Digital Native vs Incumbents (2): an industry case

Health Care Industry Disruption: the digital transformation with platforms business model (this is a reduced version from the original analysis [i])

This work shows how a digital business DISRUPTER (Challenger) can enter the healthcare industry and replace incumbents. A disrupting strategy can be designed for any business in any industry sector. The set of tools used in this report does not represent a detailed view of all resources available for building these types of business cases.

There are several stakeholders involved in the health care value chain that serves two types of consumers: the patient (associated with a “medical treatment”[ii]) and the customer (who consumes a product, not necessarily a medicine). For example, a consumer will buy a solar protector in a pharmacy, which does not make him/her a patient.?In this work, I explore the relationship between the customers and some products available in the pharmacies.

This choice was made because of two main reasons. First, for the?market growth potential. Sales in the pharmacy channels have raised around the globe. Specifically, in my country,?Brazil, despite the economic crises we faced in the last years, the pharmacies represent a US$ 20 billion market and its revenue raised 9% in 2017 vs 2016 (9,34% increase for medicines and 7% for non-prescribed products).[iii]?The?second reason?is the?market coverage potential. There are over 74,000 pharmacies in Brazil?[iv]?and 94% of the population used to buy in pharmacies regularly. Consumers are 55% women and 45% men. Over 40% of the consumers shop frequently (the average is 2 times per month). Consumers buy medicines (88%), personal care products (42%), cosmetics (38%). And only 16% of the Brazilians see the pharmacies as healthcare commerce – for them, they are minimarkets (31%), cosmetics' shops (28%) and convenience stores (25%).?[v]

Defining the type of customer

During my search for information on?how consumers buy embarrassing products,?I identified three articles that provided me with several insights. These articles are from the Wharton University[vi], Mississippi State University[vii]?and University of Manitoba[viii]. The key insight so far is there is an unmet customer need to have an anonymous shopping experience for embarrassing healthcare products (commonly only available in pharmacies), with expert advice, at a fair price, without feeling guilty. The interesting thing is that several respondents suggested?the embarrassment is not only product-dependent but also context-dependent. For example, a woman may feel embossed to buy a geriatric diaper if it is for her own personal use and feel perfectly comfortable if she is buying it for her father or mother.

The incumbents to be disrupted

Although the products these consumers buy are usually available in pharmacies, this is not the only way to acquire them.

How o disrupt the incumbents

I decided to use the Digital Platform Canvas Model I created.?The elements of the digital platform are: 1) the community, formed by suppliers and its resources, by consumers and by the interaction between them; 2) the network, formed by the community and by internal end external developers of solutions that enhance the quality of network interactions; 3) the back office, formed by the owners of the entire ecosystem and by eventual intermediaries that enable interactions between suppliers and consumers; 4) the network effects, which are all interactions produced between suppliers, consumers, developers and intermediaries – the goal of a digital platform is to provide high-quality network effects; 5) the ecosystem, which is the group of elements in a platform.

The value proposition

The platform has?four suppliers: a?marketplace, a community of?pharmacists, a community of?doctors?and the platform?owner. Each supplier is responsible for delivering one or more resources to the platform. The community of pharmacists will provide expert advice for the consumers. The platform owner will develop the ecosystem which is made available to consumers through a mobile App and a desktop version.

The platform uses?artificial intelligence algorithms?based on?machine learning?to search for technical articles related to any product trades in its marketplace – the AI know-how is available to consumers via a user-friendly interface, so the consumer can guide all necessary searches. Other machine learning algorithms will capture product, process and consumer data and provide to each consumer a context – this is explored in the following sections of the analysis.

The community of doctors will contribute to short articles via personal blogs integrated into the ecosystem. The artificial intelligence know-how will automatically read key works in each text produced and link to target products and to the technical articles mentioned before.

Finally, the marketplace will offer price comparison solutions including online and offline stores. Blockchain technology?will ensure unique data security and disable the possibility of?creating a digital footprint. The marketplace is also responsible to create the best-possible target-product delivery experience for the consumer.

Value elements

Disrupting the negative characteristics

Value network

The value network lies on four types of interactions: (1) consumer-consumer interactions; (2) consumer-pharmacists interactions; (3) consumer-doctors interactions; and (4) consumer-market place interactions. The existence of these interactions depends on the ability of the digital platform model to deliver value to consumers, pharmacists and doctors.?If any of these stakeholders do not value the experience in the platform, they will leave it and the business model shall ruin.

Value network: consumer-consumer interactions

These interactions are meant to enhance two behaviours of the digital customer: CONNECT and COLLABORATE. As consequence, an important value template (CONTEXT) is promoted, which disrupts the common negative characteristic of the incumbents: feeling guilty. The dynamics expected for these interactions is preceded by the construction of a solid community of pharmacists, a relevant community of doctors and the?technological backbone providing information based on artificial intelligence tools. In other words, to ensure fast and easy ACCESS (a digital customer behaviour) to the platform, it is required the platform’s suppliers are organized and actionable.

The COLLABORATE behaviour occurs when the customer contributes to improving the platform. It occurs when the customer updates pricing information of a target product when they evaluate the performance of the pharmacists, when they evaluate the quality of an article or when they classify the relevance of a doctor′s text in the blogs.?This collaboration produces PRODUCT, SERVICE and CONSUMER data that is captured by the platform owner as a strategic asset.

The second behaviour is CONNECT. The platform allows the consumer to interact and create topic-related communication channels. The trends related to the channels created and the intensity of communication within consumers in each channel is valuable data for the platform owner.?Again, there is an intense generation of strategic data.

The machine learning algorithms will capture and process the data produced during consumer-consumer interaction and generate several statistics that include the number of users in the platform that have a certain embarrassing health problem or that buy some specific embarrassing target product. These analytics are shared with the entire platform community, so each consumer will perceive they are not alone in this situation.

The consumer will realize that there are many people sharing the same needs – and some of them may be geographically very close. The combination of this awareness and the possibility to connect enhances the feeling of belongingness which disrupts the feeling of guilt.

The more these consumer-consumer interactions occur, the more visibility the platform owner will have on the consumer behaviour.?By investing in this strategy that “reveals the invisible”, the platform strengthens the value template of INSIGHT which may promote future TARGETING and PERSONALIZATION strategies.?This data generation and data management environment is unique, different from the type of data available to the existing incumbents and impossible to be imitated.

Value network: consumer-pharmacists interactions

As explained “the quality of the pharmacists’ community is a key point to strengthen the digital consumer behaviour ENGAGE. The credibility of these people and the trust in their information is a strategic asset for the platform”. The possibility to evaluate the pharmacist’s interaction enhances the COLLABORATION behaviour and generates product, service and customer data for the platform. These interactions can also provide relevant data for TARGETING and PERSONALIZATION as machine learning tools can compare text and voice data produced and associate this to specific target products available in the marketplace.

Value network: consumer-doctors interactions

These interactions are not direct as pharmacists-consumers. Based on the analysis of the consumers’ behaviour, they are recommended to read specific short articles written by doctors and will have the chance to evaluate the content according to how clear and useful it is. Doctors whose articles get better evaluation will be top-ranked in the categories the articles are focused on. Being top-ranked means their names will be on the top of the list in case consumers want to arrange an appointment for a consultation. Therefore, this may become a source of revenue generation for the doctors as well. These interactions strengthen the ENGAGE consumers behaviour, associated with the technical credibility of the digital platform they are interacting in.

Value network: consumer-marketplace interactions

This is the fourth type of interaction. From the consumer perspective, the marketplace offers variety, price comparison and several delivery options – including the pickup in a locker, which is completely anonymous. From the platform’s perspective, this is the interaction that supports the monetization strategy.?Despite the fact this is the main revenue stream, it must be managed as a consequence of the high-quality experience in the first three types of interactions.

Value network

Barriers to imitation

The platform ecosystem is based on high-value network effects generated by unique stakeholders’ interactions that produce data managed as a strategic asset.

This virtuous cycle retains the existing customers and attracts more new customers to the platform. Once the business offer has accumulated massive information about customer behaviour, the capacity to design precise TARGETING and PERSONALIZATION initiatives will ENGAGE customers so strongly that they will advocate for the platform. The asset that cannot be imitated is the data captured from consumer behaviour during the interactions within the platform model

Displacing the value of the incumbents

This business offer is the only to simultaneously deliver the value elements of each incumbent.?Additionally, it is the only to deliver three specific value elements: no digital footprint, possibility to follow the PATH-TO-PURCHASE with no human contact and – more important –?it is the only model that disrupts the feeling of guilt and creates a sense of belongingness within the consumers.

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[i]?Based on the templates presented in the book The Digital Playbook (David Rogers); [ii]?https://en.oxforddictionaries.com/definition/patient?;?[iii]?https://www.dci.com.br/comercio/faturamento-de-redes-de-farmacias-cresce-9-em-2017-diz-abrafarma-1.681880?;?[iv]?https://blogs.oglobo.globo.com/lauro-jardim/post/o-brasil-tem-74500-farmacias.html;?[v]?https://falecomofarmaceutico.wordpress.com/2015/05/31/perfil-dos-consumidores-em-farmacias-e-drogarias/?;?[vi]?https://knowledge.wharton.upenn.edu/article/marketing-embarrassing-products/;?[vii]?https://hbr.org/2018/02/how-to-sell-embarrassing-products;?[viii]?https://pdfs.semanticscholar.org/0cda/8f74579f77f87a8c17fe834f8d698c1b0af4.pdf