IN MY OPINION 1995-03-20

Jeffrey Hill

Consumer products have realized only 1.9% in real growth over the last 10 years. As a result, competition betwen trade classes has become a battlefield. Winning retailers are focusing on (1) leveraging their core businesses, and (2) pursuing growth opportunities.

These two strategies find their nexus in the arena of drugs switching from prescription to over-the-counter status (Rx-to-OTC). This represents the largest growth opportunity for the health and beauty care category over the next 10 years. Estimates are that Rx-to-OTC switches will create a $14 billion business by 1996 -- representing 25% of the total HBC category volume. So far, drug channels are doing the best job, taking a 60% share of Rx-to-OTC even while claiming only 41% of HBC business overall. Drug stores clearly are viewed by consumers as the primary location for healthcare products. Food and mass channels each collect only 20% of the Rx-to-OTC opportunity.

The challenge for retailers is to realize their fair share of these emerging opportunities by employing proven "best practices." They were responsible for the successful launch of Procter & Gamble's Aleve last year. The approaches are: Aggressive Commitment (bf) Winning retailers gave Aleve multiple facings in "prime" locations and aggressively promoted the introduction. Quick Response (bf) Winning retailers took delivery of Aleve on "Day One," distributed the product to retail quickly via cross-docking and delivery via bread trucks and got it on the shelf within days of the start ship.

Consumer Awareness (bf) Winning retailers communicated to their employees and customers about Aleve's Rx-to-OTC switch, tied-in with manufacturer advertising and mandated use of in-store signage. Accounts that followed "best practices" generated 12% higher volume. The upside potential for accounts that aggressively supported the introduction was even more significant, ranging from 30% to 88%.

It is equally incumbent upon manufacturers to understand what it takes to leverage fully the potential of Rx-to-OTC switches within the context of category management principles. Attention to space management, distribution, promotion and pricing are essential to maximizing core businesses. At the same time, capitalizing on emerging growth means driving incremental volume and profits through successful Rx-to-OTC introductions.

Perhaps most important, total leverage of the Rx-to-OTC opportunity requires close and careful cooperation between retailer and manufacturer. The enormous volume and profit potential of Rx-to-OTC switches certainly is something the two parties can agree on.

Jeffrey Hill is managing director of Meridian Consulting Group, a sales and marketing consulting firm based in Connecticut.