Build A Relationship

Drugstore.com President and CEO Kal Raman puts it bluntly: "If we didn’t have partnerships, we wouldn’t exist." When Raman wanted to know how to make the online shopping experience better for his customers, he went to a local drugstore to ask shoppers how an online version of the shop could make life easier for them. "Customers came and said they wanted the option of picking up prescriptions in-store around the country," Raman says. "We knew we couldn’t do everything on our own, so we looked for a retail partner that could help us do that."

In vetting potential partners, Raman (Drugstore.com’s former CTO) and his team looked for retailers that shared his company’s values and view of the industry. Prospective partners had to be obsessed with customer service. "You have to make the relationship successful for you, your partner and your customers, and you can do that only if you share a common goal, like customer service," Raman says.

In June 1999, after scoping out the business plans, internal operations and strategies of several nationwide chains, Raman chose Rite Aid. A partnership with General Nutrition Centers (GNC) was generated at the same time.

Drugstore.com was founded on partnerships. Amazon.com, an initial investor, still owns 20 percent of the Bellevue, Wash.-based company; CEO Jeff Bezos is on the board of directors. As part of the deal, Drugstore.com gets 10 years of unlimited access to Amazon.com’s technology and distribution network. Rite Aid and GNC own 14 percent and 5 percent interest in the company, respectively. In return, Drugstore.com acts as their online pharmacy. The equity and exchange partnerships also give Drugstore.com the exclusive online rights to sell all GNC brand products. GNC and Rite Aid later formed a partnership, and Drugstore.com now has the rights to sell the Rite Aid/GNC PharmAssure brand of vitamins and nutritional supplements. Rite Aid and GNC purchased 12.3 million shares in Drugstore.com for $10 million in cash. These exclusive deals also called for Drugstore.com to share access to its customer base for resales.

By teaming up with Drugstore.com and Rite Aid, GNC was able to extend its retail channel beyond the more than 4,500 stores it operates nationwide, says Archie Isherwood, director of Internet initiatives at GNC. "These partnerships expand GNC’s customer reach and lets us offer consumers a number of options for buying our products," Isherwood says.

These deals helped Drugstore.com stack the odds in its favor, says Rob Leathern, an analyst at Jupiter Media Metrix in San Francisco. They helped Drugstore.com overcome issues of trust and name recognition that contributed to the fall of rivals like Mothernature.com and PlanetRX.com, he adds. "You can’t just expect people to come to your website and know your brand," Leathern says. "The problem with the Web is that it’s very difficult to get the customer to the provider. A user may look for information in a particular context online?say, for a book or a gadget?and the ideal provider will have no idea that the consumer is there reaching out to them."