DIGITAL TRANSFORMATION OF TRADITIONAL PHARMACEUTICAL ENTERPRISES -- TAKING RENHE'S INVESTMENT IN DINGDANG HEALTH AS EXAMPLE

Abstract

The rise of the "Internet Plus" concept has brought enormous possibilities for digital transformation in various industries in recent years. Traditional pharmaceutical enterprises find it increasingly difficult for them to meet the rising healthcare needs of the people in the new era when facing problems such as high costs associated with too many intermediate distributors, low working capital turnover ratio, limited pharmacies in underdeveloped areas, uneven distribution of medical resources, and patients visiting major hospitals for minor conditions. It is possible to sufficiently address these problems with new models, such as pharmaceutical e-commerce and online consultation with the "Internet Plus" traditional pharmaceutical enterprises. This forces traditional pharmaceutical enterprises to seek a certain level of digital transformation. Combination with e-commerce and that with mobile healthcare are the two main directions of digital transformation of traditional pharmaceutical enterprises with specific options including B2B, B2C, and O2O. This study analyzes the effect of digital transformation efforts of pharmaceutical enterprises with Dingdang Health as the primary example from the perspectives of pharmacies, pharmaceutical enterprises, and consumer experience with the perspective of pharmacies analyzed in terms of operational capability and single store profitability model, the perspective of pharmaceutical enterprises analyzed in terms of financial performance, and the perspective of consumer experience analyzed in terms of third-party review, drug price, online consultation, etc. The findings show that online pharmacies' operational capability apparently outperforms traditional pharmacies regarding inventory turnover, drug types, service coverage, and average benefits. The single-store profitability model suggests that online pharmacies also perform much better than traditional pharmacies as the penetration rate of online drug purchases increases. However, the digital transformation has not brought significant decreases in marketing costs as expected though order fulfillment expenses are the largest port of costs of online pharmacies, as shown by the financial data of pharmaceutical enterprises. From the perspective of consumer experience, online pharmacies are more advantageous in terms of third-party review, rating, drug price, online consultation, etc. However, they still cannot completely replace offline pharmacies largely because of the immediacy and professionalism required in pharmaceutical consumption.