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Time to rethink

A financial crisis affords a good opportunity to move to more customer-focused marketing
An Illustration of money, evidence and well being

Newspaper headlines of the "World ends – worse to come!" variety have been commonplace recently – maybe we are all in danger of becoming a little immune to such shock tactics. There again, who would have thought that banks would fail to deliver on their most fundamental of value propositions – that they can add up numbers and come to the right answers.

"So what?" you say. "What has this got to do with pharma?" Maybe it's time for us all to reflect for a few minutes. For too long, pharma's value proposition has been based on what the industry wants customers to need versus really understanding market dynamics and providing customers with a compelling reason to buy. You need to look at the value proposition of your company and your brand(s) and ask whether they are still relevant. Do you know whom you are trying to convince? In short, the challenge is to establish whether 'adding value' now becomes the fulcrum of marketing planning.

Number crunching
EU countries spend about 8.5–10.5 per cent of GDP on healthcare and operate on the basic social healthcare principle of horizontal equity – equal access to healthcare. Most countries are moving along the continuum of cost, utility and health technology assessment (HTA) where HTA is becoming a more transparent form of healthcare rationing. Falling tax revenues over the near future because of the credit crunch and economic downturn will only amplify the healthcare budget issue. Meanwhile, the US spends 14.5 per cent of GDP on healthcare and there are still 40-50 million lives uninsured on any given day. This almost certainly has to change and the Centres for Medicare and Medicaid Services, the research engine behind the Medicare Modernisation Act, is already starting to move down the HTA and cost-effectiveness-modelling route.

In 1995, there were about 50 new molecular entities (NMEs) costing about $25bn to develop. In 2005, the numbers were nearer 25 NMEs costing about $50bn to develop. What compounds the problem today is whether the NMEs even get priced, reimbursed or made available for doctors to prescribe within any given market, further reducing the number of NMEs 'available' or, at best, delaying their market entry. All this eats into that all important 12 or so years of patent exclusivity. Iconic brands like Coke started in the 1930s and have built equity through consistency. The birth, life and death of a pharma brand are compressed into 12 years or less of patent life – quite a challenge. It has been estimated that patent expiries will wipe off an estimated $60 billion of sales between 2007 and 2012. Will pharma companies be brave enough and smart enough to make the right investments during the increasingly risky business of drug development?

From Tinkering to transforming
For years, pharma has been able to get away with tinkering with the old model, in part because of years of perfecting and investing in a broadcast method of marketing which was effective but inefficient. It is unlikely that this will be good enough for the future. Much talk today is of innovation, transformation, new business/sales force models, account management and, inevitably, cost-cutting – doing more with less. This is all very well as long as the diagnosis is clear and the requisite remedy at hand.

There are two aspects for serious consideration. The first is a clear value proposition according to customer type. We live in a world where, in the UK for example, interferon is only available on a risk-share basis. In France, data from post-registration observational studies are systematically required to substantiate a price premium for a new compound/formulation (with a possible pay-back if the data do not support) and where drugs are frequently reimbursed within a narrower frame than their label. In Germany, the Federal Joint Committee (G-BA) is considering co-signing or second opinions for certain therapies as well as cost-effectiveness analysis for reimbursement. In the future, why wouldn't 'fourth hurdle' bodies such as IQWiG and NICE look more favourably on paying higher prices for disease-preventing medicines such as vaccines versus later-stage intervention medicines that are only partly successful?

Secondly, a value-based marketing approach is already essential. Value is broadly defined as a combination of:
• Understanding the disease (unmet need, burden of illness, quality of care etc)
• Evidence (trial data, 'real life' data/benefit, systematic reviews, meta-analyses etc)
• Economics (cost-effectiveness, budget impact etc).

Clear and appropriate value propositions are needed for different types of stakeholders. Payers, patients and physicians may all have a different perception of value. In the past, the value-based approach was more anchored in late Phase 2 and Phase 3 studies in terms of clinical development and pricing and reimbursement. Today, a clear value proposition is essential throughout the product life cycle to aid early market access (pricing and reimbursement), differentiation from competitors (including generics) and maintenance of price. This is even more important today, as we live in an environment where development costs continue to rise, 'jumbo referencing' can genericise a market quickly (or at least drive price decreases) and more frequent challenges to patents occur – all effectively impacting the life cycle of a brand.

A customer insight and customer satisfaction-driven business model is nothing magical; it's just good marketing. Put aside thoughts of sales force sizes, share of voice, meetings programmes, key opinion leader mapping. Instead, ask yourself these five questions:
1. In addition to knowing who your customers are, where they work and how many patients they see, how well do you understand the roles these customers play and how they interact with each other in formal and informal networks?
2. Do you think of sales force, business-to-business and programmes or build your marketing strategy and customer-facing teams based on an intimate knowledge of how your customers work and where your brand can add value? Do you work with customers or impose your way of working on them?
3. Do you still stick by the doctrine of marketing mix or invest in understanding the longitudinal path of your target patient and liaise with healthcare professionals to develop appropriate services and evidence-based approaches to improve patient outcomes?
4. Do you primarily measure sales, share of market and share of voice or primarily build brand and customer equity, knowing that sales will come?
5. Does this debate happen at a leadership level in your organisation? Do you continue to invest in the same activities or allocate resources based on a true understanding of how to approach the market?

The contention is that any 'new business model' (an overused expression) should be built from a thorough understanding of the customer so that interactions with customers can be seen as beneficial from the point of view of the customer, then the pharma company.

The other challenge for marketing, which has already evolved to include health outcomes, clinical effectiveness and economic value assessment, is to really embrace the wider communication challenge around 'value' so that positioning is underpinned by transparency and trust, and clinical effectiveness can be converted into customer value. Then the world doesn't end. From a marketing perspective, it begins. What a stimulating and rewarding business to be in – as there is so much to do.

The Authors
Roland Powell is director of Roland Powell Limited
Dr Mark Ratcliffe is director of PHMR Consulting Limited
To comment on this article, email pme@pmlive.com

30th January 2009

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