Channel strategy could be a significant 'stone unturned' in the battle to win customers and patients
We all hope to anticipate and act on the next big thing in pharmaceutical marketing, whatever that might be: value-based pricing, personalised medicine, real-life data. It could be something we're not even currently aware of, or an area we peripherally understand but haven't made a connection with – such as channel strategy.
A core focus in FMCG and DTC, it isn't yet a focus for pharma marketers in the way that, for example, market access is. Yet if managed well, it could be of great value to pharma brands.
In segments such as OTC or FMCG, channel strategy is a core part of the overall marketing plan. The way consumers access products, the services/promotions deployed, the relationship with distributors and retailers, and the impact of these on P&L, are core considerations. However channel strategy has often been overlooked in pharma or considered simply as 'logistics'.
Channel strategy isn't yet a core focus for pharma marketers …
At a time when the need to differentiate products beyond purely clinical arguments is greater than ever and the risks of failure are high, no stone can be left unturned. Channel strategy is a means by which some key elements of the overall marketing strategy can be deployed properly.
What do we mean by channel?
In pharma, 'channel' is often used broadly to signify the routes to communicate with customers. A more accurate definition includes the management of three key components:
A channel strategy is a systematic, well-thought-through and integrated approach to these elements, considering channel components as a whole, and thinking through how they link to achieve an end goal.
In many companies, individual teams plan and organise channel activities but with a tactical focus, in isolation of overall brand goals and other tactics.
To appreciate the need for systematic channel strategies, let's consider an example: a new product in a rare disease may have only a few hundred patients in each major market in Europe. To gain reimbursement there is a requirement to provide accurate patient numbers to national agencies.
The product is only used by experts and has a risk management plan, so supply needs to be limited to key centres/hospitals. Patient persistence may be a key issue so a patient support programme may be needed. Finally, there is a significant price difference across European countries, which may result in product diversion and shortages.
There are three distinct goals here, the need to:
Each of the channel components therefore is relevant. The different goals might be achieved through working with a single specialty service provider rather than separate sales channels and suppliers.
There is always an efficiency goal too: with tighter marketing budgets, business or marketing teams need to understand the entire investment picture impacting their product – supply costs, investment in services, the cost of purchasing data. The lack of a coordinated approach can lead to greater overall effort, higher costs and less value.
Designing a channel strategy should be a natural extension of existing areas of focus for marketers (eg, thinking through patient pathways, adding value to customers, managing costs).
Where a mix of activities is needed to support product differentiation, planning the approach to the components of channel carefully can result in gaining the loyalty of customers and patients. The right approach can convey to them, and maybe payers, the differentiating value and service you offer.
The evolution of channel options
The 'channel landscape' in Europe is changing, with a range of factors driving the need for more specialised channels. Over the last five years there has been significant growth in companies moving to Direct to Hospital (DtH) and Direct to Pharmacy (DtP), where the business case justifies it.
The Pfizer move to DtP in the UK, rapidly followed by most other major manufacturers, used a new channel approach to shift the balance of power towards the pharma companies, giving better data ownership, product control and a new commercial relationship with purchasing customers.
DtP is an increasingly established and successful channel not only in the UK but in other European markets.
DtP however is now becoming old news. The key difference is that DtP models often took a single approach to a whole portfolio – not ideal for the many companies that have an increasingly complex mix of products.
Channel strategy is particularly key for those companies with specialty medicines (ie, high cost, requiring risk management plans, complex monitoring, biologics, for rare or orphan diseases, or used by very limited customers). Put simply: you can't use the same channel approach for these as would be the case for Primary Care, or generics. Channel strategy goals can range from investing to differentiate and add value, to simply getting a product out at lowest cost.
DtP is an increasingly established and successful channel in Europe …
For European wholesalers, the reality of the industry pipeline changes the landscape. They face a perfect storm; reducing incomes due to changes in margins and a reduction in branded, large volume, primary care products. But there are new opportunities for suppliers to adapt and offer new channels, some of the major pharmaceutical wholesalers are developing new service models, and a range of specialty suppliers are building presence across Europe.
At the same time, healthcare systems are also opening up to new solutions, in part to push patient care out of high-cost settings. Companies that are able to provide well-designed solutions in patient service, diagnostics, medicines sourcing and data provision, will be welcomed by customers and payers.
The design of the channel approach for a brand might become the enabler for the access strategy, if the channel approach supports eventual product reimbursement.
Designing channels around the patient
The patient pathway is an important consideration. For example, a patient compliance programme (a service with the channel mix), needs to reflect real-life patient behaviours in order to be valid. Physicians may make prescribing choices partly on the basis of the overall package offered. In areas such as diabetes or enzyme replacement, the package of supply and service is a key deciding factor for the physician and nurse, in making the prescribing choice. The channel mix therefore becomes a central focus.
There is a caveat to the importance of patient choice: European patients mostly don't co-pay, so the financial incentive for the patient to access prescription medicines through lower price routes doesn't exist. That is why, to date, the few mail-order/internet pharmacies in Europe have tended to exist only where there is a financial incentive for the patient to use them (eg, it may be cheaper for German patients to obtain their prescriptions from a Netherlands-based internet pharmacy), or with so-called lifestyle drugs such as PDE5s.
Channels in the US versus Europe
The US provides examples of the features of channel design that are increasingly relevant in Europe. For a start the US has a greater variety of channel options. Mail order through Pharmacy Benefits Managers (PBMs) has become the main channel for specialty medicines, operating a combination of direct-to-patient supply with patient support back-up.
Large US health plans work with PBMs, who manage dispensing on behalf of the health plan and in turn work directly with pharma companies. Medco, Caremark and Express Scripts provide mail-order drugs to over 100 million US patients.
The drivers for growth in PBMs/specialty pharmacy have been complex and reflect US healthcare design, but patients do prefer the convenience, and pharma companies like the ability to manage supply and the route to sponsor services like adherence programmes that support their brands. PBMs and payers like the dynamic patient data they gain.
One feature where specialty pharmacy in the US has really excelled is in the management of real-life data, through the ability to correlate medicines supply to patients and outcomes.
Companies such as Medco have published data pointing to better patient persistence when patients go through specialty pharmacy patient support programmes, compared to the retail pharmacy.
Companies that are able to provide well-designed solutions will be welcomed
The US model is not where Europe will go short term, but there are features of the US channel mix that European channel suppliers and pharma companies can learn from.
The fundamental feature is the integrated supply/service/information approach seen in the US. Compare this to running a stand-alone compliance programme in Europe, and separately selling to a wholesaler; how do you measure the value of the programme when in practice you have no way of knowing whether the patient is actually still on the treatment?
While not on the same scale as mail order in the US, new channels like home delivery (direct-to-patient) have been established for years in some European countries. As in the US, when patients have a combined supply and support service, the home delivery and homecare approach can provide better outcomes.
For example IMS data in the UK shows that patients on growth hormone treatment who have access to home delivery along with a patient support programme are 30 per cent more medicines adherent than those who only visit a retail pharmacy.
… the home delivery and homecare approach can provide better outcomes
The UK use of home delivery and homecare has in part been driven by an anomaly in VAT treatment on medicines. However in areas such as biologics, growth hormone, HIV medicines and oncology, pharma companies that have been active in developing this channel, have generally performed well in the eyes of customers.
Opportunity for pharma to lead
The point of all of this is that companies can and should play an active role in deciding which elements are best for their brands. So what can pharma do to compete in this space?
It is important to avoid the mindset that innovation in this space is too difficult. There are of course barriers to change, including different country regulations on supplying to patients, in particular around home administration of medicines. However, the range of options is wider than many companies believe, and many of the specialist suppliers have experience of working with specific country requirements.
Changing supply models for a whole portfolio – or even for a single product that has been on the market for some time – can involve altering the relationship with intermediaries. Regional marketing teams can find it difficult to unravel the complex mix of channels used across different countries, if there is no logic to how things were set up in the first place.
Internally, if there is no single ownership, channel activities can be viewed as frankly too difficult to alter compared with other parts of the marketing mix. Consequently, changes in channel may be small and peripheral, rather than revolutionary.
The message for marketers is – own it
Here are 10 sequential steps to help identify and implement channel projects:
Make no mistake; this is not always an easy area. If it were, every pharma company would be fighting and competing here. The good news is that for those companies able and willing to develop their capabilities and plans, channel strategy could be a 'stone unturned' in the battle to win customer loyalty.
Supply or service channel
Description and features relevant in Europe
Company sells to wholesaler at set price/fixed discount. Wholesaler sells to its customers in market on their terms. Little scope for company to decide end customer choice. No onward visibility or ownership of data except via third-party data providers. Products can be sold to hospitals, retail pharmacy. Wholesalers tend not to offer added services for manufacturers
Direct to Hospital/Pharmacy
Company sells and delivers to hospitals directly. Obtains higher data visibility and can manage pricing on individual products. Company bears logistics costs and can also decide which customers to sell to
Bespoke agreement between a company and a chosen supplier. Services can include logistics, delivery to hospital, patients services and defined data reports
Direct to Patient
Supply typically involves the company selling to an intermediary (eg, hospital or home delivery pharmacy), which in turn dispenses and delivers to the end-user at home. Although often cold-chain, this is now more often used for ambient products and devices, since this route provides good inventory control
Sponsorship of activity directly interfacing with the patient, this may include nurse support to help patients with home administration of IV drugs. Can be coupled with home delivery of medicines/devices
Independent pharmacy, supplied either via wholesaler or direct from manufacturer, but dispensing medicines directly to patient via dedicated website and mail delivery. May involve contract with manufacturer on specific product initiatives
Patient support programme suppliers
Operated completely separately to product supply/logistics. Companies can sponsor a range of patient support programmes directly (eg, telephone helplines supporting compliance), through which information can be reported back to the company