Unique Marketing Challenges in the Pharmaceutical Sector And the B2B Gem - C MARC TM

Introduction

Given the nature of health care product needs and requirements, the geography-specific government regulations, the scope for achieving competitive advantage through IPR protection of drugs and the relatively passive consumption patterns of the end customers, the pharmaceuticals industry poses unique challenges and opportunities in the realm of business to business marketing.

This paper first studies the pharmaceutical industry in general for common principles, practices and opportunities in B2B marketing. The paper then goes on to choose a company in the pharmaceutical sector which has distinguished itself from the rest by its unique approach to market research and customer relationship management and highlights its practices in pharmaceutical B2B marketing.

The context of the study is limited to the Indian Pharmaceutical Industry; however, most of the concepts examined apply globally. No attempt is made to draw out any India-specific practices with a view to highlight possible distinctions.

The pharmaceutical sector bears a remarkable similarity with the computer software products industry in that the investments in R&D activities constitute the Lion’s share of the total costs; once a product is ready to sell, the end product is replicable and the incremental cost of producing each unit is negligibly small. This leads to the problem of rampant availability of counterfeit drugs of all major labels, which is as detrimental to the interests of pharmaceutical manufacturing companies as is the unrestrained piracy of software products to the corresponding software companies. Perhaps much more, as the poor quality of counterfeit drugs may cause serious health hazards to end customers.

While the US and European pharmaceutical industry grew by 6% in 2008, the Asian and Indian growth has been in double digits (15%)[1]. Globally, the manufacture and support for generics (drugs with expired IPR) is necessitated to thwart the increasing cost of healthcare in developed countries. For developing countries like India, manufacture of generics is an opportunity to utilize the enormous cost advantage of producing these drugs locally and exporting to developed countries – subject to appropriate approvals. The large population base of India ensures that there is enough local market for generics, justifying low cost production and sales of these drugs. The generics segment of the industry consists of a fragmented set of large, as well as small players and witnesses nail biting competition amongst the players, especially in marketing, sales and distribution of generics, given insignificant end-product differentiation. In the propriety and new drug research/discovery segment the competition is not significant due to legal protection; this ensures high returns on capital invested.

Indian pharmaceutical companies are involved in both the major segments – generics (includes bulk drug manufacture and formulations[2]) and new drugs research/production. Despite the large number of domestic players in both segments, India accounts for only 1.3% of global pharmaceutical market[3]. This provides ample scope for the growth in this industry both locally and internationally. Thus effective strategies in marketing and optimal marketing research are the keys to success in this sector.

Characteristics of Pharmaceutical Marketing

This section highlights some of the peculiarities which present unique challenges to marketing strategies and selling activities in this industry.

1. Prescription Based Sales: A major share of purchase of drugs happens based on the diagnosis of a customer’s (patient’s) condition and the subsequent prescription by a licensed practitioner[4]. The end customer is largely incapable of making the choice of the type of drug, its brand or the quantity. The purchase of prescribed drugs is a necessity, not a choice. Consequently, any marketing effort needs to be directed at the practitioner, who is not only skilled in the domain, but also has specific needs, short attention span and often, numerous choices. The success of the practitioner also depends on the efficacy of the marketed products and their pricing, vis-à-vis the competition. The key here is that if a manufacturer has to increase the sales of his drugs, the only way is to increase the number of prescriptions for the drugs by the practitioners (doctors).

The above factors necessitate customized, face-to-face marketing by trained professionals commonly called medical representatives. The individualized nature of marketing involves focussed targeting by MRs (medical representatives), necessitates geographical segregation of target markets and most importantly, severely limits the returns per sales person. Thus intense training of MRs in the technicalities of the medical product (composition, active ingredients, safety, side-effects etc.) along with a decent understanding of the local environment (socio-cultural settings, weather conditions, proneness of public to certain ailments, preferences of the medic etc.) is an absolute essential for a successful marketing endeavour. Along with these, soft skills like the ability to retain attention, detail the technicalities in a short time span and exhibit professional ethics are of paramount importance.

Marketing should also consider the various aspects that influence the decision of the medical practitioner irrespective of the face-to-face detailing – for example, doctors would be influenced by their colleagues and seniors in the profession, doctors graduating from the same school or working in the same hospital may have similar preference for certain manufacturers, and so on.

A note must be made here about marketing tactics that often work but are unethical – e.g. when a doctor gets commissions for prescribing a certain brand.

2. Nature of Product: The nature of products in this sector ranges from easily available OTC/lifestyle/cosmetic products to critical drugs which can mean the difference between life and death to the end consumer. Essentially, the demand is inelastic – if the manufacturer reduces the prices of the drug, one would expect more people to fall ill and buy the drug; conversely, if the drug is priced high, most people would still purchase it. Thus the industry is heavily regulated in most aspects including pricing. Distribution/wholesalers/retailers/manufacturers – all need to be licensed by the Government. The consequence of misplaced irresponsible marketing can be severely harsh.

Another aspect of the industry has got to do with the purchasing preferences of the customers. Ignoring a few exceptions, most drugs are sold when there is no other option available to the end-consumer. This sharply contrasts with other industries where customers deliberately choose to buy a product when they need it or can afford it. A direct consequence of this nature of the product is on the pricing strategy - there is ample scope for opportunistic excessive pricing, hence the need for regulation.

3. Market Sensing: This involves research in the following area – Prescription Research (includes doctors’ acceptance, brand identity and spotting trends), Sales research (the no. of SKUs that retailers are willing to stock and the average weekly sales volumes), Demographic research (common ailments, weather conditions, economic status of the population etc.) and Competitive research. Market research is normally done through retail pharmacy prescription audits, invoice audits, hospital purchase audits etc. Unfortunately, such audits do not give much insight into the “success” or “satisfaction levels” of the prescriptions.

Marketing research also needs to account for the availability, experience, education and specialization of medical practitioners in their respective focus areas. For example, one wouldn’t want to attempt marketing ENT drugs to a Neurologist.

4. Supply Chain Management: Manufacturers, Stockists, Channel Partners, Wholesalers, Distributors and Retailers are the main components of the drug industry supply chain. Some manufacturers also employ direct selling channels, eliminating the middle-men. Unlike in other industries, the retailers in this sector perform a crucial role in overall marketing performance as they too are informed and licensed professionals. Sometimes, they end up making decisions for the end customers – for example, they suggest alternate brand for the same drug.

Since the per-unit price of common drugs is low (and under price control), it is important for the supply chain system to be very efficient in order that the addition to the end product’s cost is minimal. Also, given the vast rural expanse of population in India and relatively low purchase power, manufacturers have little incentive to have deep penetrations in their networks. As a consequence, 70% of drug production is consumed by urban population while 65% of Indians live in rural areas.

Efficiency requirement in the pharmaceutical sector is also critical because of expiry dates on each stock of drugs (products are perishable), which varies depending on the type of drug and quality of packaging. The storing conditions and inventory control are also critical factors – the manufacturer-to-retailer chain needs to ensure that each link completely understands the temperature conditions and storage requirements of the drugs en-route to the end-customer.

5. The Government Market: This is a segment that presents ample opportunities for B2B marketing as the government periodically needs to buy essential drugs in bulk to be able to supply the same to remote villages and implement public policies.

6. Pricing: Products which are critical to the society are normally heavily regulated by the government, thus the pricing strategy is to comply with the regulations. Manufacturers also manage to created alternate versions of the same product by altering the composition of the ingredients and by packaging better. These alternate versions are then sold at market price determined by the manufacturers. The pricing strategy is typically based on the following paradigms[5] –

1. Mark up pricing – Based on brand reputation and manufacture/marketing/selling costs, the price is marked up to earn targeted profits.
2. Differentiated pricing – The manufacturers differentiate their drugs from other by varying composition and ratios of ingredients etc. and then price the product differently.
3. Regulated pricing – For critical drugs, the government regulations determine the price.
4. Competitive Pricing – Generics need this kind of pricing to sustain in the market, there is hardly any differentiation and price is the vital sales determinant.
5. Oligopoly Pricing – Sometimes manufacturers share a strategy to collectively enjoy larger profits.
6. Monopolistic Pricing – Protected by patents, the original researcher can price the product high to recover the costs of development and also to exploit the competitive advantage.

7. Technology, Research and Development: Technological know-how and initial capital investments constitute the major entry barrier factors in new product development companies. The research costs are high and the percentage of successful research projects is very low – typically 3-5%. Also, even when there is a successful new drug discovery, the subsequent studies and clinical trials required to establish the efficacy and safety of the drug involve continued large investments – both financially and temporally. A time lag of 6-8 years after the drug was first discovered and before it is available in the market is not uncommon. This behaviour affects both the production and marketing strategies. For example, companies need to ensure to keep coming up with several incremental products to sustain the market interest.

8. Branding Vs. Generics: Over two decades back, the Hathi committee recommended the abolition of brand names in India. The belief was that the expenditure incurred on promotions and brand building could instead be directed towards standardization and better controls to make drugs available at affordable costs to the Indian consumers. Not all recommendations of this committee were accepted by the Indian government; however, for several life-saving and other common drugs, commoditization has happened. While this may be a boon to the under-privileged sections of the society, it has also allowed the spurious drug industry to thrive. Genuine manufacture of such low-margin commodity drugs can be justified only if adequate support from strong marketing and supply chain management processes are in place.

9. e-Detailing: As many physicians and medical practitioners are perpetually lacking temporal bandwidth to listen and assimilate information from marketing representatives (physicians typically spend on 8 minutes with a sales representative[6]), technology is being used to provide structured information. e-Detailing gives internet-savvy doctors the opportunity to find about new drugs at their leisure. However, the limited reach of internet in India has curtailed the potential of this approach.

Market Sensing, Research and Customer Relationship - C-MARC[7]

The critical need of pharmaceutical companies is to obtain market research data which can provide them insights into the successes or failures of their products and past or future requirements that can be used for forecasting demand. Most pharmaceutical companies require well structured, regularly updated data in a format that they can readily consume. The peril of inadequate data is that the manufacturer and associated distributors, retailers etc, all have to shoot in the dark.

While several companies are also engaged in their own studies of market conditions, the scale of such operations is limited. Each sales/marketing department divides their respective geographical regions into segments and monitors the local area performance. The need is to obtain consolidated data from various geographies and to analyze the data to enable educated decision making. The drawback of having all the data and not analyzing it is limited to wastage of investments; however, more serious damage can occur if either the data or the analysis leads to incorrect picture of the market. Thus, expertise with market sensing and research is absolutely essential for success.

Market research analytics and epidemiology-based services are growing fast in India due to the rush of global companies into India. India has been identified as a KPO (knowledge Process Outsourcing) destination in the pharmaceutical sector[8]. These opportunities enhance the realm for market sensing and research companies in India.

Most Indian pharmaceutical companies depend on the data obtained from research organizations like ORG (Operation Research Group) or C-MARC^TM.

C MARC was founded in 1977 with humble beginnings in Calcutta and ever since, pharmaceutical research has become a way of life to all those working for and associated with C MARC. It is an institution that researches the healthcare delivery system in India with the objective of promoting managed care on an ongoing basis. Its core competency is to study the prescription behaviour in depth on an ongoing basis. It follows the trends in the prescription behaviour and anticipates changes, future demand, success factors, lacunae in requirements and marketing strategies. It also provides consultancy to pharmaceutical firms and based on the outcome of its research ensure that appropriate decisions are taken and implemented end-to-end. Further, it provides services to track the results and quantifies the value capture of such research based marketing efforts.

The core hypothesis that C MARC believes in and has proved by practical application of its research is – “Qualitative study in depth of the practice of the professional can provide actionable guidelines for establishing reciprocal relationship on a firm and lasting footing between the offerer and the offeree.”

The concept of PRESCRIPTION GENERATION, that C MARC pioneered more than 3 decades back, in an environment where there was no incentive for market research (only pure selling was the norm), met only lukewarm response from most of the industry. A handful of multinational companies though appeared interested and this provided the necessary momentum to take the research activities further. It was only in late eighties that C MARC’s concept started receiving warm response from leading Indian companies. However, the crude selling culture was to sustain and research orientation always took the back seat for a long time. In recent times however, the focus on research based marketing has received huge response in the pharma sector.

Pertaining to its relationship with the pharmaceutical companies who it provides its research services to, C MARC does not believe in simplifying its user interface or in reducing the complexity of the processes, data gathering activities etc. Instead it believes that a B2B relation in research is a long term dedicated association which requires complete involvement from both the parties. It also believes that if a company is more interested in making huge short term profits, possibly for selling off at a lucrative price, then the B2B relation of that company with C MARC is not possible. For this relation to work, the other company must be a cultural and strategic fit (professional compatibility concept) into C MARC’s philosophy of having a corporate identity, vision and a mission supported by long range perspective. It believes that immediate financial gains can be in direct conflict with long term growth and it expects that its B2B customers share the same philosophy. It believes in reciprocal relationship through continuing practice of committed service offerings.

C MARC research information is based on a unique design that can continually generate feedback on market realities in a focussed manner. The data and the analysis are intensely quantitative (elaborate use of statistical formulations and tools); however, the feedback is qualitative. For its customers, qualitative focussed feedback is the key, everything else is noise. However, the feedback it provides to its customers is neither one-way nor one-time; it is interactive and feeds back into C MARC’s subsequent analysis. C MARCs service is syndicated for computerized report generation, maintains an ever-growing databank and provides customized adaptable services for specific customer needs.

C MARC’s research approach is to delve into the “mind” of the medical practitioner through a process termed as “Continuous Prescription Research”. The process comprises minute scanning of various quantitative parameters[9] of the healthcare market as an ongoing process and building the information database accompanied by regular analysis. The panel of doctor’s whose prescriptions are monitored consists of a mix and match from various fields in medicine – cardiac surgeons, physicians, gynaecologists, oncologists, psychiatrists etc. The panel also consists of representation from various Indian cities, towns and villages.

Professor C Mitra who founded the company and has been the main brain of the concept has not only provided the professional services to his customers, but has also conducted strategic sessions for executives. These sessions are customized to the needs to the client – his candid analysis and comments in the very presence of those who are responsible for client’s strategies were at times acerbic, but had the power to heal. This illustrates the extent of B2B commitment of the promoter and the chief intellectual to customer’s business needs which goes beyond any organizational boundaries.

The diagram in the next page represents the various activities that C MARC performs to provide a unique value proposition to its B2B customers.

Apart from Continuous Prescription Research, C Marc also offers the following services –

o CSHM(I) (Continuous Study of HealthCare Management in Institutions) – Examination and study of inpatient records of various hospitals.

o Strategy Workshop – Value added consultancy services to aid customers formulate a market strategy based on customized feedback from research activities. This includes evaluating various segments, competitors, future needs, product portfolio, selection of strategic partners etc.

o Patient Tracking – To study the dynamics of chronic ailments and care strategies.

To further penetrate into customer’s B2B relations, C Marc took the initiative to form and shape the Institution of Pharmaceutical and Healthcare Management and Research (IPHMR) in association with the pharmaceutical industry in the year 2003. Through this service it aims at training candidates who shall later work in the pharmaceutical industry as contact points for C Marc and thus provide tremendous value add to the B2B relations.

Customer Feedback – C MARC

The following are selected “excerpts” from some of the testimonials to C MARC’s Continuous Prescription Generation service from some of the most prominent national and international pharmaceutical companies on the occasion of their 20^th anniversary in the year 1998[10].

• “The C Marc analysis of prescription trends – originally done for us alone and later syndicated among other companies, has, I feel, contributed considerably to make these two organizations what they are today. …We have, in a way, grown under the watchful and paternal eye of one who not only introdyuced the concept, but treaded us with a concern which went well beyond the boundaries of a mere professional relationship. Likewise, we have always treated the periodic reports we get from C Marc, not as mere statistics, produced by an external agency, but as valuable barometers of the true state of our “Health” and “Vitality”…” – Homi R Khusrokhan, Managing Directory. Glaxo India Limited, 15^th June 1998.
• “…For a prescription generation an in-depth understanding of doctor’s prescribing behaviour and the factors that influence the behaviour is the most critical element. It is here where C Marc prescription research comes as a great help to us. In a brand generic market where the difference in the product becomes wafer thin, the customer knowledge becomes the competitive edge….The date provided by C Marc to a great extent helps the marketing men in formalizing the strategic plans…” – K.N.Chandrasekaran, Glaxo India, 3^rd July 1998
• “C Marc has been extremely helpful to us in providing insights into prescription hapes of our customers…The insights ... have helped us plan strategies for the future…” – Dr. Swati A Piramal, Nicholas Piramal India Ltd, 22 June 1998
• “… The corporate analysis gives us a dynamic picture of the region-wise fluctuations in the prescription base, per-capita prescription response and the overall standing of not only our company but also of the two strategic business units… In view of the fast growing competition. C Marc prescription analysis study plays a vital role for pharmaceutical organisations to understand the prescriber’s reasoning toward prescribing a particular product and to plan there upon for countering attacks on companies’ brand…” – C.D. Desai, Managing Director, Novartis, 30^th June, 1998

Conclusions

The above study of the pharmaceutical industry in general and the market Researching and in depth penetrative customer value proposition strategy of C Marc provides valuable insights into several peculiar aspects of B2B marketing in the realm of the industry. The customer here is an highly accomplished professional who has specific needs, patterns and motivations which need to be tapped for successful marketing results. The end customer has more or less no say in the choice of the item being consumed. Unlike in other industries, the market demand is not driven by the will, but the need of the consumer. The retailers are a fragmented lot of players composed of both small shop owners and large retailers like Apollo Pharmacy. All players in the supply chain need to be licensed and well aware of the technicalities of the drugs. Except for patent protected drugs, most products have negligibly thin line of differentiation which means that marketing in this realm poses very different challenges.

The focus of manufacturing and distribution companies in this industry is typically restricted to the core activities due to which marketing activities need to be supported by data from external vendors. There is also no way to get mass market data as the targeted customers (doctors) are sophisticated, geographically distributed, socio-culturally disparate set of people. The only way to obtain any insight into the market is to survey the doctors, meet them and study their prescription patterns. This resource intensive job requires dedicated organization - this is where C Marc provides tremendous value add to the pharmaceutical manufacturers, retailers and distributors. It not only engages in gathering huge amount of prescription data, but also scientifically analyses the raw quantitative data and provides meaningful qualitative reports to its customers. In its endeavour to provide maximum benefit to its client, C Marc goes on to analyze and explain the customized results to its clients and actively helps them make strategy decisions. It customizes the interactions, engages customers in long term relations and believes in reciprocal relations to derive maximum mutual benefit.

Its initiative of setting up the training institute in association with its clients is a testimony to the trust and dependence that its clients have on C Marc.

The testimonials from the most renowned global and national companies indicate the extent to which C Marc’s services have become critical to the strategic and market needs of its clients. It is not common for an external company to help formulate the macro level strategies of its clients – C Marc stands out in this context in the realm of B2B marketing.

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[1] ANNUAL REPORT 2007-2008, CADILA HELATHCARE LIMITED

[2] Bulk Drugs means the Active Pharmaceutical Ingredient (API), which is the core drug. Formulation means to combine the API with other chemicals or other APIs to produce a consumable branded tablet/syrup etc.

[3] http://www.innovationsreport.com/html/reports/economy_finances/report-103324.html

[4] This analysis ignores the OTC category of products (such as skin care, cosmetics, vitamins, tonics and lifestyle products).

[5] These terms have been coined by self based on references from several sources including the books – “New Trends in Pharmaceutical Industry – J.B.Singh”, “Competition and Marketing Strategies in the Pharmaceutical Industry – Stuart. P. Slatter” and from internet resources.

[6]http://proquest.umi.com/pqdlink?index=0&did=1077117521&SrchMode=1&sid=2&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1228439409&clientId=27322#indexing

[7] Most of the discussions in this section are based on the contents of the book – “C MARC –Saga Unfolds by Dr. Sudip Ghosh” and the contents of company URL - http://www.cmarcindia.com/

[8] http://blog.monsterindia.com/my/deep_bisht/Pharmaceutical-Marketing-Now-it-s-Packaged-as-KPO-12929.html

[9] The details of the parameter are not publicly available

[10] Book – C MARC Saga Unfolds