The Digital Transformation of the Swedish Retail Pharmacy Industry : A Case Study

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The Digital Transformation of the Swedish Retail

Pharmacy Industry

A Case Study

PAPER WITHIN Bachelor Thesis in Business Administration NUMBER OF CREDITS: 15 ECTS

PROGAMME OF STUDY: Marketing Management AUTHORS: Asha Kayima & Maja Sjöstrand

TUTOR: Ulf Linnman JÖNKÖPING May 2021

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Acknowledgments

We would like to show appreciation and gratitude towards every single person who has helped us along the way on this challenging, but very exciting and rewarding journey.

Firstly, we would like to thank our tutor, Ulf Linnman for the support and helpful feedback along the way, both in the seminars but also at other points in time. Without your help this would not have been possible.

Secondly, we would also like to give thanks to the participants in our seminar group. Thank you for taking the time to give us comments and advice on how to improve our thesis in the best way.

Thirdly, thank you to all our participants who took part in the interviews. Anders Nyberg, Björn Thorngren, Christian Huber, Mikael Lenneryd, Stig Tornell, Hannes Hasselrot, and Johan Bergenheim! You all provided us with very valuable and interesting insights in our work, and we really appreciate you taking the time to talk to us.

Fourthly, we would like to thank each other for always motivating one another and having a lot of fun together along the process.

Finally, thank you for taking the time to read our thesis!

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Bachelor Thesis in Business Administration

Title: The Digital Transformation of the Swedish Retail Pharmacy Industry Authors: Asha Kayima & Maja Sjöstrand

Tutor: Ulf Linnman Date: 2021-05-22

Keywords: Digitalisation, Customer Influence, Omni-channel, Value Creation, Swedish Retail

Pharmacy

Abstract

Background: The Swedish retail pharmacy industry is a dynamic industry that has undergone

many changes throughout the past decades. Presently, the pharmacy industry in Sweden consists of five nationwide pharmacy chains (Apoteket AB, Apotek Hjärtat, Kronans Apotek, Apoteksgruppen and LloydsApotek), three strictly e-commerce pharmacy companies (Apotea, Meds and Apohem), and 40 private players.

Problem: Due to digitalization, retail industries are nowadays dealing with customers that have

different expectations and exhibit changed shopping behaviours. The retail pharmacy industry in Sweden has not been an exception to the trend of having to go through a digital transformation based on society changes and changed customer behaviour.

Purpose: The purpose of this paper is to research how the Swedish retail pharmacy companies

have adapted to meet customer expectations and created value for the customer, as a result of digitalization.

Method: A qualitative approach with seven semi structured interviews have been conducted on

company representatives from the Swedish retail pharmacy industry.

Results: Despite the Swedish retail pharmacy industry being controlled by regulations put in place

by the state, they have successfully managed to restructure their operations through their digitalization process. This has been done with the customer primarily in mind, through meeting their expectations and continuing to create value.

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1 Introduction

1.1 Background

The Swedish retail pharmacy industry is a dynamic industry that has undergone many changes throughout the past decades. One major change that led to a paradigm shift in the market was when the Swedish government lost the monopoly on pharmacies in year 2009. It is stated that the driving force behind the privatization of the industry was to increase the availability of pharmacies across Sweden. Compared to other European countries that had an estimation of one pharmacy per 5000 inhabitants, Sweden had far less pharmacies with an estimation of one pharmacy per 10 000 habitants, furthermore, other goals were to raise access to medicines, decrease prices on medications, and improve customer service. Although these goals were achieved, as a result of many players entering the entirely new market that arose after 2009, high competitiveness was one of the aftermaths that caused some companies to go bankrupt (Apoteket, 2021a). Not long after the dissolution of the pharmacy monopoly, a new actor Apotea entered the market with a digital pharmacy which completely shook up the industry once again. During the monopoly in 2000 when the government owned the pharmacies, a digital pharmacy was launched without any considerable success (Apoteket, 2021b). However, when Apotea as it is known today was established in 2012, this time around the technology advancement as well as customer behaviours proved to have caught up with time (Apotea, 2021).

Being part of the Swedish healthcare system, Swedish retail pharmacies are important links in upholding a safe and correct drug use among the population. As habitants are becoming older it is anticipated that chronic diseases will become even more prevalent leading to an even higher pressure on the Swedish healthcare systems (Vård-och omsorgsanalys, 2014), therefore, there is an urgency of innovating old structures across the board of the chain of systems (Roche, 2020) Digitalization has been discussed as playing a major role in streamlining the Swedish healthcare system. The last couple of years it has been frequently debated from political, financial and safety perspectives as seen in Swedish media (Svenska Dagbladet, 2019; Härdfeldt, 2018). CEOs and representatives of digital healthcare providers e.g., KRY, Min Doktor and Doktor.se argues the

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value of digital channels that not only unburden traditional healthcare systems thus saving county councils money, but also successfully better meet patients’ needs in our modern-day society (Svenska Dagbladet, 2019).

1.2 The Swedish Retail Pharmacy Industry

Presently, the retail pharmacy industry in Sweden consists of five nationwide pharmacy chains (Apoteket AB, Apotek Hjärtat, Kronans Apotek, Apoteksgruppen and LloydsApotek), three strictly e-commerce pharmacy companies (Apotea, Meds and Apohem), and about 40 smaller privately run pharmacies. It is an industry that has in the past years consistently showcased an upward revenue trend, and in the year 2019/2020 there were 1426 physical retail pharmacies that together with e-commerce pharmacies totaled 50 billion SEK (2019) turnover. Above mentioned companies are operating in a market that has been and is currently going through a digital transformation similar to many other retail industries. The digital transformation is particularly evident when looking at the reported numbers from the e-commerce part of the industry, between 2016 and January 2020, its revenue increased with an incredible 315 % (from 120 million SEK to 500 million SEK). Annual growth of year 2019 reached 36% which positioned the pharmacy industry as the fastest growing industry in Swedish e-commerce (Sveriges Apoteksförening, 2020).

The core business operation for the Swedish retail pharmacies consists of selling and giving professional advice concerning products that can be divided into three different segments: merchandise, over the counter (OTC) products and prescription drugs. One of the aspects that set this industry apart from other retail industries in Sweden is that it is highly regulated by government agencies e.g., Läkemedelsverket (The Swedish Medical Product Agency), Tandvårds-och-läkemedelsförmånsverket (TLV) (The Dental and Pharmaceutical Benefit Agency) and eHälsomyndigheten (The Swedish eHealth Agency) (Läkemedelsverket, n.d.). TLV decides the prices of prescription drugs in Sweden, hence making that side of the business the same for all pharmacy chains (TLV, n.d.)

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1.3 Problem Formulation

Due to digitalization, retail industries are nowadays dealing with customers that have different expectations and exhibit changed shopping behaviours. There is not much previous research done on the Swedish retail pharmacy industry and there is a gap in literature covering the impact of digitalization on this industry. More so, recent available research talks about retail as a whole, and deals with topics such as digitalization, value creation, customer expectations (satisfaction, loyalty and behaviour), and omni-channels. Since past research examines these topics individually, to better understand the challenges and opportunities that the Swedish retail pharmacy industry faces, the researchers wish to look at how the above-mentioned topics collectively have played a role in transforming the market. Operating in a competitive industry, Swedish retail pharmacy companies need to find new ways to distinguish themselves from competitors as well as meet or better yet, exceed customers’ expectations.

1.4 Purpose and Research Question

The purpose of this paper is to research how the Swedish retail pharmacy companies have adapted to meet customer expectations and created value for the customer, as a result of digitalization. There is a consensus that the co-existence of customers and companies is the foundation of markets, a sort of symbiosis where both parties are interacting and shaping each other’s behaviour. The Swedish retail pharmacy industry is no exception to this rule; however, more research has been done on the customer aspect compared to the company perspective (Bilgihan, 2016; Oswald & Kleinemeier, 2017). Furthermore, companies nowadays invest a great amount of time and money in truly understanding their customers in order to serve them the best way possible. Instead, that is why this paper is focusing on understanding the response/actions to customers changed behaviours in this particular industry.

It aims to answer the research questions:

RQ1: How have Swedish retail pharmacies adapted to meeting customer expectations, as a result of digitalization?

RQ2: How have Swedish retail pharmacies created value for their customers, in their digital transformation?

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In investigating this digitally booming industry, this paper can contribute valuable knowledge to Swedish retail pharmacies since limited research exist. Additionally, it can be used by other retailers who are currently operating using a multichannel approach.

1.5 Delimitations

This case study includes a few delimitations. The first delimitation is that only retail pharmacies, those selling to private customers will be investigated, rather than also including institutionalized pharmacy companies, since this is most comparable with other retail industries. Secondly, the researchers have chosen to delimit this study to the Swedish retail pharmacy industry, instead of looking at for example the Nordic countries retail pharmacy industry, or the European retail pharmacy industry, due to the geographical proximity of the companies.

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1.6 Definitions

Definitions

Digitalization “Digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business.” (Gartner Glossary, 2021)

Institutionalized pharmacy Institutional pharmacies refer to pharmacies that supply to and serve institutions with medications, for example hospitals, and other health departments (Sveriges Apoteksförening, 2020).

Omni-channel A way of creating a continuous shopping experience, where the customer can navigate swiftly and smoothly from one channel to the next (Blom et al., 2017; Juaneda-Ayensa et al., 2016).

Retail pharmacy Retail pharmacy entails pharmacies that serve private customers with e.g., dispensing prescriptions and selling non-prescription products (Läkemedelsverket, n.d.).

Value “A personal assessment of the net worth one obtains from making a purchase or the enduring belief that a specific mode of conduct is

personally or socially preferable to another mode of conduct” (Lamb et al. 2017 p. 93). Value creation Creating value for customers before, during and

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2 Frame of Reference

2.1 Method for Frame of Reference

Looking at existing literature, some different tools were used, such as Jönköping University Library’s search engine, Primo, as well as Google Scholar, and Science Direct. When searching for the most relevant academic articles, keywords were used, these include: digitalization,

omni-channels, customer value, customer expectations, value creation, and retailing. Academic articles

were chosen from the years 2010-2021, and the ABS ranking list was used to identify the strength and reliability of the articles, where the articles were aimed to have an ABS ranking of 2 or higher (some exceptions were made). Academic articles that were not on the ABS list were also used, instead they were included based on their high impact factor, as well as how many times they had been cited by others. The article search was limited to 2010, as relevant articles on the main topics (digitalization, omni-channels, etc.) could be seen as outdated before 2010. However, when searching for articles covering topics such as customer loyalty and satisfaction, there were a few cases when articles older than 2010 where selected, as they provided the authors with insightful information which was still applicable today. Some academic journals used were, Journal of Business Research, European Journal of Operational Research, European Journal of Marketing, International Journal of Research in Marketing, and many more.

2.2 Digitalization

2.2.1 Background

When the topic of digitalization is mentioned, one might think this is solely the movement from analog to digital operations, however this is not the case. According to Gobble (2018) digitalization can be defined as “the use of digital technology, and probably digitized information, to create and harvest value in new ways” (p. 56). Gartner Glossary (2021) similarly states that “Digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business.”Digitization on the other hand “is the straightforward process of converting analog information to digital—turning pages into bytes, for instance, by scanning a document or uploading a sound recording” (Gobble, 2018, p. 56). Consequently, digitization is an inevitable part of digitalization.

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Schreckling and Steiger (2017) are emphasizing that the process of digitization is happening at a rapid speed, it is being seen everywhere, and it is unavoidable. For companies to stay competitive on the market, it is necessary to undergo a digitization process, or else this may lead to the downfall of your success (Rybacki, 2018). In society today, people have higher expectations on technology, and “to have access to everything all the time from any device anywhere in the world for all kinds of purposes” (Schreckling & Steiger, 2017, p. 6). Due to this technological shift, companies must always stay updated and alert. There are certain aspects that are driving firms to digitize now more than ever, including advancements in digital technology, as well as people’s attitudes, and behaviours constantly changing, etc. (Schreckling & Steiger, 2017). As customers are changing their needs and expectations, so must the firms.

2.2.2 Digital Transformation

The idea of digitalization has been around since the 1990s or early 2000s, however in the earlier years there was heavy focus on digital products and services from both the consumer and company point of view (Schallmo et al., 2017). Over time the idea of digitalization has drastically changed and is still changing to this day. As Schallmo et al. (2017) state there has been a fast development and improvement of social media and technology in the past two decades, meaning how customers act and communicate has also changed over time, as well as what the customers expect from brands.

According to Tabrizi et al. (2019) 70% of firm's digital transformation (DT) fails, meaning goals are not met. This illustrates that it is very difficult to transform, and Tabrizi et al. (2019) state that “it’s because most digital technologies provide possibilities for efficiency gains and customer intimacy. But if people lack the right mindset to change and the current organizational practices are flawed, DT will simply magnify those flaws” (para. 2). As it is a challenging task to digitally transform firms, there needs to be a plan of how it is to be done, and what needs to be transformed. According to Schreckling and Steiger (2017), there are certain objects which require digitization, these include “processes and work; products and services; and business models” (p. 3). Matt et al.

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(2015) agrees on the fact that processes and products need to be transformed and also adds “key business operations”, “organizational structures and management concepts” (p. 339) as aspects which need to undergo a transformation. It is helpful to implement a strategy for how the process will be undertaken, as this allows for better planning and coordination, furthermore Matt et al. (2015) argues that “potential benefits of digitization are manifold and include increases in sales or productivity, innovations in value creation, as well as novel forms of interaction with customers, among others” (p. 339). As previously mentioned by Rybacki (2018), digitalizing also leads to companies having a great competitive advantage on the market.

2.3 Customer Influences

2.3.1 The impact of digitalization on customer behaviour and customer expectations

Digitalization has influenced how people live their lives, and consequently the expectations they place on retail companies. An increasing number of people spend a lot of their time online either on their phones, on their computers or other technical devices. To compete today, retailers must provide a high standard of service that entails fast deliveries, uncomplicated interfaces, and close to around the clock access (Schreckling & Steiger, 2017). From a customer perspective, some positive aspects with digitalization in retailing include the possibility of price comparison and more exciting visual stimulation that make the whole shopping experience more fun (Bilgihan, 2016).

In the last decade a lot has changed when it comes to what the customer expects and how they interact with retailers. The typical, modern consumer is someone that is well-informed and has numerous channel options as well as company choices to select from when deciding to purchase a product (Georgsson, 2019; Oswald & Kleinemeier, 2017). Focusing on the customer is nothing new within retailing. Companies have for the longest time tried to understand their customers to serve them the best way possible (Bilgihan, 2016; Oswald & Kleinemeier, 2017).

Technological advancements in our digital societies, such as access to constant internet connection, brought major opportunities with mobile devices gradually making them an

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undeniably central role in consumer’s everyday lives, consequently, shaping consumer’s approach to shopping (Hagberg et al., 2016). According to research, customers are increasingly showcasing mobile shopping (M-shopping). They found that mobile phones are used both as an avenue to search for products but also as a place to make orders. The possibility of staying connected online, via mobile phones improves customers’ shopping experience thanks to e.g., phone applications availability and easy payment solutions. As a result, having an impact on customers shopping behaviour by making it more likely for them to repeat that purchasing channel and even increase their spending habits. Essentially, M-shopping is believed to have a positive effect on customer value (Wang et al., 2015).

2.3.2 Customer Satisfaction

Customer satisfaction (CS) is a crucial element for all firms in order to retain their current customers (Indeed, 2021) and as Torres and Tribó (2010) state, “satisfied customers are more loyal, less sensitive to price movements, and more likely to engage in positive word-of-mouth behaviors” (p. 1090). Indeed (2021), define it as, how pleased a customer is with what a company has offered. According to Ho et al. (2006) there are benefits of having satisfied customers, some of these being: customers who are more satisfied will visit the company more frequently and spend higher sums of money when there, in comparison to customers who are not pleased with their experience, or purchase. Another benefit is that, having satisfied customers allows for loyalty to a firm, meaning they will retain to the one firm, rather than leaving to another.

2.3.3 Customer Loyalty

The concept of customer loyalty (CL) and its essential role in a company’s profitability is something that has been widely researched (Martins Gonçalves & Sampaio, 2012; Thakur, 2019; Watson, Beck et al., 2015). It has been stated that for companies to be prosperous they need both first-time customers as well as reoccurring customers but gaining reoccurring customers is the higher priority for most enterprises. The relationship between companies and customers is something that has changed historically over time. As markets evolved it became no longer sufficient to just oversee individual customer transactions, instead, companies had to start creating and fostering more long-term relationships with their customers on a more personal level. For

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example, as customers have increasingly moved online when purchasing, research efforts have been directed towards better understanding CL in digital environments (Thakur, 2019). CL is a concept that some researchers have contended go hand in hand with CS, in that CL has been discussed as a direct or indirect effect of existing CS or lack thereof. While the results from other studies have not shown that strong of a connection between these two concepts one thing that all research seems to agree on is that if companies want to be successful, they need loyal customers (Martins Gonçalves & Sampaio, 2012).

Even though loyalty used to be explained as a repeat purchase, its definition later was challenged as research contributed to a broader understanding of other factors that also affect loyalty among customers. As mentioned by Martins Gonçalves and Sampaio (2012), there are a variety of CL definitions in literature, however, it is broadly acknowledged that loyal customers exhibit repeated purchase behavior along with having positive attitudes about a company or brand. Watson et al., (2015) agrees that there is no consensus on a definition of CL but adds that loyalty is something that gives benefit to one company compared to its competitors. The authors emphasize the importance of measuring customer loyalty by looking at both the attitude and the behavior elements of it, when examined at the same time their synergistic contributions add more value to organizational performance than they do individually. Therefore, companies should aim not only for a obtaining a high level of CL but also have a diverse loyalty distribution.

2.4 Value Creation

Across history, retailing has played a fundamental role in acting as an intermediary between consumers and producers, a role that has been and still is imbedded in meeting customer needs through providing specialized offerings. By carrying out operations that include physical logistics, legal transactions and various communications, retailers take part in the so-called retail value chain that is also made up of manufacturers and consumers. Physical retailers used to be the main retail actors in this value chain, but digital transformation brought about online retailers who are currently progressively gaining control over markets. Physical retailers are decreasing as a result

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of different factors advancing online retailing which is prompting an ongoing debate on what remaining value they hold (Reinartz et al., 2019).

According to Lamb et al. (2017) value is “a personal assessment of the net worth one obtains from making a purchase or the enduring belief that a specific mode of conduct is personally or socially preferable to another mode of conduct” (p. 93). Furthermore, the discussion about customer value creation centers around the consumer decision process, in other words creating value for customers before, during and after a purchase. As stated by Reinartz et al. (2019) in order to create customer value, companies need to exercise business activities that undertake “automation, individualization, ambient embeddedness, interaction, and transparency and control” (p. 355).

Automation

Automation, described as “all activities and processes that operate automatically, without human input or control” (Reinartz et al., 2019, p. 355) entails providing convenience, thus value to customers. The goal is to lower indirect cost aspects, that is, the amount of effort and time that goes into the purchase process from a customer perspective. With the help of automation retailers can deliver instant messages to customers adding value by e.g., informing that a product is back in stock. It can further facilitate customer value by reducing the amount of effort needed for a repurchase, as examples, equipment such as washing machines and printers being capable of automatically sensing and placing an order for detergent and ink without the customers assistance (Reinartz et al., 2019).

Individualization

To state that customers nowadays are bombarded with promotional information from a plethora of companies wanting them to know about or buy their specific product is an understatement. This seemingly issue from a customer perspective supports how necessary it is for companies to use individualization, described as “the customization and personalization of marketing efforts that are tailored to an individual’s current needs and preferences” (Reinartz et al., 2019, p. 355). Individualization efforts can help customer weed out other informational “noises” and instead gain

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customer value through relevancy, hence become better equipped in making favorable purchase choices (Reinartz et al., 2019)

Ambient Embeddedness

One of the central challenges modern retailers are facing is how to build value creation that successfully bridges the gap between the business and customer by keeping up with and adapting to the structure of customers everyday lives. Arguably, it is a matter of being accessible to customers at the right time, which is the purpose of ambient embeddedness, the concept of connecting processes, products, and communication with the help of digital technologies. Benefits for customers include getting instant promotions that are based on their geographical location or getting an improved shopping experience as a result of many different channels being integrated (Reinartz et al., 2019).

Interaction

Reinartz et al. (2019) state that “Interaction encompasses all virtual and physical relations and refers to all aspects of how customers and/or firms communicate and interact, thus referring to the nature of the interaction and not to the channel where it takes place” (p. 356). There are plenty of ways to interact in modern society, which gives the possibility to combine digital and traditional methods and can be used in complement to each other to create the most value for the customer (Reinartz et al., 2019). Some of the different interaction methods include “technology-enriched pre-purchase interactions,” “digitalized product-user interactions”, and “customer-to-customer post purchase interactions on social media” (Reinartz et al., 2019, p. 356).

Transparency and Control

The final factor which firms should consider, in order to emphasize and strengthen the value they create for their customers is, transparency and control. This is defined as “processes and activities that provide customers with superior information, education, and product use” (Reinartz et al., 2019, p. 356). Having access to digital tools and technologies allows for a simplified and smooth

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experience for customers as information such as “online product descriptions, reviews, prices” (Reinartz et al., 2019, p. 356) are available online, which may be information of interest when, for example making a purchase and wanting to compare several products to one another. Having transparency and control of relevant information allows for a more positive and valuable shopping experience for customer (Reinartz et al., 2019).

2.5 Omni-Channels

An omni-channel approach in retailing is a way of creating a continuous shopping experience where different retail channels are extensions of each other (Blom et al., 2017). As stated by Juaneda-Ayensa et al. (2016), it is a concept that originates from multichannel retailing with one distinction being that customers can navigate swiftly and smoothly from one channel to the next, unlike multi-channels which means that there is “a separation between channels (although they are combined)” (Hagberg et al., 2016, p. 698). Piotrowicz and Cuthbertson (2014) agree on the fact that with multi-channels there is “division between the physical and online store” (p. 6), whereas channels are more integrated. Research shows that customers are more intrigued by omni-channels now than a couple years ago where the focus was more on multi-channel retailing (Hagberg et al., 2016).

One of the driving forces behind the increasing number of new online channels that have emerged in the retail industry is the continuous development of digital technologies. Previously, retail companies had to focus on adding new online channels to their portfolios, however, they are now facing the challenges with tying these channels together as well as the intricacy in overseeing them all. In comparison to a decade ago, retailers today are dealing with customers that are not only using several channels but also don’t view a company’s different channels as being independent of each other. It is no longer retailers that dictate when and where the exchange between the company and customers will be. Consequently, omni-channel retailing should be aimed at providing a cohesive experience for customers, this entails straying away from centering the customer journey around one specific channel and or product, and instead recognize that each touchpoint contributes to the overall customer experience (von Briel, 2018). Companies that have

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adopted omni-channel retailing synergistically analyses the sales performance as well as brand position amassed from all channels. The goal is to have customers perceive the brand in the same light throughout the different touchpoints they come across (Blom et al., 2017). By using many different channels, customers are often more satisfied with their final purchase and become more loyal to the company in question (Chen et al., 2018).

In this new era of online shopping the significance of physical stores and the role they play have been questioned. However, a study done by von Briel (2018) found that physical stores will most likely not become obsolete in the future. For many companies’ bricks-and-mortar stores function as a channel for showrooming, a place where products can be found at physical display for customers who value the opportunity to see, feel and touch a product before purchasing it (von Briel, 2018). Similarly, Park et al., (2020) agrees that as the use of omni-channels are developing more frequently by firms, customers often value the experience of seeing the products they wish to buy in store, and later order it, for example on an online platform of the same company. Going in store allows for guidance from an employee at the firm, who has knowledge and experience of the products in focus, which can be very beneficial and helpful for customers (Park et al., 2020). Additionally, despite all the beneficial aspects of online shopping one advantage that the physical store option has over online choices been instant gratification. Although it is argued that bricks-and-mortar stores will remain, they need to be adapted to omni-channel retailing which requires support in the form of digital technologies (von Briel, 2018). It is suggested that there should be a combination of online and offline tools to provide the best omni-channel experience for the customer (Park et al., 2020). Omni-channel retailing facilitates many opportunities to retailers, according to von Briel (2018) one possibility is that it can help improve how effective companies are, since they are forced to consolidate prior self-reliant parts of the business creating a more harmonized organization.

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3 Methodology and Method

3.1 Methodology

3.1.1 Research Paradigm

All studies are made following certain structures that are grounded on specific ideologies and way of looking at science. One of the main important aspects of constructing research is how to go about it which is something that is dependent on the beliefs and premises which is determined by the research paradigm. There are a variety of research paradigms, however, there are two that are the deriving source of the remaining ones, namely, positivism and interpretivism, each one inherently has distinct ambitions and assumptions. Positivism is a research paradigm that is commonly linked to analyzing studies adopting quantitative methods, its aim is to contribute to the understanding of social phenomena through finding and establishing theories using verifiable mathematical data. Positivism paradigm assume human beings have no influence on the reality as well as that social phenomenon is something that can be quantified. Interpretivism on the other hand, is a research paradigm that takes on a broader view on social research. In contrast to positivism, interpretivism do not share the idea that reality stands alone without any impact from the investigators, instead, the assumption is that researcher’s own believes indeed have consequences on the study. Here, the intent is to examine social phenomena with a more nuanced perspective to grasp its various layers and explain its underlying implications. Unlike positivism, when following an interpretivism framework analysis is done using qualitative methods (Collis & Hussey, 2014).

The nature of the research question in this study is strongly connected with an interpretivism research philosophy seeing as it aims to understand how Swedish retail pharmacies are working with value creation to meet customer expectations, as a result of digitalization. Researchers behind this paper recognize and assume that their previous knowledge and personal way of seeing the social reality in addition to them interacting with the objects under investigation, have an impact on the social phenomena that is examined. Furthermore, findings are subjectively obtained from participants which inflicts a bias. Consequently, these previously mentioned factors and assumptions are the basis to why this paper follows an interpretivism paradigm (Collis & Hussey, 2014).

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3.1.2 Research Approach

As this thesis will be using the interpretivist approach, this means that inductive research will be conducted (Collis & Hussey, 2014). Inductive research according to Collis and Hussey (2014) “is a study in which theory is developed from the observations of empirical reality” (p. 7). It is about going from specific information to more general information (Collis & Hussey, 2014). Deductive research on the other hand is defined as going from general claims to specific ones (Collis & Hussey, 2014). In comparison to inductive research, deductive consists of “a study in which theoretical structure is developed and then tested by empirical observation” (Collis & Hussey, 2014, p. 7). In this case, semi-structured interviews will be conducted, transcribed, coded, and analyzed in order to see connections and add to the existing theoretical concepts in literature, more specifically, value creation, digitalization, omni-channels and customer influence.

3.1.3 Research Design

Following the interpretivism research paradigm guidelines, qualitative research will be conducted, as this results in “rich, subjective” (Collis & Hussey, 2014, p. 50) data. Qualitative research is when data is collected, which is not numerical, instead it is based on words and photographs and theoretical information (Collis & Hussey, 2014). The qualitative data collected in this case study will be from semi-structured interviews with seven people working in high positions at retail pharmacy companies in Sweden. As stated by Collis and Hussey (2014), using the interpretivist paradigm when doing qualitative research is the most suitable option as “the emphasis is on quality and the depth of the data collected about a phenomenon” (p. 52). In contrast, quantitative research is collected in the form of numbers and is analyzed using statistical tools (Collis & Hussey, 2014). As the intention behind this research is to gain insightful and theoretical information, the qualitative research method is more applicable.

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3.2 Method

This research paper is a qualitative case study, where seven Swedish retail pharmacies are investigated. Since there is not much previous research conducted on the Swedish retail pharmacy industry, and its process of digitalization, it is appropriate to use an exploratory study as stated by Collis and Hussey (2014). Due to the exploratory nature of the study, the researchers are “finding patterns or developing propositions, rather than testing them” (Collis and Hussey, 2014, p. 341). An explanatory case study is conducted meaning that “existing theory is used to understand and explain what is happening” (Collis and Hussey, 2014, p. 69), referring to the Swedish retail pharmacy industry and how it is connected theory.

3.2.1 Primary Data

When deciding on which companies to interview, the researchers started by identifying all the retail pharmacy companies in Sweden, both the ones solely doing business online, but also the ones with both online and in-store options. When doing this, individuals in leadership positions, working with digitalization, marketing, e-commerce, or sales were found. The researchers contacted potential interviewees by email and on LinkedIn. These potential interviewees were selected both by looking at the personal networks of the researchers, as well as by finding contact information online.

In the end, the researchers had a close look at which interviewees would be the most suitable for the study. The selected ones were, Apotek Hjärtat, which is the biggest pharmacy on the market (Apotek Hjärtat, 2021), Apoteket AB, being the only government owned retail pharmacy, Kronans Apotek being the third biggest, and finally, LloydsApotek, since they are one of the smallest firms on the market. As the research aims to cover the entire Swedish retail pharmacy industry, there was a selection of the smallest, medium sized and biggest pharmacies to investigate. Additionally, three solely online retail pharmacies were investigated, these being, Apotea, Meds, and Apohem.

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3.2.2 Sampling Approach

A population can be defined as “any precisely defined body of people or under consideration for statistical purposes” (Collis & Hussey, 2014, p. 51). In this case study, the population is the Swedish retail pharmacy industry. A sample on the other hand is only a selected group from the population (Collis & Hussey, 2014), being the specific Swedish retail pharmacies mentioned above. These seven pharmacies were chosen using non-random sampling, more specifically using purposive sampling, also known as judgmental sampling. Purposive sampling is when “the participants are selected by the researcher on the strength of their experience of the phenomenon under study” (Collis & Hussey, 2014, p. 132). The interviewees have experience and knowledge within the selected subjects of study for this thesis. The seven selected companies are introduced in detail in appendix 1.

3.2.3 Semi Structured Interviews

In this qualitative research, seven semi-structured interviews were conducted between March 22nd

and April 19th_{on Microsoft Teams, due to the ongoing pandemic. According to Collis & Hussey}

(2014), when semi structured interviews take place, a selection of interview questions have been created beforehand, which relate to the main theme or themes of study. As they were semi structured, the researchers had the opportunity to ask follow-up questions throughout the interview, for further knowledge or insight.

Since all the interviewees work for Swedish retail pharmacy companies, as well as all of them having Swedish as their mother tongue, the researchers decided to conduct the interviews in Swedish, as this allowed for the interviewees to feel more comfortable. A few days before the interviews were to take place, the interviewers sent out a document with information concerning confidentiality, anonymity, recording of the interviews, etc. for the interviewees to read through this beforehand, see Appendix 2. In addition, the information provided in the document sent out was once again repeated and clarified before the interviews to ensure that the interviewees were informed about the ethical aspects.

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Table 1: Interview Overview

Interview Overview Interviewe e Christian Huber Björn Thorngren Johan Bergenhei m Anders Nyberg Mikael Lenneryd Hannes Hasselrot Stig Tornell Retail Pharmacy

Apotea Meds Apohem Apotek Hjärtat Apoteket AB Kronans Apotek LloydsApote k Role Purchasin g and assortment manager CEO and founder CMO (Chief Marketing Officer) and co-founder CEO CMO (Chief Marketing Officer) Digital Sales Director Head of commercial and e-commerce Date of interview 26/03/202 1 23/03/202 1 19/04/2021 22/03/202 1 29/03/202 1 19/04/202 1 29/03/2021 Time of interview (in minutes) 24:17 39:30 24:25 32:28 50:58 58:39 38:00 3.2.4 Interview Questions

Since the interview questions used in the semi-structured interviews were the focal basis of analysis, it was crucial that the study successfully collected insightful information to facilitate a greater understanding to the answer to the research questions at hand. Therefore, a varying degree of open questions, that were exploratory in nature, were mainly used. Another reason for using open question was that they give opportunities for any follow-up questions that might arise as information is being shared from the interviewees. Direct closed questions were also used in the interviews, as the researchers wanted to fact check and validate already found information online,

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to guarantee the most trustworthy analysis. Additionally, interviewers took advantage of probes, which are a type of question that enable expansions on statements, hence contributing to inter alia clarity, depth, and importance (Collis and Hussey, 2014).

Interview questions were divided into five different areas: background, digitalization, customer

influence, value for customer, and future thoughts, these were constructed with a purpose to cover

areas established from the literature review. A tremendous effort was put into building interview questions that weren’t steering interviewees answers to a particular direction. Generally, the same questions were asked across the board to pharmacy company representatives, except a few selected questions that had to be adjusted and/or eliminated due to the operational differences e.g., pharmacies that operates only digitally and pharmacies that have both physical stores as well as e-commerce, one pharmacy chain being government owned and one pharmacy chain only having one sales channel. For a full detailed list of interview questions see appendices 3-6. It was decided to keep as many of the questions as possible the same so that similarities and differences were more easily revealed when analysing gathered information. All interview questions were sent out to interviewees at least a week beforehand, so they had a chance to review them before the actual interview meetings.

3.2.5 Data Analysis

For this study, thematic analysis has been selected as the method of analyzing the empirical findings from the semi-structured interviews, since this is often used in combination with qualitative research. According to Clarke and Braun (2017), “Thematic analysis (TA) is a method for identifying, analyzing, and interpreting patterns of meaning (‘themes’) within qualitative data” (p. 297). This specific analysis method was chosen because of its flexibility which include that it can be applied on different sample sizes as well as its flexibility from a research question perspective. When applying TA, researchers conduct meticulous and extensive data analysis after dissecting findings, deciphering codes and eventually uncover themes that help answer the research question. Identified themes are important constituents in building and reporting analytical discoveries (Clarke & Braun, 2017).

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There are six steps which need to be fulfilled for thematic analysis to be completed. These are, to firstly understand and realize the data you have to work with, which was done by the researchers in the form of listening to the recordings of the interviews, meanwhile transcribing them, as well as closely reading the transcriptions. The next step was to create codes from the interviews, where they recognized the similarities and differences between them. Potential themes were then explored based on the codes previously created, being the third step (see Appendix 7). The fourth step involved studying and deciding whether these themes are good or if they should be altered. Next, the themes were officially decided on, by being explained and labelled. The final step for the researchers was to look at the codes and themes generated from the interviews to compare this to past literature, and produce the final text (Nowell et al., 2017).

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4 Ethics and Trustworthiness

When performing analysis of empirical findings, it is crucial that it is done in an ethical and trustworthy manner. This can be done using the four criteria: credibility, dependability, transferability, and confirmability (Collis & Hussey, 2014).

4.1 Credibility

Credibility, the term describing the accuracy of the analysis of data in qualitative research, is a

way to ensure the validity of the research (Cope, 2014; Collis & Hussey, 2014), and another word for credibility is internal validity (Brink, 1993). How truthful a qualitative research is, is connected to researcher(s) reflections on their own impact on the methods thus the results as well as how precise subjects’ viewpoints are captured and presented (Noble & Smith, 2015). There are different approaches to achieving high credibility, two of them according to Koch (2006) are by documenting the study process and how it affects the researcher(s), in addition to allowing participants to take part of the interpretation of their perspectives. Nowell et al. (2017) discusses the additional processes of “prolonged engagement, persistent observation, data collection triangulation, and researcher triangulation” (p. 3) as ways to increase research credibility.

Researchers in this paper have established credibility through data triangulation and by having peers examine the study method along the study process. Likewise, continuously writing in a journal from start to finish has served as an avenue for self-assessment and insightful traces of viewpoints that have been considered in the analysis and discussion of findings. Furthermore, the interviewees have had a chance to read the analysis and come with any additional remarks before submission and publication.

4.2 Dependability

Dependability concerns how well structured a study is in that it follows a logic that can be traced

and reproduced, so it requires that the research is transparent and well documented in a careful and deliberate manner (Collis & Hussey, 2014: Noble & Smith, 2015: Nowell et al., 2017). In other

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words, dependability goes hand in hand with the consistency of the research whereby it would be possible for external researchers to pursue the exact same steps and arrive to the same conclusions as the study researcher(s) (Cope, 2014: Koch, 2006). Dependability is one of aspect that signals a research’s reliability (Brink, 1993) and is addressed by having the study process inspected by a third party (Nowell et al., 2017).

The development of this study has been conducted systemically evident by a meticulous process of collecting data where for example interviews were recorded both audially and in video-format. Furthermore, each interview was transcribed before interpreted separately by the two authors – taking advantage of researcher triangulation in addition to verifying patterns found and individual reflections. Since this study has been done on an industry that is currently going through digital changes which is something that is known to have the ability to occur rapidly, findings need to be viewed in the context of the time period that the study was carried out. Also, the restrictions that came with the COVID-19 pandemic had a great impact on this industry hence the results of this research, not the least how interviews had to be had over Microsoft Teams video calls.

4.3 Transferability

Transferability is the concept of being able to generalize the data found in one case to other

instances, with the data still being applicable and relevant, in addition to being a topic of similar interest (Collis & Hussey, 2014). For the data collected to be transferable to other situations, researchers should give thorough and extensive descriptions of how the research was completed, as well as the results found (Curtin & Fossey, 2007; Nowell et al., 2017). According to Curtin and Fossey (2007), this allows “the reader to make comparisons with other individuals and groups, to their own experiences or to other research findings” (p. 92).

In the case of this research, there were seven pharmacy companies which were investigated, where all seven allowed for the researchers to use their name, role, and company name in writing. Each of the companies were explained in detail as well as the interviewees themselves also being described. How the data was analyzed (using codes, themes, and categories) is also outlined by the

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researchers. This allows for the data to be more transferable to other situations as descriptions and detailed information about the certain case allows for a better generalizability of the data in other cases (Curtin & Fossey, 2007; Nowell et al., 2017).

4.4 Confirmability

Confirmability, according to Collis and Hussey (2014) is “whether the process has been described

fully and it is possible to assess whether the findings flow from the data” (p. 172). This can also be defined as the researchers showing all the steps, they took along their research process, to confirm that the information presented has been gathered from the data collected (Nowell et al., 2017). In order for the data to be confirmable, Connelly (2016) states that “qualitative researchers keep detailed notes of all their decisions and their analysis as it progresses” (p. 435), as this allows for a stronger and more trustworthy research.

Throughout the paper, the steps taken have clearly been outlined from beginning to end, concerning for example, articles collected in the frame of reference gathered in an excel document, interviews conducted were recorded and transcribed, and data coded and analyzed thoroughly. The researchers also had a logbook where all thoughts, meetings, and ideas were recorded, which can be looked back at, to confirm or deny information discussed. The analytical process is also well documented and carried out carefully, as both researchers coded the interviews separately, findings were compared and then finalized collaboratively.

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5 Empirical Findings and Analysis of Findings

5.1 Swedish Retail Pharmacy Industry

This study was set out to examine how the Swedish retail pharmacies are meeting customer expectations and creating value for their customers as a result of digitalization, but to correctly understand this phenomenon, one has to take in account the context, that is the industry itself. As introduced in the beginning of this paper the Swedish retail pharmacy industry especially stands out from other industries, and this is something that was mentioned across the board in various ways during the interviews with the pharmacy chain representatives. Even though it has a long history, in its current form, it is relatively young. All of them touched upon the fact that they operate in an industry that is distinguished by strict regulatory aspects controlled by the government. Considering the regulatory aspects, it is not strange that the industry is somehow restricted when it comes to the pace in which change can take place. An example is what Björn Thorngren at Meds pointed out how their IT systems must meet all security requirements to guarantee confidentiality:

“Because it is also a very IT intensive industry in the sense that we have access to electronic prescriptions which are very sensitive information and so The Swedish eHealth Agency that must approve this, has very strict requirements on the IT environment.”

5.1.1 Competition

Interviews revealed a consensus when it comes to the market being a competitive place, specifically the e-commerce business area which has increased tremendously over the last year, mainly due to the COVID-19 pandemic that played an important part in digitalizing consumer behaviours. No matter the size of the company, all parties view the competition as high. As a result of the high competitiveness, Swedish retail pharmacies are faced with the difficult task of trying to distinguish themselves from competitors. Common for all participating companies is that their aim and efforts to differentiate themselves are anchored in creating value for the customers. Another interesting aspect that came up several times was that this industry is peculiarly suited for

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dealing with e-commerce since Sweden as a country is at the leading forefront with establishing electronic prescriptions, and Sweden has an optimal infrastructure.

The digital transformation that is currently ongoing is contributing to its evolving environment, which is a very competitive one, because when operating digitally it becomes more difficult to make the customer choose you in the mix of everyone else, it is also easier for customers to compare the different companies to one another in terms of price, etc. The industry appears to be mainly driven by customer behaviour and expectations, however, because of the high level of transparency among the companies inevitably the industry is also steered by the actions of each other.

Market Development

The Swedish retail pharmacy industry is constantly adapting its operations to the changing technologies. It was agreed upon, by all interviewees that the market has become more competitive in the last couple years, at least when discussing the e-commerce aspect of it all. As Mikael Lenneryd at Apoteket AB stated:

“It has probably increased, mainly from e-commerce. There have not been so many more pharmacies, like physical units but there has been greater competition in online shopping.”

On the other hand, when asking Hannes Hasselrot at Kronans Apotek about the development of the market, he discussed the idea that it isn’t only the retail pharmacy industry that is causing the pharmacies to change, but also consumer behaviour:

“...I can speak for how it is today, from the mindset we have today. And then it is 100% consumer behaviour that leads the way.”

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To conclude, the pharmacies must be agile in their operations and be ready to change if there is a shift in the market, or if customers are changing their demands and needs. All the interviewees who participated in this research have either solely an online store, or a combination of online and physical stores, as well as some also having an app. The development of different channels to reach and communicate with customers have been implemented for the customers to receive the best experience possible.

5.2 Digitalization

Digitalization was a big topic of interest and since the Swedish retail pharmacy industry is strongly affected by other industries as well as society becoming more and more digital, some specific topics were highlighted. These topics were digital transformation, benefits of digitalization, and challenges of digitalization. Each will be presented and analysed below.

5.2.1 Digital Transformation

As the market has developed in the past few years, the pharmacies have been making the active choices to follow the transformation by adapting and transforming their operations. Some of the respondents stated that they did this by creating an online store. Stig Tornell at LloydsApotek mentioned that their online store was launched in 2013, and at Apotek Hjärtat, Anders Nyberg said:

“It was first in 2013/2014 maybe that we started looking at this area, and it was 2014 when we launched, and then we were 5-6 people who were busy with that, now we are closer to 200 people working with it.”

The increase in people working in the online operations now, in comparison to when the transformation begun really outlines that the market is and has been going through a big change. Three solely online retail pharmacies were investigated, and their operations were launched in

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2011 (Apotea), and 2018 (Meds), whereas Apohem had two launches, one in 2018 where OTC products were sold and one in 2019 when they got the license to sell pharmaceuticals as well.

It can be claimed that the transformation took place when it did, as some of the retailers either emerged on the market for the first time or followed the movement to launch an online website, following the trend of other retail pharmacy chains. As Hannes Hasselrot from Kronans Apotek said, it can be seen when looking at other markets, that the retail pharmacy industry is a few years behind others (such as fashion and electronics industries in Sweden) who have also undergone a transformation in recent years.

Technological Support

Matt et al. (2015) discusses some aspects which need to be transformed when a company is undergoing a digital transformation, some mentioned ones are “key business operations”, as well as “organisational structures and management concepts” (p. 339). In the case of the Swedish retail pharmacies this includes their operations being digitalized, meaning creating websites, and one thing some of the retailers have chosen to implement is an app. Apotek Hjärtat, Apoteket AB, Kronans Apotek, and Meds have all developed an app in the past couple years, which is agreed upon to meet customers’ changing behaviours and expectations. Björn Thorngren at Meds clarified some details about their app which makes it unique in comparison to the other retailers:

“We are the only ones who also have a native app, in comparison to a so-called hybrid app, which is actually only a, what should you call it, a shrunk webpage in a shell. But a native app is built for the platform and really takes advantage of everything that an Ios phone can do.”

Having an app can be beneficial for a company, but it is not a necessity to be successful on the market, as some of the retailers do not have an app but have transformed their operations in other ways. As technology has undergone big transformation in recent decades, some pharmacies have adapted this in their business models, where others have not.

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Technological Progress

With the help of technology, Swedish retail pharmacy companies will be able to create even more value to customers both through expanding their businesses and by streamlining already existing parts. All company representatives expressed that technology is of high value in the industry and that technology opens up for more possibilities. For example, automation was mentioned by Kronans Apotek, Apotea and LloydsApotek when it comes to advancing packaging and distribution speed. Apoteket AB also brought up automation but from the perspective of building a knowledge bank and taking advantage of artificial intelligence (AI) to make important information concerning how to use medications available for consumers. Kronans Apotek and Meds also discussed the value of automation in relation to communicating with customers e.g., sending automated reminders or sending automated orders when the consumers have run low on a certain product. Supported by Reinartz et al. (2019) automation is one of the important business activities that is strongly linked to customer value, arguing that it comes down to convenience such as minimizing the effort needed for a repurchase. Meds, Apotea and Kronans Apotek further believe that technology will help digitalize the totality of the Swedish healthcare system whereby medical recommendations can be given remotely. Understandably, the smaller pharmacy chains LloydsApotek and Apohem expressed concerns about the cost of technological developments.

In investigating the Swedish pharmacy companies view on technological advancements and what role it will plays in the future, it is evident that digitalization and technology go hand in hand. Schreckling and Steiger (2017) state that technological changes put a pressure on retailers to keep up or else they suffer the risk of falling behind competitors. Seeing that technology investments are costly, the competing aspect might become an issue for the smaller companies in keeping up with the industry. Furthermore, if automation can be expanded to giving medical advice online or remotely in a more advanced manner then those innovations can help facilitate digitalization within the whole healthcare system which is of value for the society as a whole. As Vård-och omsorgsanalys (2014) concluded in their report, the Swedish healthcare system is going to face a heavier load as chronic diseases are increasing, therefore, using AI or integrating with other digital functions such as online doctors bring many promising possibilities. A potential insight to the

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future was described by Hannes Hasselrot at Kronans Apotek where he talked about robots enabling pharmacists to dispense medications from a remote place away from the customer.

5.2.2 Benefits of Digitalization

When analyzing digitalization, there are both benefits and challenges. The benefits that the researchers identified based on the answers from the respondents are, only being digital, how the market favours digitalization, and lastly, communication channels.

Only being digital

The three solely online retail pharmacies, Apotea, Meds and Apohem outline that this comes with benefits in comparison to having both online and offline locations. Johan Bergenheim at Apohem outlined that:

“Then there are many benefits of solely operating online. We don’t have expensive venues that we have to pay for, a lot of staff maintaining everything, instead we have only focused on the e-commerce."

Another benefit which Christian Huber at Apotea talks about is the fact that with solely online retail pharmacies, the availability of products is often higher, and the deliveries are quicker than physical pharmacies. This is due to the rapid digital and technological development of a pharmacy like Apotea, as they only have digital operations to place all their attention on. Björn Thorngren agrees on the fact that Meds also has higher availability, specifically concerning prescription medicine.

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How the market favours digitalization

As discussed above, the pharmacy industry is unique in many ways in comparison to other industries on the market. Two of the interviewees (from Apoteket Hjärtat and Apotea) outlined that the retail pharmacy industry is very suitable for online and digital operations. The size of pharmaceutical products is often small, meaning that the packages sent out are smaller than products in other industries. Another aspect mentioned by them was the fact that pharmacy products are rarely sent back. It can be analyzed that this is because customers know what they want when they order it, and almost never order the incorrect item. If the incorrect product were to be ordered, the researchers believe that it would be very unlikely for the consumer to send it back, and the product bought will most likely be used at another point in time. Another benefit of the retail pharmacy industry, in relation to digitalization, according to Christian Huber at Apotea is:

“... it is products that you don’t get a kick from going to buy in store.”

In comparison to for instance the clothing industry, buying products from the retail pharmacy industry can be seen as non-pleasant and not enjoyable, however it is something which simply must be done. Whereas, when going shopping for clothes this is something that many people enjoy and can spend a whole day doing. In this way, the retail pharmacy industry benefits from being more digital nowadays, as it is something which is easily, and quickly done without wasting the precious time of consumers. However, pharmacy products are very diverse and some of them may be favoured by a physical visit.

Communication channels

Schreckling and Steiger (2017) state that as people are changing their attitudes, and behaviours, firms must adapt and stay updated. This can be done by having modern methods of communication with their consumers. Many marketing methods are very expensive, and it is crucial to choose the one which is the most beneficial for the brand, by realising that it brings in the most profit. During the industry transformation, each chain has taken a different approach of how to communicate with

The Digital Transformation of the Swedish Retail Pharmacy Industry : A Case Study