the Agreement, would be “anactive participant in those areas of this Agreementthat are related to professional practice.”14

Under the 5th CPA, the following professionalcommunity pharmacy services will be funded bythe Australian government:

1. Medication Management Programs

� Medicines Use Review (MUR) – an in-pharmacy medicines review between phar-macists and patients–known as Medscheck

� Home Medicines Review (HMR) – a medi-cation review conducted by an accreditedpharmacist in the patient’s home

462 Singleton & Nissen / Research in Social and Administrative Pharmacy 10 (2014) 459–468

� Residential Medication Management(RMMR) – medication reviews for perma-nent residents of Commonwealth-funded

residential aged care facilities� Diabetes Medication Management Service(DMMS) – a medication management ser-vice for patients with Type 2 Diabetes

who are newly diagnosed or whose diabetesis less than ideally controlled – known asDiabetes MedsCheck

2. Rural Support Programs

� Rural Pharmacy Workforce – this programfocuses on strengthening and supportingthe Rural Australian pharmacy workforce

� Rural pharmacy maintenance allowance –this is a monthly payment to eligible propri-etors of approved pharmacies in recognitionof the additional burden of maintaining

a pharmacy in rural and remote areas ofAustralia

3. Aboriginal and Torres Strait IslanderPrograms

� Section 100 Support Allowances – this al-lowance is paid to approved pharmacies toprovide free medicines to clients of remote

Aboriginal Health Services that participatein the section 100 supply arrangements

� Quality Use of Medicines (QUM) frame-work to support rural and urban Aborigi-

nal Health Services� Aboriginal and Torres Strait Islander Phar-macy Workforce–strengthens and supports

this pharmacy workforce to provide im-proved, culturally-appropriate, pharmacyservices for Aboriginal and Torres Strait Is-

lander patients.

4. Research and development5. Medication continuance6. Supply and PBS claiming from a medication

chart in a residential aged care facility (as op-

posed to a prescription)7. Electronic recording of controlled drugs8. Pharmacy practice incentive programs

These include the following:� Provision of primary health care servicesfor diabetes, respiratory disease, cardiovas-

cular disease, mental health conditions andhealth promotion through either/or screen-ing and risk assessment and disease statemanagement

� Clinical interventions by pharmacists

� Provision of Dose Administration Aids(DAAs)

� Staged supply support allowance – this in-

volves the provision of dispensed PBS med-icines in installments when requested by theprescriber (excludes Section 100 opioid de-pendency treatment program).13

To assist Australian community pharmaciesdeliver professional services to their patients the

PGA has developed the GuildCare Programs–a national systemized software platform for de-livering professional pharmacy services.15 This

software integrates with the various existingdispensing software packages utilized in Austra-lian community pharmacies and simplifies theidentification, recording and payment claiming

of professional services delivered by communitypharmacies.

Discussion

Business-level strategies and current pharmacybusiness models

In Australia, due to the ownership rules thatprevent non-pharmacists and certain company

structures from owning pharmacies, the organiza-tional structures of community pharmacies aresuch that the strategies they employ to gain

competitive advantage over their rivals may beconsidered business-level strategies. A business-level strategy has been defined as, “an integrated

and coordinated set of commitments and actionsa firm uses to gain a competitive advantage byexploiting core competencies in specific productmarkets.”16 There are five types of business-level

strategies:

1. Cost leadership2. Differentiation3. Focused cost leadership

4. Focused differentiation5. Integrated cost-leadership/differentiation

Cost-leaders perform activities differently totheir rivals providing products and services ata low cost with acceptable features. Differentia-

tors on the other hand perform different activitiesto produce goods or services at an acceptable costwith highly desirable features i.e., their customers

perceive their goods or services to be different inways that are important to them.16

463Singleton & Nissen / Research in Social and Administrative Pharmacy 10 (2014) 459–468

Currently, all of these business-level strategiesmay be observed in the Australian communitypharmacy industry. Cost leadership strategy isutilized by a plethora of large discount/warehouse

pharmacy groups. To compete against these largediscount chains, other large pharmacy groupshave chosen to adopt an integrated cost leader-

ship/differentiator strategy offering competitiveprices for their prescription and non-prescriptionmedicines and front shop products but delivering

differentiation in the form of cognitive profes-sional services (CPS). Focused cost leadership hasbeen demonstrated in the arrival in the Australian

pharmacy market of ‘hole in the wall’ pharmacieswhich only stock a limited range of dispensaryand front shop convenience lines and price com-petitively to match the cost-leaders.17 Focused dif-

ferentiation is practised by a number of pharmacygroups providing specialty services such as oncol-ogy services, medication packaging services or

medication review services to aged care residentialfacilities as well as other private facilities.18 Manysmall, independent community pharmacies can-

not, or will not, price competitively8 and havechosen to follow a differentiation strategy basedon the provision of CPS with varying levels of

quality.19 They lack the economies of scale andthe operational efficiencies of the warehouse anddiscount pharmacies to enable them to chargethe lower prices and still make a profit.7 Since

the PGA launched its GuildCare Programs in2011 to facilitate the delivery of CPS funded underthe 5th CPA, 60% of Australia’s community

pharmacies have signed up to use this software,including many of the discount pharmacygroups.15 Those small, independent community

pharmacies that had chosen a differentiation strat-egy based on the delivery of CPS are fast losingtheir competitive advantage.

Hypercompetition and the Australian pharmacyindustry

An industry experiencing conditions of hyper-competition is characterized by extremely intense

rivalry among competing businesses with escalat-ing and increasingly aggressive competitive movesand counter-moves.20–23 The price wars currently

being played out in Australia between the ware-house and discount model pharmacies24,25 andthe competition among community pharmacy

banner groups for members26 in an industrywhere 70% of revenue comes from the sale of pre-scription medicines through PBS funding (so that

government policy effectively caps growth andprofitability),27 would suggest that the Australiancommunity pharmacy industry is experiencingconditions of hypercompetition. While the grow-

ing aging population in Australia has drivengrowth in the sales of prescription medicines, theAustralian Government’s PBS reforms (EAPD)6

and growing internal competition have resultedin a low average annual growth rate of 1.8%over the period 2007–2011 (a decline in real terms)

and a projected annual growth rate of 2.4% in2016.27 While the profitability of individual phar-macies varies greatly depending on factors such as

size, location, sales mix and banner group align-ments, overall, Australian community pharmaciesreported an average operating profit before tax of2.5% for the financial year 2010–2011.28 This fig-

ure is below the all industries average profit figureof 4.5% for the same period.27 Other factorswhich affected the industry’s profits during this

period included the de-scheduling of several med-icines, which were previously pharmacy-only, toopen sellers (e.g., ibuprofen and nicotine replace-

ment products) so pharmacies were now compet-ing with supermarkets, service stations and otherretailers across a wider range of products.

In the selection of strategy, the environmentaldynamism and hostility of the industry need to beconsidered as they have been found to act asmoderators in the relationship between business-

level strategy and relative competitive perfor-mance.29 Hostility refers to the extent to whicha business is threatened by the intensity of its com-

petition and the fluctuations in its primary indus-try. Cost leadership strategies were found to bemore effective in achieving above-average returns

in highly dynamic and low-hostility environmentswhereas differentiation strategies were found to bemore effective in low dynamic and high-hostilityenvironments.29 When the first aggressive dis-

counters moved into the Australian pharmacymarket utilizing a cost-leadership strategy, themarket at the time was relatively stable with low

hostility. Now, with more and more pharmaciesadopting a discount business model and followinga cost-leadership strategy, the market has become

increasingly hypercompetitive and hostile. As thecompetitive advantage from the cost-leadershipstrategy decreases with the increasing number of

pharmacies in the market adopting the discountmodel, the first-mover cost-leader pharmacygroup may well seek other sources of competitiveadvantage. This could mean moving along the

price-quality continuum toward a cost-leadership

464 Singleton & Nissen / Research in Social and Administrative Pharmacy 10 (2014) 459–468

model offering a higher level of qualitydin phar-macy terms, a higher level of customer service.Since cost-leaders have greater margins through

superior cost efficiencies, they are in a better finan-cial position to absorb the wages for the extrapharmacists required to achieve this superior levelof service. This potential move by first-mover

cost-leaders to an integrated cost leadership/dif-ferentiator strategy argues for their competitorsto demonstrate a point of difference through the

adoption of a clearly defined and well-marketeddifferentiation strategy or a focused differentiationstrategy where they target a niche market. A dif-

ferentiator produces goods or services with highlydesirable features at an acceptable cost. Translat-ing this to a CPS model, the authors propose thatsmaller, independent community pharmacy

owners need to consider offering a range of CPSdelivered at a superior level of quality (in orderto differentiate their pharmacy’s offering from

that of other pharmacies pursuing a differentiationstrategy) or targeting a niche market and deliver-ing high quality, specialist services that are unique

to this market (i.e., pursue a focused differentia-tion strategy) in order to sustain competitiveadvantage.

A differentiation strategy for communitypharmacies based on the delivery of CognitiveProfessional Services (CPS)

A large, representative survey of Australian

community pharmacies conducted in 2002 foundthat 88% of Australian community pharmaciesoffered more than one CPS with more than 40%

of these pharmacies offering CPS for asthma,diabetes, opioid-replacement, hypertension andwound care. Predictors for the provision of more

than one CPS were pharmacies with higherturnover and young owners.30 Many communitypharmacy owners and managers have cited that

barriers to the implementation of CPS are aroundtheir workload and insufficient time in the work-ing day, the need to change the physical layoutof the pharmacy, and concern regarding the reac-

tion of medical practitioners.9,31–33 Lack of reim-bursement to pharmacists for the provision ofCPS has also been cited previously as a major bar-

rier to their implementation31 with an increase inthe provision of these services noted when phar-macists are provided with financial incentives.34,35

The successful implementation of CPS into com-munity pharmacies will require these barriers tobe addressed through workflow redesign8,36 and

practice change involving the entire pharmacyteam.9

There is also a belief among community

pharmacists that providing CPS takes their timeaway from revenue-generating activities and thatpatient payment is necessary just to keep theactivity revenue-neutral.37 Traditionally, commu-

nity pharmacies in Australia have provided CPSsuch as blood pressure monitoring, blood glucosetesting, smoking cessation advice, weight loss, nu-

tritional advice and wound dressings either free ofcharge or for a minimal fee. They could afford tooffer these types of services free, or for a minimal

charge, on the back of dispensary profits from ge-neric substitution and ‘front shop’ profits gener-ated from the sales of pharmacy-only andpharmacist-only non-prescription medicines.

With the range of programs delivered under the5th CPA, patients are not charged for these CPSand pharmacies are remunerated through govern-

ment funding. Should this funding be withdrawnwhen the next CPA is negotiated, communitypharmacies will find it difficult to continue to de-

liver these CPS free of charge in a business envi-ronment where dispensary profits are beingsqueezed with the EAPD mechanism and retail

profits are being squeezed by heightened competi-tion across an increasingly wider range of productlines. This then raises the question, “Are Austra-lian patients willing to pay for CPS?”

Understanding which CPS patients actuallyvalue,38,39 as well as their willingness to pay forthese services, are important factors for pharmacy

owners to consider if they wish to follow a differ-entiation strategy for their pharmacy. There isa perception among pharmacists that patients

are not willing to pay for CPS which has contrib-uted to a misconception that there is a lack of pa-tient demand for these services.31 Research intoconsumers’ Willingness To Pay (WTP) for various

types of pharmacy CPS has been conducted usingWTP methodology40 which elicits from patientshow much they are willing to pay in order to re-

duce the incidence of adverse health outcomes.37

Various studies looking at the delivery of specificpharmacy services37,41–44 indicated that patients

were willing to pay for expanded CPS. WTP-moderating factors identified included age,44 edu-cation levels and income groups,45 perceptions of

pharmacists’ ability37 and previous exposure topharmacy services.44,46 However, Hanna andWhite47 noted that the majority of these studieswere carried out in the USA and questioned

whether Australian patients would be equally as

465Singleton & Nissen / Research in Social and Administrative Pharmacy 10 (2014) 459–468

willing to pay for CPS, particularly since a per-centage of Australian patients believe verystrongly in free health care for all and would beresistant to payment for CPS.48 It should also be

noted that some of these studies are now morethan 10 years old and with the aftermath of theglobal financial crisis patients’ WTP may have

changed.47 Studies have found that patients’WTP depends on the degree of intangible benefitderived from the purchase of the service i.e.,

they are more willing to pay for a service which re-sults in 100% improvement in their conditioncompared with a service which results in a 50%

improvement in their condition.37,44,47 WTP isalso higher for initial consultations comparedwith follow-up consultations.47 Patients’ WTPwas also found to decrease as the cost of the

CSP increased.45 Therefore, in order to developCPS which are superior to those offered by rivalsalso following a differentiation strategy, commu-

nity pharmacies are encouraged to identify whichaspects of the CPS their patients value most highlyand which aspects they are prepared to trade off

to be able to receive these valued components.45

A limitation to WTP research to date is that theWTP methodology employs hypothetical surveys

and patients may overstate what they are willingto pay.40,45 Research is needed where patients’WTP is measured in real-life situations in orderto help with the development of a remuneration

model for CSP for community pharmacies shouldgovernment funding be discontinued or commu-nity pharmacies wish to extend the range of CPS

offered beyond the services funded under the 5thCPA. In the meantime, there is persuasive evi-dence that could be provided to the Australian

government that increased clinical interventionrates and disease state management services deliv-ered in community pharmacies can yield signifi-cant savings to the health care system through

reduced number of days in hospital, reduced num-bers of doctors’ visits and reduced medicationcosts and improved quality of life for pa-

tients.33,35,49–53 This body of research argues forthe Government to continue funding these pro-grams into the next CPA. It may also be a useful

exercise for pharmacists to demonstrate to thecommunity what they can do to improve healthoutcomes46 which may in turn drive consumer de-

mand for pharmacy-delivered CPS. Another fac-tor that will affect consumer demand for CPS,and ultimately the success of a differentiationstrategy based on CPS, is service quality. The level

to which pharmacy managers develop, maintain

and communicate service quality specificationsto the staff delivering the service affects the levelof service quality in community pharmacies.19

However, high patient satisfaction levels and

quality of service do not guarantee loyalty toa particular pharmacy. Patient trust is also an im-portant factor and is significantly impacted on by

sincerity and competence.19

With an increasing number of pharmaciesfollowing a differentiation strategy, the challenge

for small, independent community pharmacies ishow to sustain competitive advantage under thesemarket conditions. If we take a resource-based

view of the firm from strategic managementtheory, competitive advantage is achieved throughthe effective coordination and integration of re-sources to form capabilities. Capabilities that

enable a firm to perform key activities betterthan its rivals are called ‘core’ or ‘distinctive’competencies.54 Core competencies are capabil-

ities that are rare, valuable, costly to imitate andnon-substitutable i.e., the unique activities thatfirms can do better than their rivals.16,54 For a ca-

pability to be a core competency it will either en-able a firm to provide superior customer value(differentiators) or provide a firm with superior

cost efficiencies in the provision of products orservices (cost-leaders). Core competencies enablefirms to not only create superior competitive ad-vantage compared with their rivals, but also allow

them to sustain this competitive advantage. It hasbeen proposed that in order to sustain competitiveadvantage in a hypercompetitive market, busi-

nesses need to rely not on a single, sustained com-petitive advantage but on a series of new, shortercompetitive advantages, which synergistically

compound to create a sustained competitive ad-vantage.55 This is because business-specific advan-tages do not endure under these marketconditions due to the extremely fast actions and

counter-responses of rivals Fig. 1.21

To be able to continuously introduce newsources of competitive advantage in this way

and compete successfully in this hypercompetitivemarket, smaller independent community pharma-cies will need to develop a range of core compe-

tencies across all their business activities. Thedevelopment of only one, or a few core compe-tencies is not significantly better for pharmacy

business performance than a total lack of corecompetencies.54 Therefore, those pharmacieswishing to compete in the market using a differen-tiation strategy will need core competencies not

only around the delivery of CPS but also in all

Fig. 1. Depiction of a firm continuously introducing new sources of competitive advantage.20

466 Singleton & Nissen / Research in Social and Administrative Pharmacy 10 (2014) 459–468

other areas of their business in order to differenti-ate from other differentiators and deliver superiorservice quality to their patients. This service deliv-

ery will also need to take place against a back-ground of workflow redesign and reorganizationof resource utilization.56 Competencies in operat-ing efficiencies and workflow and in the area of fi-

nancial control systems and technologies willdeliver cost savings and will aid in strategic plan-ning. Inefficiencies in workflow, particularly in the

dispensary, will have to be addressed in light offalling dispensary gross profit margins. Newworkflow models utilizing pharmacy technicians

in the dispensary and pharmacists on the frontcounter will be needed to drive sales in thepharmacy-only and pharmacist-only categoriesand increase pharmacies’ average retail sale dol-

lars per customer as well as the number of itemsper customer. The introduction of robots intothe dispensary should also be considered. Al-

though there are substantial ‘upfront’ costs in-volved and pharmacies have reported technicalproblems, the payback time has been estimated

to be less than 5 years and improvements in finan-cial performance indicators have been noted.57,58

With regards to the delivery of CPS, competencies

should include the ability to identify a distinct tar-get market, determine its needs and then deliverservices of an exceptional standard that create su-perior value.54 There should also be competencies

around the effective marketing of these services,and a ‘servicescape’ that enhances the patient’sin-store experience. This corroborates nicely with

strategies opined by Alston and Blizzard that sug-gest pharmacies must take a more holistic, orcomprehensive, view of consumers’ perceptions,

which take into account perceived value basedupon both price and service.59

Conclusion

While the current hypercompetitive pharmacymarket is a challenging environment, it is still

possible for smaller, independent communitypharmacies to compete successfully followinga differentiation or focused differentiation strat-

egy. One type of differentiation strategy proposedis the implementation of CPS. This differentiationstrategy must be executed well and offer patientshigh quality professional services. In order to

deliver CPS of a superior quality to their rivalsand successfully differentiate from other differ-entiators, these smaller, independent community

pharmacies will need to develop a broad range ofcore competencies across all the business activitiesof the pharmacy. Market research to determine

the services that customers value and are willingto pay for is vital. To achieve the superior level ofquality that will engender high patient satisfactionlevels and loyalty, pharmacy owners and man-

agers need to develop, maintain and clearlycommunicate service quality specifications to thestaff delivering these services. Otherwise, there will

be a proliferation of pharmacies offering the sameprofessional services with no evident servicedifferentialda classic example of D’Aveni’s dif-

ferentiation proliferation trap. To sustain com-petitive advantage, these smaller, independentcommunity pharmacies will need to exploit

a broad core competency base in order to beable to continuously introduce new sources ofcompetitive advantage.

Considering these factors may seem daunting

to business owners whose primary training is inhealth, not business. However, with the rightexpertise, smaller, independent community phar-

macies can compete in the current, hypercompet-itive pharmacy market and deliver high qualityCPS that can provide substantial health benefits

to the Australian public.

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