With increasing consumer health awareness, combined with pressure on governments to focus on disease prevention and a general trend towards higher personal incomes, a new global market of consumer-focused health products is emerging.
Occupying a space somewhere between consumer goods and pharmaceuticals, the market could provide a significant opportunity for pharmaceutical companies to grow. However, pharma will first need to compete against the global brand-building muscle of the consumer goods industry.
Preventative measures
Consumer interest in health products is by no means a new phenomenon, but with the relatively recent rise of energy drinks, probiotic yoghurts, minerals and supplements, nutrition, anti-ageing products and more sophisticated forms of analgesics, this interest is coalescing into a much more defined and recognisable market.
According to a new study published by AT Kearney, Winning the Battle for Consumer Healthcare: Mobilising for Action, the market includes products that ‘claim to improve some aspect of health or wellbeing’. And while the products can vary widely, for the most part success relies on two essential dimensions: fulfilling a consumer need and the strength of the health claim it makes.
Consumer needs can be anything from relieving a headache or preventing an illness to increasing energy levels, optimising fitness or else looking younger.
Once the need has been recognised, uptake of any of these products is heavily reliant on the strength of its specific claim. However, according to the AT Kearney report, ‘[t]he burden of proof required to make any health claim is increasing’, for example, the European Commission (EC) now requires companies to substantiate any purported health benefits associated with a product. In May 2012 alone the EC approved 222 health claims on food, while rejecting 1,700.
The issue of proof has become a crucial factor in the battle for the consumer health market. But while pharma can address specific health needs with research-based, scientifically proven products, the quality approach used by the industry can leave consumer products too expansive and innovation too slow. And in addition, pharma’s manufacturing and supply chain lags behind the flexibility of a promotions-driven business.
Battling for the emerging consumer healthcare market
Reckitt Benckiser Group: In November 2012, Reckitt Benckiser Group, a consumer goods company, announced that it had signed a merger agreement with Schiff Nutrition International, a provider of branded vitamins, nutrition supplements and nutrition bars in the United States and elsewhere. Originally Bayer had offered $34 a share to acquire Schiff Nutrition, but said it would not seek to counter Reckitt Benckiser’s $43 a share bid.
It is estimated that the global vitamin and nutritional supplement global market is worth $30 billion.
Coca-Cola and Sanofi: In October 2012, Coca-Cola and Sanofi announced that they had established a 50-50 partnership in order to launch a range of drinks carrying ‘well-being and beauty claims’, as part of both companies’ business diversification efforts.
GlaxoSmithKline: In December 2010, GlaxoSmithKline bought British-based sports nutrition specialist Maxinutrition for £162m in order to expand its line of consumer health products.
Proctor & Gamble and Teva: In November 2011, Procter & Gamble and Teva Pharmaceutical Industries announced the creation of a joint venture in consumer healthcare. Named PGT Healthcare, it focuses on ‘best-in-class development and state-of-the-art commercialisation of branded OTC medicines’.
Nestlé: Nestlé Health Science is a fully owned subsidiary of Nestlé and aims to ‘pioneer a new industry between the traditional nutrition and pharmaceutical industries through the development of science-based personalised nutritional solutions and shaping a new approach to disease prevention and management.’
In November 2012, it was announced that Nestlé Health Science and the pharmaceutical and healthcare group Chi-Med have agreed to form a 50/50 joint venture to be named Nutrition Science Partners Limited (NSP). NSP will research, develop, manufacture and market innovative nutritional and medicinal products derived from botanical plants.
Danone: Acquired by Danone in 2007, Nutricia forms the Medical Division of the Danone Group and has the vision of ‘bringing health through food to as many people as possible’.
Brand building
Historically the two industries operate very differently. Consumer goods companies tend to build global brands and use marketing strength to win supermarket shelf space. Meanwhile, pharma will use Rx-to-OTC switches as a source of innovation, using pharmacies and specialists channels, while also developing portfolios of local assets.
For consumer goods companies, a ‘brand’ is the ‘articulation of a relationship with a consumer, encompassing personal aspirations, trust and promise of performance. For pharma the brand is a molecule, with the potential of enormous value: just think of the cholesterol lowering drug Lipitor, which has achieved sales of more than $25bn a year.
When it comes to the consumer health market, AT Kearney did insist that building a global brand was not a pointless strategy (an example was given of the global dominance Danone now has over the probiotic health drinks market), however, it did suggest that in most markets, ‘consumer health companies will have to build on existing local brands that embody trusted relationships and are tailored to local needs’.
For this reason, leading consumer health companies tend to build organisational models around that used by the ‘mother ship’: centralised brand management and innovation, global manufacturing, and local brand activation.
So consumer health should be treated as a hybrid of the consumer goods and the pharmaceutical industry. They will need the marketing and distribution prowess of the former and the understanding of health issues and the stringent regulations environments familiar to the latter.
A five-point plan
A.T Kearney has produced a five-point plan to support pharmaceutical and consumer goods companies in their efforts to realise the market potential of consumer healthcare.
1. Understand the drivers of growth
Developments, such as an increasingly ageing population in Europe, mean that there will be an explosion of the market for consumer health. However, many of the greatest opportunities for growth are being missed by both pharmaceutical and consumer goods companies alike. To succeed in the consumer healthcare market, companies need to get much better at identifying global hotspots in demand, plan their portfolio appropriately, and learn how best to reach the new types of healthcare consumer.
2. Identify battle strategies
Companies need to understand where they can realistically compete, as well as identify the most appropriate ‘battle’ strategy for their products. We recommend that companies consider the four strategies we have outlined in our study.
These are based around:
- Mass market maximisers: companies that sell niche products to the mass market
- Category champions: businesses that are trusted by consumers to address specific health needs
- Discovery-driven disruptors: companies that focus on ‘novel science’ to address unmet needs
- Scientific specialists: firms that sit at the clinically complex end of the market.
3. Establish your organisational model
Companies that want to capitalise on the potential of the consumer health market need to quickly determine the right organisational model for the business. Most consumer health companies face two major organisational decisions: the degree to which the business should be decentralised or globally driven; and whether consumer health is such a different business that it needs to be run independently of the main business, be it pharmaceutical or consumer goods.
4. Assemble the right capabilities
Both the pharmaceutical and consumer goods industries bring with them a number of characteristics, which could help them thrive in the new market. However, no company has ‘broken the code’ for success just yet. Consumer goods companies are skilled at devising effective marketing strategies and have strong brand portfolios that dominate categories, whereas pharmaceutical companies are adept at delivering innovative products with proven efficacy and credibility and are used to operating in highly regulated and complex environments. Companies hoping to do well in the new market will need to look at how they can combine the successful elements of both these unique industries in order to develop well targeted innovative products, which have a strong evidence base behind them, and are available to a large number of consumers.
5. Act quickly
No matter how good a company’s strategy and tactics are, the inability to put these plans into action will always result in defeat. Businesses that want to capitalise on the consumer health market will need to move quickly. This is not least as a result of the current ‘land grab’ underway for quality assets, with a number of companies forming strategic partnerships outside of their own traditional industries, such as Coco-Cola and Sanofi. We firmly believe that the future winners in the consumer health market will be those who adapt best to the rapidly changing environment.
