The time has come: major reinvention is now a requirement for success
Frank Wartenberg and David Ziedman
IMS Health
The pace of transformation in the world’s leading pharmaceutical markets has increased dramatically in recent years, reshaping the very essence of pharmaceutical commerce. Unprecedented patent expirations, slowing innovation, and growing pressure on pricing and market access continue to roil the market, portfolios are shifting from primary care to specialist-based medicines, traditional promotion is losing impact as payers become increasingly influential in the treatment decision. Tried and true approaches to sales and marketing are still being tried, but are no longer “true”, sending profitably into decline. Short-term solutions – reducing promotional spend, increasing M&,A, and cutting sales force size - have carried companies about as far as they can. The continued relevance of the industry’s homogenous business model of the last four decades is already in doubt. As the factors at work today continue to affect markets over the next 10 years, the situation will only worsen.
In the midst of these unprecedented changes, manufacturers are left to consider the very nature of their commercial model. Few have completely transformed their go-to-market strategy, some are not even contemplating the change, many are simply doing “less of the same”. Overall, among the top 30 companies and across the eight major mature markets, there are still over 200 organizations that have yet to grapple with the obsolescence of their current commercial model. Those that begin now to develop a New Commercial Model (NCM) that is adapted to the new market realities will be able to reverse the current downturn. The alternative – maintaining the status quo – is no longer a viable option.
New Market Segmentation
New IMS research provides important insights into where an overhaul of the commercial model is most needed, where investing will make a real difference, and the types of competencies and structures that will ensure success. In a major departure from traditional approaches to segmenting the market, the study identified the value proposition and cost burden of more than 80 therapeutic areas across the eight major world markets – the US, Japan, France, Germany, UK, Italy, Spain and Canada. The value proposition reflected the level of patent protection in place combined with a recognized, objective measure of innovation, cost was a function of impact on the nation’s healthcare budget relative to the degree of payer influence in the class. When measured against these variables, it was possible to assign each therapeutic class to one of three market segments:
1. Differentiated: Classes characterized by significant product innovation, no generic equivalents and little payer influence on prescribing decisions.
2. Commodity: Classes where the main differentiator is price, with considerable payer influence over prescribing decisions.
3. Transitional: Classes that fall between the two extremes and are likely to undergo significant change. In many countries, this is the largest market segment.
As therapeutic classes mature and patents expire, they naturally migrate from the differentiated segment to the transitional segment and finally into the commodity segment (Figure 1). In the UK, for example, the market is currently split into 49% commodity, 26% transitional and 25% differentiated. As generic competition grows, many classes in the transitional segment will shift: by 2012 79% of the market will no longer be patent protected, compared to 62% in 2007.
The mix of segments varies by country and by therapeutic class within a country. Cholesterol regulators, for example, are a large commodity segment class in Germany but a small transitional segment class in Japan – meaning that each company will need to individually assess the urgency of new commercial models at a local portfolio level.
A further key distinguishing feature between the segments is their receptivity to promotional activity, with the differentiated being most responsive and the commodity, least. What is also clear is that companies are overspending within the commodity segment, where the share of voice paradigm is largely obsolete and return on investment well below par. Overall, by improving promotional productivity the industry could save $15 billion - money that could be better allocated elsewhere (Figure 2). Every company will need to assess its own level of expenditure – and its strategic options – before undertaking the development of a new commercial model.
Centre Decisions
Thus far, companies have made the greatest strides in applying efficiency and effectiveness tactics to their go-to-market strategy. However, as they look to optimize performance within each of the segments they must also consider other activities that engage new stakeholders and extend the value proposition including the development of a “whole product” approach that goes beyond simply selling a tablet to producing a healthy outcome.
Each of these three areas represents a tactical avenue within a broader strategy framework that can be employed to varying degrees to suit the particular circumstances of a geography, therapeutic area, and company. In a commoditized market, for example, there may be heavy reliance on improving efficiency and effectiveness and gaining cost leadership, whereas a focus on strengthening stakeholder relationships may be more appropriate in the differentiated segment.
Techniques to consider in each of the areas include:
Efficiency and effectiveness: Promotion optimization, new marketing execution technologies, enhanced stakeholder segmentation and promotional techniques, launch excellence, and high-quality, impactful stakeholder interactions
Stakeholder relationships: Integrated stakeholder teams/stakeholder-centric teams, integrated geographic teams, situational or opportunistic teams, and specialized teams
Creating value: Stakeholder solutions ranging from customized patient education, compliance programs, e-tools, and social networking materials to dash boarding and value-based focus groups, stakeholder resources such as trial offers and coupons, healthy outcomes programs, and health calculators, extensions through value-chain aggregation and a movement to services or non-prescription offerings, and industry partnerships with governments, healthcare organizations, disease awareness groups, payers and employers to focus on healthy outcomes.
A Five-Step Process
Clearly the industry as a whole is about to embark on a transformation that stands to be one of the most sweeping and significant in its history. We believe companies need to approach the challenge through five distinct areas of work: Diagnostic Assessment, Strategic Planning, Organizational Excellence, Enabling Capability, and Commercial Transformation.
1. Diagnostic Assessment
A diagnostic assessment creates the proper baseline for planning, with a view to understanding the current landscape, gaining insight into each stakeholder’s agenda, and modeling the maturity of the portfolio across therapeutic areas and countries, by segmenting into the commodity, transitional and differentiated segments and measuring ROI for each.
2. Strategic Planning
The goal here is to lay out the strategic options and then blueprint and plan the selected model by considering future changes to the landscape, deploying a country-specific approach with promotional investments attuned to the right set of decision makers, structuring thinking around the NCM Strategic Framework with appropriate adjustments to the levers of each area of the triangle, planning to reduce/reallocate promotional spending and integrating all external-facing functions in the process.
Ultimately, companies will need to determine the most suitable go-to-market approach that supports their strategy, taking into account their current and future portfolios, the pricing and market access conditions, their health economics and outcomes research documentation and the results of thorough cost/benefit analyses.
3. Organizational Excellence
To determine the commercial organization that is fitted to the purpose and sized to the current and future environment, companies will need to understand the optimal size for the commercial organization, the functions that need to be put into place to cover emerging stakeholders, and the optimal marketing expenditure and its allocation across the channels and stakeholders.
4. Enabling Capabilities
Changes to the commercial model have the potential to touch upon a wide range of business processes and IT systems within the organization - many of which may need to be altered to support the new approach. The goals of this phase are to implement or update the capabilities needed to support the NCM, outsourcing as needed to optimize competencies. Typically, needed changes to these supporting systems and processes are identified in the Strategic Planning stage, and work proceeds in parallel with the other planning and implementation phases of adopting a NCM.
5. Commercial Transformation
Successfully introducing a new commercial model into an organization requires typically new ways of working and therefore the skillful use of each of the levers within a change management framework. When proven change management principles are applied to the process, companies can minimize the length and depth of performance disruption and increase the resulting performance. Fortunately, with the right approach, employees can be guided along a path from awareness to self-concern, to mental “tryout”, to hands-on trial, and finally, to acceptance.
Summary
Pharmaceutical companies have a challenging journey ahead of them with a broader, more complex scope than they have previously encountered. Each company must devise an approach that suits its portfolio, each local environment, and its threshold for change. Those that fail to implement their new model with appropriate attention to the change management process will take longer to realize the benefits and ultimately, will not optimize their performance. Companies that begin now with the right base of information, a strategic focus and a comprehensive planning framework can successfully undergo the transformation and emerge with models that are better suited to the environment and changing times.
About the Authors:
Frank Wartenberg is VP and Practice Leader for Commercial Effectiveness for the EMEA region at IMS Health. David Ziedman is Director of Commercial Effectiveness for the EMEA region at IMS Health.
For queries regarding this article please contact IMS Health at netinfo@uk.imshealth.com.
