Retooling the Pharma Marketing Model

Apr 01, 2009

S. Kent Stephan
Many pharma companies have followed a stagnant business model for decades, guided by precepts that held, in effect: When R&D is pumping out blockbuster drugs, bask in the glow of Wall Street analyst reports; when new products are few, cut costs across the board and hunker down until things get better. Pharma marketers, in turn, have usually followed this simple paradigm: Increase spending when markets are strong and cut spending when they weaken. Cause and effect are frequently reversed. Executives often ask how big a brand must be to support a sales force of a certain size. R&D is viewed as the driver of the business, with marketing and sales regarded as costs of doing business.

But things are much different now that blockbuster drugs are few and far between. Blockbuster drugs made it too easy to be very profitable without being very productive, so marketing and sales productivity were rarely high-level issues. Calls for marketers to "do more with less" are just a lot of brave talk, as most companies are ill-equipped to cope with the R&D slowdown. Although cost reductions are justified, profitable activities are often cut along with the losers.

In the last decade, major areas of marketing and sales productivity have become nearly a hard science, but you wouldn't know it by the way most pharma companies make decisions. It seems companies are so comfortable making judgment calls and so focused on cutting costs that they have missed the potential for real productivity improvements.

Addressing marketing productivity issues will require most companies to go outside for much of their analytics (forecasting/resource allocation) work. This would represent a reversal of the current trend. Though this may this appear self-serving, it has several advantages:
  • Work conducted in-house will be subjected to political considerations that decision-makers will not know about. Some packaged goods giants say this is a primary reason they go outside.
  • The best outside consultants are probably enormously better than in-house analysts in many areas. A few have made discoveries that are not taught in universities.
  • In-house analysts have a strong incentive to discredit developments occurring on the outside. In all probability, the more analytic work being done in-house, the less an organization is aware of outside developments.

In order for marketing and sales productivity improvements to become major contributors to the bottom line, most organizations will need to take dramatic steps to get more from the functional areas of market research and brand/sales analytics. This will require greater out-of-pocket expenditures in these areas, but the payoff from greater effectiveness will be worth it if things are done right.

Every pharma company should work to achieve three overarching productivity objectives. Here's a closer look at how each objective makes sense.

Beat the Sheet

The most important productivity step a company can take is to position its new products persuasively in the marketplace. The better a new product is positioned, the more prescriptions it will generate with any level of promotional spending. But the positioning of some pharma brands is barely better—and sometimes no better—than what appears on the product information sheet. Princeton Brand Econometrics has observed that aggressive positioning work typically beats product information by 10 to 30 percent. Still, many campaigns fail to do better than the product information.

Beating the product information usually results from insightful qualitative research and great advertising minds. The cost difference between accessing great resources and mediocre resources usually pales in comparison to the extra prescriptions generated year after year.

It would be a mistake to invest in high quality work and then squander it by using judgment to pick the best positioning. People are much better at coming up with ideas than ranking them. The most promising positionings should be tested against a product information summary by using a methodology that's proven to forecast in-market results. If nothing beats the product information, new concepts should be developed by a new creative team.

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