Is your marketing worse than you realise?

Dr Andree Bates

Eularis

In her latest article for pharmaphorum, Dr Bates focuses on the decision making processes behind pharma marketing and asks whether the industry is too slow to recognise when something is not working and too quick to throw good money after bad.

We all want company growth and profit. This is typically accomplished via two routes: one is mergers and acquisitions, and the other is organic growth via marketing.

Let’s briefly examine the M&amp,A route to company growth

The majority of pharmaceutical companies have, at some stage in their life, gone down the M&amp,A route. However, as we often see, the growth from this is short-lived leading to further acquisitions to deliver another short-term gain.

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"Mergers and acquisitions destroy shareholder wealth in the acquiring companies."

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I have read several papers on the topic of shareholder value impact from mergers and acquisitions. One of these, by Col, Fatemi and Vu, was presented at the 2006 Annual Meeting of the Financial Management Association (USA) that examined whether mergers and acquisitions create or destroy value1. They examined both successful, and unsuccessful, take-over and merger attempts and their impact on the shareholder value of the take-over company. They found strong evidence that the value of the bidding firm was permanently reduced in the long-term, even when the bid does not proceed. Their findings were also supported in the National Bureau of Economic Research paper on this topic, which stated:

‘Mergers and acquisitions destroy shareholder wealth in the acquiring companies. New research from the NBER shows that, over the past 20 years, U.S. takeovers have led to losses of more than $200 billion for shareholders. However, this result is dominated by the big losses experienced by shareholders in big companies. Small companies that make acquisitions create value for their shareholders.’

However, other examples can be seen where this is not found. An article in Forbes in 2011 by Panos Mourdoukoutas cited both positive (e.g. Oracle and IBM’s software company acquisitions) and negative examples (the acquisitions by Cisco and Hewlett-Packard, the Bank of Americas’ acquisition of Countrywide Financial, Kodaks’ acquisition of Sterling Chemicals) of the shareholder value impact. He concluded that the key factor was having a clear vision, paying the right price and strong execution when implementing. I can think of some pharmaceutical corporate analytics that we have conducted both pre- and post-mergers where the long-term value of the companies was weaker after the merger, than before. I will not name names to protect the guilty!

This struck me because so many pharmaceutical companies are so often somewhere in the process of an M&amp,A, which continues to this day. You will see short-term growth from a good M&amp,A but before long, as we see within pharma, the CEO is hunting for another acquisition fix as a short-term boost to profits, until the next CEO can take the helm.

What about the marketing route to company growth?

How do you know if your marketing is working – or, in fact, not working? Well, obvious factors such as flat or declining market share are a sign that something in the marketing is flawed. Although this can happen for a number of reasons, the key to solving this problem is through marketing. Often the blame is leveled at external factors and rarely does one say, “we have a marketing issue we need to solve”. And yet, in our analytics, the majority of cases we see of flat or declining market share can easily be solved by analyzing and fixing their marketing issues.

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"Marketing is finding and keeping customers by ensuring that you solve their problem/s with products or services…"

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Marketing is critical to the livelihood of any business. Marketing is finding and keeping customers by ensuring that you solve their problem/s with products or services that give the company a profit and allow it to grow. I read about a study conducted in 2006 that examined categories of products and which were moving from brand into commodity rather than commodity to brand, and vice versa. This was done for consumer brands and business-to-business brands. As perceived product differences disappear, and a brand becomes a commodity, a lower price becomes important.

What about prescription drugs? Well, the study came to mind because, interestingly, prescription drugs were included, and they were on par with department stores and baby diapers in this study. This is obviously preventable by good marketing. Marketers who are failing to differentiate the brand benefits and product differences sufficiently will see their brand lose market share.

Unfortunately, not only are we seeing this for existing older pharmaceutical brands but even newly launched ones are failing at an unprecedented rate. There are many reasons for this, of course, including less new molecular entities coming to market, increased costs of sales and marketing and less budget to use, increased competition from existing brands and generics, and less time. While a drug launched in 1965 could enjoy several decades’ worth of exclusive market domination, drugs launched in the last few years have mere months before competition shows up. In addition to this, of course, there are generics. With a competitor boasting equal product quality and safety but reduced prices, big pharma is finding it hard to compete.

Despite this, KPMG’s research reports that the largest percentage of executives said new therapies from their own research would be the biggest driver of growth (52%), followed by therapies from a current / potential alliance partner (36%).2. This is attested to by the fact that R&amp,D is the highest line in the balance sheet and has been growing steadily (it used to cost $1 billion to bring a drug to market – now it is reportedly costing between $4-12 billion).

However, despite the high and increasing spend, we are not seeing corresponding high and increasing growth. Unfortunately, the marketing department often gets involved late in the process and is essentially given a drug to prepare the market for, whether the market wants yet another anti-hypertensive, for example, or not. The marketing department then does not succeed in getting strong growth from the product. They are guilty on two counts: firstly for not being involved earlier in the process, and secondly for not conducting adequate analytics to uncover gaps in the market that were drivers, which their product could have been differentiated on.

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"…the Marketing department often gets involved late in the process and is essentially given a drug to prepare the market for…"

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Nevertheless, let’s move on to examine marketing in the post-launch period. You have the product no one wants – a me-too drug for example - what do you do with it? You look at your customer segments, analyze these, then find a way to differentiate it based on the customer needs that are drivers, and the product benefits. Then you communicate that via channels that are driving your customers to prescribe. In the past we did not know which channels were drivers and “half my advertising is wasted but I don’t know which half” was a common lament. No longer. Now we know, and often the results are not good.

So much money is still being wasted on ineffective channels while the effective channels are being under-funded. I was shocked to find a client had been told by a top five consulting firm to cut spending in specific channels that our analytics had shown were the strongest driver channels. The client asked us what would happen if they followed the consulting company advice. We could show exactly how much revenue and profit they would lose by doing that. Instead we helped them reallocate their smaller budget into the key driver channels and take the money out of the non-driver channels, and lo’ and behold, the brand more than doubled in revenue in 7 months. It is critical to ensure that the budget is properly allocated for growth – both short and long-term. In the KPMG study I mentioned earlier, another finding was that the brand equity of the majority of brands (both consumer and business-to-business), including pharmaceuticals, was in decline so don’t excuse poor results by saying ‘well, our long term brand equity will increase’ as there is a strong likelihood that it will not.

Typically, the buck stops with the Chief Marketing Officer (CMO). I loved Sergio Zyman, the ex-Global CMO for Coca-Cola. He organized an advertising campaign for Coca-Cola that everyone was talking about. It won awards, yet he pulled the ad after a very short time. There was uproar and when asked why, he said, “because our sales are static since it aired and we spent $5m on this ad and we could spend another $5m a week, but why if the sales are not growing from it?” As he says, the whole point of marketing is to grow sales.

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"However, most C-suite do not understand how badly they are doing."

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However, most C-suite do not understand how badly they are doing. If they did, they would not keep doing something that was not working. Those who understand that marketing is not working respond by either reducing the marketing budget (not the right reaction!), or by saying, “it is traditional media that is not working, so let’s put this money into non-traditional media.” This may be good, or it might not. It depends on the data.

In some segments, traditional media is working better than non-traditional, in others, vice versa. You cannot respond by making rash decisions if you want to succeed. So often, when things are not going well for a company, sales and marketing jobs are the first to go because many CFOs see sales and marketing as a lone expense, rather than the engine that can drive growth. Of course, with lack of good data analytics, they are sometimes correct. Marketers are wasting good money after bad.

My conclusion – you must, MUST look at the data, particularly for failing brands and not make snap or ‘gut’ decision.

References

1. http://mpra.ub.uni-muenchen.de/4717/1/MPRA_paper_4717.pdf

2. KPMG Pharmaceutical Outlook Survey, 2012