By Qian Zisheng (China Daily)
Updated: 2007-09-13 13:36

It's time for Chinese pharmaceutical chains to learn from international retailing behemoths like Wal-Mart.

Last year, US-based Wal-Mart topped the Fortune 500 list, which pegged the world's largest retailer's revenue at US$351.1 billion, an increase of 11.2 percent over the previous year, with a profit of US$11.3 billion.

The seemingly less profitable retailing business surprisingly leaves many big American names like General Electric and General Motors behind in profit figures. There are reasons for this success. Low price is one of them.

In all markets, price is always an important, if not the most, tool to attract or drive away customers. Sam Walton, founder of Wal-Mart, was wise enough to realize he could please his customers by passing on the savings to them and earn his profit through bigger volumes.

The low-price strategy has been copied around the world since early 1962, when the first Wal-Mart outlet was launched in Rogers, Arkansas.

But how can prices be kept down? This brings us to another equally important Wal-Mart strategy - maximum cost cutting.

Wal-Mart opens as many stores as possible in a specific region. This effectively weakens the competition in the local market by slowing down the expansion of other retailers. More importantly, it brings in a more efficient logistics system and scales down the transportation costs.

The large number of stores and the bulk buying also put Wal-Mart at a more advantageous position to bargain with suppliers for cheaper deals.

Of course, it's not merely thrift that pushes Wal-Mart ahead of its competitors. The American retailer has been highlighting the value of its staff and makes it a point to keep them happy.

On the other hand, there are lessons to be learnt from Wal-Mart's setbacks in China.

Wal-Mart here insists on the unified settlement of accounts, which means the cash flow in all stores will eventually go through the China headquarters. This, in turn, means loss of tax revenue for local governments, and is the reason why most of them cold-shoulder Wal-Mart, hindering its expansion.

The slower expansion and the consequent small number of stores makes it difficult to guarantee the same efficient logistics system as it enjoys worldwide, let alone cost controls.

For Chinese pharmaceutical retailers, the Wal-Mart story is worth bearing in mind.

There are numerous pharmaceutical retailing brands but most share common problems such as a lack of core value or brand promise, like Wal-Mart's low price, that could easily set themselves apart, insufficient qualified brains capable of finding the niche market and innovative corporate strategy, roughly designed talent training programs, empty words on both internal reward and punishment initiatives, and sales commissions that lead to high retail prices.

The problems are exactly where the gap lies and what Chinese pharmaceutical retailers should get rid of to raise their bottom line amid fiercer competition.

Take Jiangsu Drug Store Federation for example. There are 33 pharmaceutical brands in the province that have a network of 1,500 stores in total.

I was part of a group of industry experts that recently participated in overhauling a pharmaceutical chain that resulted in rocketing revenue and profits.

After having studied the practices of international retailers, the group carried out a brand repositioning campaign internally, and then, before the new brand made its debut, conducted training to make employees fully involved in the campaign, telling them what the brand stands for, what they are expected to do and what they are not.

Everyone was asked to send a report analyzing the job they are involved in and suggest solutions to support the new corporate strategy.

A series of rewarding tools were also designed to motivate the staff to work harder and convince them that they can benefit from the strides the company makes.

The headquarters was made responsible for 70 percent of pharmaceutical purchasing and individual stores for the rest.

Wal-Mart's other practices, like freeing suppliers of entry fees, helping them improve the product quality and design, and online information sharing, were also adopted.

The author is a senior marketing consultant in China's pharmaceutical industry and is now executive general manager of Jiangsu Drug Store Federation