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Competitive advantage

Branding has been traditionally linked with the consumer products industry; and FMCG companies have extensively used the different techniques of marketing to build strong brands

Building strong product and corporate brands can help to enhance shareholder value

Branding has been traditionally linked with the consumer products industry; and FMCG companies have extensively used the different techniques of marketing to build strong brands.

A quick scan of the latest global Top 100 brand rankings reveals that most of the brands are from industries such as consumer products, consumer electronics, hospitality, car or information technology.

This, again, proves the popular thinking that branding is limited to certain industry sectors. Yet, this belief is far from a reality.

Branding is fast becoming the life blood of literally every industry sector. It is becoming the dominant factor of a corporate business strategy by providing companies with a strong sense of differentiation and creating a sustainable competitive advantage.

Branding is enabling companies to move up the value chain and enhance shareholder value.

Importance of branding
The most important function of a company is to generate an excellent return on investment (RoI) for its stakeholders - both internal and external. The most important function of any CEO and the boardroom is to deliver RoI consistently over a long period of time.

Branding is a key component. According to New York stock exchange and NASDAQ records, intangible assets are known to account for 50 to 75 per cent of the market capitalisation of listed companies, where the majority is accounted for by their brands. Brand equity is one of the main reasons why the market capitalisation of a company often exceeds its book value.

The pharmaceutical industry, like any other, wants to maximise shareholder value. Yet branding has been slow to take off in the sector.

For a long time, it has been felt that branding does not play a significant role in the success of pharma companies. Traditionally, the industry has based its growth and survival on three factors: the continuous search for a blockbuster drug; extensive R&D, and a strong salesforce to sell drugs to end consumers, physicians and pharmacists.

These three factors were enough to ensure the double-digit growth that the industry enjoyed during the 1980s and early 1990s.However, the dynamics of the industry are changing rapidly. There is an increasing threat from generic drug manufacturers that are flooding the market, undercutting branded prices.

There is a looming threat of patent expiry in the near future for most of the Top 50 global best-selling drugs. Moreover, salesforces have reached saturation point due to industry consolidation.

These changes mean that pharma firms can no longer depend on the traditional factors to ensure sustained profitability over long periods of time.

They need to create a new source of competitive advantage that complements the basic factors of R&D, salesforce effectiveness and the search for the blockbuster drug. Creating strong brands is one of the powerful ways to gain a sustainable competitive advantage.

Slow starter
Branding as a discipline was born in the consumer products industry in companies, such as Procter & Gamble, Unilever, Nestle and others.

The development of branding as a discipline has primarily followed the structures of the consumer goods industry. However, because of certain industry constraints, branding has not taken off in the pharma industry in the way many had hoped it would.

There are seven main issues slowing pharma's acceptance and use of branding techniques:

1. Predominance of sales as the driving force of business: one of the main reasons for underdevelopment of branding in pharma is the predominance of sales as the driving force of business development. As companies reach the second and third phase of research, the salesforce does its job selling upcoming drugs to physicians, pharmacists and end consumers. As a result, the saleforce has always taken centre stage in the business and the focus has usually been on a more immediate sales issue rather than on long term perspectives.

2. Strong power of intermediary - the physician: even with the growth of the over-the-counter (OTC) segment of the market, the majority of drugs are still prescription-only medicines. This implies that doctors make the decision of choosing from a wide array of drugs, which gives them an enormous amount of power.

As they are educated professionals, it is hard to convince them with mere marketing/branding techniques. So, once again, the product attributes of the drug become the crucial element.

3. Focus on product attributes: unlike consumer products, which can be packaged nicely and then given a strong brand image with a resonating brand personality, a drug is highly dependent on its disease curing ability - in other words, the basic product attribute.

On top of this there are strong regulatory issues for packaging, design and content description. As in most cases, the only criterion that will influence a doctor's decision is the efficacy of the drug.

It is indeed a challenge to create a strong emotional connection between the patient/doctor and the drug. Furthermore, as a single blockbuster drug can earn a firm billions, all the resources are invested in R&D to produce that one drug. Little, if any, is directed towards building a brand with focus on more intangible aspects.

4. Level of trust involved: unlike any other consumer product, drugs involve a high level of trust from doctors, pharmacists and the end consumers, where efficacy is more important than anything else. Moreover, as quality is not a differentiating factor for a drug, the endorsement of the drug by the physician is crucial.

While in the consumer goods industry customers are keen to try out new things and take pride in being recognised as trendsetters, the customers of pharma companies are averse to such initiatives as the risk involves one's health and life.

5. Continuing improvements in technology: in purchasing a drug, the overriding factor that influences the purchase decision is the drug's efficacy and effectiveness. Furthermore, with constant research, pharma companies constantly bring out improved drugs for the same disease. In such a scenario, the earlier drug loses preference. This goes against the grain, as it has always been thought that no amount of branding would make the doctors or the patients buy the earlier drug over the new, improved drug.

6. Shorter life span of drugs: drug sales are at their highest prior to patent expiry, after which sales fall amid intense competition from generic products.

It has also been seen that most companies withdraw all support for a drug after its patent has expired. In simple words, the life-span of a successful drug is shorter compared to a typical consumer product. Therefore, companies refrain from investing in building brands.

7. Branding is not represented in the boardroom: pharma companies are so research-oriented that few have chief marketing officers representing branding at boardroom level. As branding is essentially a boardroom discipline, the lack of a brand guardian is indeed a major challenge to building successful brands.

The way forward
Though traditionally the focus has been on individual products, big pharma firms are realising the importance of creating strong corporate brands as well as creating stronger product brands.

The pharma industry is a classic example of where both product and corporate branding are of equal importance.

Pharmaceutical companies must realise the potential of developing a strong corporate brand.

As the lifespan of an individual drug is quite short, it makes economic senses for pharma companies to invest in building a strong corporate brand that would endorse every single drug manufactured by that company.

Some might argue that a corporate brand would place enormous pressure on a company's overall stature, should even a single drug fail. But the benefits of corporate branding outweigh the risks.

As discussed in the article, though the pharma industry is unique in certain ways compared to the consumer goods industry, there is no reason why a strong brand cannot be built using the fundamental principles of branding as it applies to a consumer goods company.

By following these steps, pharma companies can begin their journey of building long-lasting successful corporate and product brands. It is imperative that pharma companies realise the importance of building successful products, as well as corporate brands to compete effectively and sustain profitability.

The Author
Martin Roll is CEO of VentureRepublic, a leading strategic brand advisory firm. For more details: www.venturerepublic.com

2nd September 2008

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