Define—and Educate—the Customer

Identifying who your customer is may sound elementary, but in many emerging markets it is the most difficult task of all. Alignments among the trade are not obvious and it is often counterproductive to hold fast to the traditional perception that the physician is key to purchasing decisions. While this may be true for the very top tier of the market, the physician is frequently irrelevant when companies begin examining how to extend medicine's access to a larger population. Plugging this gap raises the question of whether it is better to build customer relationships from scratch or to in essence purchase the expertise through local acquisitions.

Marcos Macedo, IMS Practice Principal for Brazil, notes that much of his work today focuses on helping companies understand changes in the local stakeholder environment, with particular emphasis on who is actually making decisions on prescribing and access. "Brazil has a strong out-of-pocket business and a reimbursement-based segment that is rising in importance. In both cases, decision-making power is moving from the physician to the trade, which means companies are facing players more willing to choose among alternative therapies, [so] it's more important than ever to pitch the value behind the brand," says Macedo.

Another key challenge is building a pricing strategy that accommodates the complexity of the purchaser community in emerging markets. It is compounded by a lack of transparency in how basic decisions on pricing are made, with insider status often deemed to be more important than technical competence. The impact of the informal economy on demand is another intangible. And Big Pharma has to accommodate the growing reliance on international price referencing, where low prices accepted in one country can carry forward to depress margins in larger markets.

There is also more complexity within a company's own portfolio, led by the question of how to skew the traditional reliance on premium-priced innovations against the new investments being made in branded or commodity generics. Do you sell a new innovation through a generics subsidiary that has an established local presence or build a firewall between them? Or is contracting through a third party a better—if more costly—option?

Making the right choice can spell the difference between a successful launch or the unrecoverable loss of an entire segment of the market. Says IMS Senior Principal Adam Sohn, "The strategic implications around pricing are critical. A low-price strategy means you have to grow on the basis of volume, at rates significantly faster than your price discounts, in order to ensure that profits will continue to rise. This means that regardless of whether a company moves from a branded focus to a branded generics or even a fully commoditized offering, it has to capture new sales from the next level of the population to achieve those operating efficiencies and be commercially successful." Pricing is thus the entrée to access, much more so than in the US and Europe.

According to Pfizer, the best way to address this complexity is through careful analysis. "We work extensively to identify countries with the strongest institutional safeguards that allow for tiered pricing and other tailored, flexible approaches to establishing the value of our medicines while also meeting the needs of different customers. Government engagement is vital to avoid price leakage," says Sandeep Duttagupta, Pfizer's Emerging Market Business Unit lead for emerging market access.

Service Innovation: The Most Powerful Access Tool

The focus on value also serves as a rich incentive for the kind of process and program innovations that help to widen access to care—and can be applied globally. Adds David Campbell, Senior Principal for IMS Health, "Companies in emerging markets have little choice but to be innovative in their value propositions because the institutional supports for establishing that value are still weak. People want better healthcare and now have the disposable incomes to obtain it; but in contrast to a purchase from Nike, you don't wear the drugs you consume on your chest."

Attracting and serving this wider base of customers is fundamental to the potential of emerging country markets as a source of future industry profits. With income levels still likely to remain low in comparison to the mature markets, profitability will depend more on volume growth rather than high prices. Customizing distribution to serve hard-to-reach rural populations, packaging and discount specifications linked to income and ability to pay, and partnership affiliation programs for pharmacists and other key non-physician influencers are examples of the innovations needed to prevail. In Latin America, Novartis and AstraZeneca have taken on this strong service orientation by introducing customer service cards to increase prescribing rates.

Granting a Mandate to Manage

One of the pitfalls of previous efforts to target these markets was ad hoc engagement, with companies (US-based pharma in particular) dipping in and out of countries as dictated by short-term headquarters priorities. This was emblematic of a centralized management style, with functions arrayed into silos and with little awareness of the need to build specialized skills appropriate to the distinctions that bear between mature and emerging countries. Strategy as well as execution was directed from the center, especially in sensitive areas such as pricing.

The best companies are now abandoning this approach in favor of more autonomy for each emerging country in managing its business, from product portfolio to pricing. Portfolio analysis is now a critical function as companies discover how to refit old branded products, often sold exclusively in one country, for their sales potential elsewhere.

Local leadership is more empowered to make decisions without extensive vetting, while the heads of key markets now report to the C-suite—even to the corporate CEO himself. Detailed instructions are giving way to a generalized mandate focused on change management. The president of one emerging market affiliate told Pharm Exec he operates on the basis of only one vague bullet point directive from his headquarters: "Find the wealth that is somewhere."