Business strategy and management for a pharmacy retailing chain in China

Abstract

The retailing business world has gone through various revolutions, innovation and challenges in the past decades, especially when the lock-down brought by the worldwide pandemic has significantly changed people consumption behavior. Retailing industry faces new opportunities and challenges, and thus, we require new business strategies and managerial insights that can help retailing firms to achieve a higher efficiency and profitability. In this dissertation, based on the evidence of my firm, Ju Yuan Tang, a leading pharmacy retailing chain in Fuyang City, Anhui Province, we will overview the retailing chain in China, and investigate what business strategies and inventory management should be adopted to improve firm operational performance and profit. The first chapter reviews the history of pharmacy retailing industry in China. Specifically, China's pharmacy retailing industry has experienced multiple stages of development, including chain operations, pharmacy alliances, capital expansion, and O2O pharmacy retailing. Affected by the COVIN-19 epidemic in 2020, retail pharmacies mainly switched to online operations in the post-epidemic period, and with policy support, the status of pharmacies in the terminal has been improved. As a leading pharmaceutical company in Fuyang City, Ju Yuan Tang has been developing since 2008. It has gradually improved its business philosophy and revised its business model in line with social changes. Today, it has 310 branches and is one of the largest retail pharmaceutical companies in Anhui. In the second chapter, we examine what business strategies and inventory management should be adopted by the retailing chain in nowadays business world where the need of omni-channel synergies has been desired for both traditional retailers and e-commerce platform. ``Ship-from-store" (SFS) is one of the most important strategies to help the offline local store to fulfill consumer demands from the online channel, leading to an effective integration of online-to-offline (O2O). We build a stylized model to investigate the impact of the SFS strategy on customer demand, offline store operations and profits. There are two types of customers, with the one only making a purchase from the offline store (store-only customer) and the other considering a purchase from both offline and online channels (omni-customer), and both of their demands are fulfilled by the inventory stocked by the offline store/retailer. We show that SFS implementation may not always benefit the retailer. First, retailer can benefit from SFS if a channel-aggregated demand pooling effect is realized, i.e., more store-only customers are willing to visit the offline store and omni-customers make a purchase from the retailer's online channel. Second, though SFS can reduce the online waiting cost for customers shopping online, it can bring three types of demand transition: demand creation, cannibalization and shrunk. The retailer can always earn a greater profit under demand creation but not the other two. Third, if retailer experiences demand cannibalization transition, it can earn a greater profit if it presents suitable products in the online channel, with (one of) product characters of high margin, high online cross-selling profit and high optimal pooling inventory. These results are all supported by our empirical evidence examining real data from Ju Yuan Tang’s chain stores. The third chapter is to examine how market competition affects price and quality adjustments made by an organization of plural forms, using detailed transactional data from Ju Yuan Tang. Based on a capital investment wave emerged in 2017, this study intends to use an event study approach to empirically examine the competition effect on different types of retailers, i.e., company-owned, and franchised retailers (i.e., plural forms), and study retailers’ performance (e.g., transactional volume and profit) under competition. We take advantage of the time series data from both stores detailing their decisions (products sold, pricing) and outcomes (profits, transactional volume) together with the data recording the number of new entrants over the year of 2017 to construct an event study. We use segmented regressions to investigate, and attempt identify the differences in managerial decisions between both stores in response to the increased competition from the capital wave, as well as finding any differences in outcomes as a result of those decisions. Our main findings show the following: (i) Regarding the substitutability between price and product variety, our results seem to suggest that the increased competition has had a negative effect on both pricing and product variety decisions for both stores, suggesting that the two may be complementary to each other. (ii) The company-owned store was most negatively affected by the increased competition. (iii) For both stores, we found that product variety plays a crucial role in a store’s profit-making ability, as well as lower, competitive prices in the wake of the wave of new entrants.