Getting marketing back on track

The problem with the pharma industry is that it is trying to grow with very few products in the pipeline, with promotional activity and prices under severe pressure globally, and with virtually no new country markets to open up. The traditional safety valve of the United States, where companies could increase prices virtually at will to offset growth problems is no longer a viable route for growth.

Mass marketing is on the way out, it’s beginning to die, and is being superceeded by niche marketing. The real problem for most pharma companies is using their existing capital investments in marketing more effectively, rather than throwing money away trying to match the bad investment decisions of other companies. Pharma companies are already spending 30 to 40 percent of sales dollars on advertising and promotion. However, effective marketing is based on creating a culture of customer satisfaction, putting the customer at the centre of the business.

Change demands that pharma company’s move away from the inertia and the crippling expenses of a brand-led mass marketing credo. There must be a shared organisational passion to satisfy the customer. I don’t see that in most pharma companies, it’s much more of a mechanical process. Pharma companies who want to survive need to change. There is little mileage in dragging companies kicking and screaming into the future if there is no will to change.

The first step

The whole pharma business concept needs to be reconfigured to make companies marketing driven. Marketing still starts too often with ideas provided by research, rather than marketing providing customer based needs. Everything must start from the assessments of customer needs. This is a fundamental problem that the pharma industry’s been wrestling with over the last 50 years. We have to find ways of putting into research what the customer wants, not what research can find. The days of selling what we can make are gone.

The first step is to look for areas where there are major gaps in therapy, for example, deafness. There are no products out there for deafness and pharma companies are not forcing research to come up with radical approaches to addressing this pressing problem.

Realistic expectations

High marketing spend comes from the fact that when something doesn’t work in the pharmaceutical industry, people redouble their efforts and try to spend their way to success. This is a rather crazy way of doing business. The first thing to do is zero base all your expenditures and justify each and every aspect of investment. Pharma management makes the fundamental mistake of assuming that marketing expenditure is an expense. We’re trying to build long-term relationships with patients, practitioners and paymasters and that requires investment, not expenditure.

Realistic expectations are critical. Up until a few years ago, most companies were still forecasting sales growth rates from 10 to 15 percent, when the market was growing at five to seven percent. You did not have to be a rocket scientist to work out that something was extremely wrong but it took a lot of companies a long time to come to this very simple realisation.

Marketing, unfortunately, tends to overcompensate by driving up sales estimates. Stretch goals are fine, but leaps of faith are unacceptable and this is what is still happening in many companies – they see opportunities, which any rational person could see were not going to work and this leads to crazy prices, which are in turn creating problems with healthcare authorities. This is a vicious not a virtuous circle where pharma are beginning to shooting themselves not in the foot, but in the head.

Brand loyalty

There is no customer loyalty in this business. Loyalty only happens when people actually pay for things directly. A very interesting situation arose a few years back when the reference price system came into force in Germany. A number of companies decided that they were not going to reduce their prices and would charge, on average, a mark a day above the reference price for their brand. In other words, the patient would pay 30 marks for a month supply.

It came as a rude shock when companies found out that their ‘loyal’ customers would rather accept the generic at the reference price than pay for the brand name drug.
In a market environment where few pay the full price of a drug it is extremely difficult to create sufficient brand loyalty to persuade people to pay the full cost for a brand over a free or very low cost generic.

There are a lot of people who disagree with me, but when push comes to shove, and you’re offering the same thing which the government and the pharmacists will tell you is clinically and chemically virtually the same, people are not going to pay the difference.

A tarnished reputation

Many of the industry’s key problems stem from the fact that its management is still living in its illustrious past rather than trying to adapt to the realities of today. There’s a string of very well documented product problems and company issues and every month there seems to be a new one. The issue is that you can lose your reputation in a minute after it has taken many, many years to build it up. Good behaviour is profitable behaviour and management needs to understand this.

With H5N1, and all the problems of a possible pandemic, companies didn’t take the initiative and immediately partner with government. They all held back and it resulted in a very slow and fractured approach to a major global problem. Pharma companies also tend to react to events, rather than being proactive, which makes them look part of the problem rather than the solution. Companies have to react much quicker and wherever be proactive.

There’s a lot of money at stake here, but there’s more money at stake if you don’t take the approach of good, profitable behaviour. There’s no longer a bank of social goodwill for the pharma industry. We live in an era of value-for-money and paymasters hold the purse strings.

I’m not sure the industry will ever repair its reputation. It needs to go an awful long way to overcome the serious self-inflicted damage already done to its reputation. Here the problem revolves around an industry, which has a history of getting its own way. With governments and other paymasters now calling the tune the industry needs to reach workable compromises rather than indulge in conflict.

Predictions

Big pharma is becoming an industrial anomaly. The blockbuster was visibly dead in the water at the beginning of this century. Pharma managements did nothing and used mergers and acquisitions to build colossi in the mistaken belief that they could buy their way out of lean pipelines and the old technologies designed to build volume out of symptomatic treatments of chronic conditions.

It would be far better if managements imploded these mega companies and created rafts of smaller companies which would be more responsive to customer needs, more productive, more focused and more agile than the very, large companies which now dominate the pharma industry. I believe the break-up time is near. Industries go through cycles. The airline industry is a case in point. Big carriers with big overheads and big prices have gone to the wall in the face of small low cost carriers.

Change is well overdue in the pharma industry. The pharma industry has only been able to stay as it is because of regulation, which limited new competitors entering the marketplace, and customer inertia, which allowed companies rather than customers to manage the critical buyer-seller interface. This is all being swept away. Vibrant new customer-driven companies offering new technologies and meeting value-for-money customer needs are changing the face of the pharma industry and its relationships with patients, physicians, paymasters and politicians.

Big pharma needs to change itself rapidly or it is going to go the way of the dodo.

Bio

Dr Barrie James is internationally recognised as a leading-edge pharmaceutical thinker and for his consulting in pharma futures, strategy and evidence-based marketing. He manages pharma strategy consulting which specialises in creative and pragmatic solutions to fundamental strategic and marketing problems in the pharmaceutical industry. Earlier in his career, he held executive positions at Ciba-Geigy, Merck and Co., syntex, and Schering-Plough in strategic planning, marketing, and business development. His books and reports on the industry have become standard industry references and his work has been cited in business week and the economist.

“Many of the industry’s problems stem from the fact that it is still living in its illustrious past rather than trying to adapt to the realities of today”

“Big pharma needs to change itself rapidly or it is going to go the way of the dodo”