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Customer Driven Pharmaceutical Marketing

An Urch Pharmaceutical Industry Report, written by William L. Trombett, Director for Pharmaceutical Marketing Programs at St Joseph’s University in Philadelphia in the USA.

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File type and size: 1.013 MB
Publication size: 99 pages
Publication date: April 2001
Published by: Urch Publishing
ISBN-10: 1859783325
ThePharmYard product code: urch001

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EXECUTIVE SUMMARY
By William L. Trombett

Something is wrong. Traditional strategies and financial machinations are being pursued by pharmaceutical management with decreasingly satisfying results. Mergers and acquisitions are being consummated with only shortterm, ad hoc, quick fix results.

Traditional schools of strategic thinking offer a number of perspectives on how to compete.

The Market-Based View suggests that competitive advantage derives from a firm’s positioning to capture the greatest possible value by pursuing the three generic strategies: (1) market segmentation; (2) product differentiation; and (3) low cost producer.

The Resource-Based View approaches strategy from an internal perspective of leveraging the firm’s competencies and resources either by entering or creating markets in which those skills confer competitive advantage and offering products and services based on those core competencies.

Simplistic Cost Reduction manifests itself in reducing costs for a one-time spike to profits. Thereafter, a firm is reduced to a shell of its former self with little or no resources to grow the top line.

Investors and industry practitioners are becoming disenchanted with the smoke and mirrors used to financially manipulate performance results:

  • Expensing long-term R&D to make future profits look better.

  • Minimising good will through pooling of interests mergers.

  • Creating financial reserves in a ‘cookie jar’ to offset poor performance.

    The new paradigm: Customer-driven marketing strategy.

    Why treat all customers equal, all products, all territories? A pharmaceutical firm that has, say, 25 products, 100 customers and competes in 50 countries has, in effect, 125,000 strategic business units. Surely they are not all equally profitable.

    Customer-driven marketing strategy asks the following questions:

  • Who is the customer and how are profitable customers identified?

  • What is the cost to acquire a customer?

  • What is the cost to retain and develop a customer?

  • How much does the average customer buy from the company?

  • What if the customer bought exclusively from the company? (share of wallet)

  • How long does the average customer stay with the company?

  • What is the lifetime value of a customer?

    It is the relationship with the customer that is the key asset of the pharmaceutical company, not the product or the patent or the balance sheet/profit and loss statement. Such relationships will set a pharmaceutical firm apart from its competition. As the firm gets more profitable customers, drives down costs to acquire customers, gets them to stay with the firm longer and spend more with the firm over time, that income stream will be increasingly more valuable than just physical assets and financial manipulations. As we enter the new millennium, customer-driven marketing strategy will be the new basis for competing. It will manifest itself in the quintessential marketing strategy, market segmentation. Branding will be the personification of the ultimate relationship between a drug company and its customer: brand loyalty. ‘Value added’ will become more than lip service which is all it is now. ‘Value added’ means: what more can I do for the customer? The customer expects basic minimum offerings; how can I add value over and above that basic minimum offering? True ‘value added’ can be taken to the bottom line and results in a sustainable competitive advantage.

    CONTENTS

    Executive Summary

    1: The Essence Of Customer-Driven Marketing

    2: Pre-Consumer-Driven Marketing

      Something is wrong
      The ‘chainsaw’ Al Dunlop approach
      Mergers don’t seem to be the answer

    3: Alternatives To Customer-Driven Marketing

      Market-based view
      Resource-based view
      ‘Tried and true’: Mainstream approaches to competing based on product orientation

    4: Strategy

      What is strategy and what is not strategy (tactics)
      Strategy
      The three generic strategies

    5: The Strategy Of Market Segmentation - The Customer-Driven Marketing Strategy

      Ethnic and minority market segments
      Benefits segmentation
      Psychographics/lifestyle

    6: ‘Servicification’ Of Product

      The roots of servicification of product

    7: The Role Of Brand In Consumer-Driven Marketing

    8: The Siren Song Of (Dtc) Advertising

    9: The New Metrics Of Customer-Driven Marketing Strategy

      The decile approach

    10: Value added

      Physicians need help
      Hospitals need help
      Minority physicians need help
      Nursing homes need help
      Nurses need help
      HMOs need help
      The role of equity in consumer-driven marketing strategy: The ties that bind
      The ‘boutiquising’ of healthcare
      HEDIS / NCQA: A ‘value added’ opportunity
      Margin management and capital/asset management
      Assumption of risk: A ‘value added’ opportunity
      Focusing on the numbers
      ‘Value added’ in action
      The ‘value added’ physician
      The ultimate ‘value added’ question

    11: Conclusion

    Bibliography

    List of Tables

      Table 4.1: Equity cost of two firms in comparison
      Table 5.1: Segmenting a multiple-purpose vitamin
      Table 5.2: Segmenting vision correction surgery
      Table 5.3: Segmenting vision correction surgery (conducted on the physician segments)
      Table 5.4: Segmenting vision correction surgery (psychographic components)
      Table 7.1: Brand loyalty and brand switching
      Table 7.2: Brand loyal versus second choice
      Table 7.3: Brand switching risk potential
      Table 7.4: Most recognised pharmaceutical products and companies
      Table 8.1: Advertising in the pharmaceutical industry
      Table 8.2: Spending and awareness of advertising
      Table 8.3: Relationship between advertising spend by brand sales and by company sales (1997)
      Table 8.4: Relationship between advertising spend by brand sales and by company sales (1998)
      Table 8.5: Relationship between advertising spend by brand sales and by company sales (1999)
      Table 8.6: Spend for 2000 as of 21st March 2000
      Table 8.7: DTC by office and hospital spend, by journal advertisement, total professional spend and by company sales volume (1999)
      Table 8.8: Advertising/promotion research design
      Table 8.9: 1998 spend for DTC and promotion
      Table 8.10: Advertising (in 1998) versus no advertising (in 1999) for certain drugs
      Table 9.1: Control versus test
      Table 9.2: Customer decile analysis
      Table 9.3: Visit by spend
      Table 9.4: Defection analysis
      Table 9.5: Customer value ranking report
      Table 9.6: Healthcare mail order catalogue
      Table 10.1: Performance measure for practices
      Table 10.2: Records for licensure
      Table 10.3: Impact of structural changes - analysis framework
      Table 10.4: DuPont long-run return on investment model
      Table 10.5: MGMA better practice benchmarks
      Table 10.6: Rating of pharmaceutical companies

    List of Figures

      Figure 4.1: Generalised product life cycle (PLC)
      Figure 5.1: Attitude towards healthcare in Hispanics and Whites
      Figure 7.1: Taste perceptions of six beer brands when the drinker knows what he is drinking
      Figure 7.2: Taste perceptions of six beer brands when the drinker does not know what he is drinking

    		•
    Strategic Medcomms Forum 2010:
    Reshaping the healthcare conversation

    30 September 2010

    Oxford University Museum of Natural History, Oxford, UK

    Strategic Medcomms Forum 2010: Reshaping the healthcare conversation

    Learn more here
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