Missing the Mark(et)

If pharmaceutical companies hope to improve their marketing efficiency, they have to change how they approach their customers. For years, manufacturers have been practicing the "more is better" direct-selling approach to physicians. But research now shows what common sense has long suggested: More has become too much. Education has given way to inundation, clamoring for face time with physicians has led to diminishing sales returns, and relationships with major pharma stakeholders have broken down. Physicians, regulators, consumers, and legislators have come to mistrust manufacturers' motives and integrity. As pharma asks how its marketing strategies have missed the mark, it may discover answers in reinventing something it once relied upon: strong relationships with customers.

When sales representatives were universally known as detail men, they enjoyed lengthy, in-depth discussions with physicians. But, over time, manufacturers pursued a marketing strategy that put quantity of sales calls ahead of quality of interaction—a course of action that admittedly worked well for years and, some say, still does the job. Regrettably, pharmaceutical companies came to see sales-force expansion as a competitive necessity, and the marketing arms race took off. As the number of reps went up, the amount of time an average rep spent with doctors went down—so far down, that tactical scaling has spawned a strategic crisis. Physicians no longer spend much time with sales reps, nor do they see this as a serious problem.

Physicians' attitudes toward the industry have become alarmingly negative, a fact that cannot be explained away by observing that reps sometimes seem to outnumber patients in the waiting room. Fewer than 40 percent of responding physicians feel the pharmaceutical industry is trustworthy, according to a 2004 survey of physicians conducted by Harris Interactive and IMS Health. About 85 percent believe drugs are inappropriately priced, and not quite half (49 percent) feel the industry devotes adequate resources to R&D.

Against this unflattering backdrop, doctors have become critical of the quality of information manufacturers provide. Often, they are inclined to mistrust promotion in general. They grant reps less and less time. Many have closed their doors completely, turning to alternative forms of promotion, such as e-detailing, peer-to-peer interaction, and the Internet.

To restore the relationship with prescribing physicians—the customers—pharmaceutical companies would do well to emulate the sort of relationship-marketing concepts, especially campaign and brand management, that have been successful in vertical industries, such as consumer packaged goods and financial services. Pharmaceutical companies that adopt a customer-centric operating model can restore faith and trust in the industry, even as they improve sales and marketing strategies, and rejuvenate revenues.

The underlying concepts that will transform pharmaceutical sales and marketing are not new. Pharma can school itself based on developments in other industries' marketing theory and practice over the past 20 years. The financial services sector, the consumer packaged-goods (CPG) manufacturers, some computer original-equipment manufacturers (OEMs), and the insurance industry have all benefited from becoming more customer-oriented. Here's what they did:

1) They became precision marketers instead of mass marketers

These pioneers subscribe to the military premise that the narrower your front line, the deeper you can penetrate into new territory. In this way, successful and long-standing CPG companies, such as Procter & Gamble, have built strong relationships with a core set of customers. In order to better partner with them, they have managed a tighter supply chain and used multiple product-distribution methods. Consider computer OEM Dell Computers. It not only wiped out the middleman by selling direct to the consumer, but also views competition from an account standpoint, rather than from a product standpoint. This allows it to think in terms of managing a few islands of profitability, and properly leveraging strategy based on return on investment.

2) They obsessed over the customer

Companies who made the transition well have boldly re-allocated their marketing dollars to each audience according to its degree of influence on the purchasing decision. For example, years ago, financial products and services were marketed principally to large institutions. Today, however, marketing is geared toward the end-consumer who has a significant amount of decision-making power.

Within the pharmaceutical marketplace, over 70 percent of marketing dollars are spent on physicians, while patients, group purchasing organizations (GPOs), integrated delivery networks (IDNs), pharmacists, hospitals, and long-term health facilities receive relatively little attention. Does that allocation really reflect the influence structures within the marketplace, or is it just the easiest, most familiar approach, given the size, structure, training, and orientation of the pharmaceutical sales machine?

Successful consumer-oriented companies have also improved the customer's experience. Companies whose primary business is done via the Internet, such as Amazon.com, have discovered the secret to appealing to customers: information gathered through an exchange with them. These companies interview their customers extensively and actively observe how they use the company's Web site in order to improve their experience.

In contrast, only the very best pharmaceutical reps (typically the top 20 percent) have built the relationships required to understand physicians' needs and get feedback on call content. Indeed, spending time in a meaningful discussion with physicians conflicts with the high-volume marketing strategy. Representatives are asked to make eight to ten calls per day, instead of a handful of quality interactions. Pharma companies are left to rely on primary research, which does not educate the rep about the needs of individual physicians as one-on-one exchanges would. So reps don't really focus on physicians' content needs—they focus on the commercial message that their companies need them to communicate.

3) They used technology to innovate

Financial services and other consumer-oriented businesses collect intelligence on customers so they can resegment and rescore them on a daily or weekly basis. Segments and scores are maintained for years on 100 million consumers so that their attitudes and behaviors can be understood over time. Repeated segmentation is a systematic, integral part of the marketing process.

Typically, pharmaceutical companies approach segmentation analyses as one-off studies, if at all. Because they are seldom integrated into the field strategies, they fail to shape the company's overall strategy. To emulate the CPG model, pharma will have to treat segmentation as a repeatable process that matures over time, with results baked into the company's marketing and sales strategies. Each company will need a clear understanding of its clients' needs across functional areas, as well as its own objectives in the short- and long-term.

Other industries with direct sales forces have learned to take advantage of technology at the point of interaction. For example, insurers have been using laptop computers and hand-held devices for years to present information about their products and services. With tracking software, managers can understand how long reps spend on a particular topic or slide—feedback that can be used to continuously enhance the engagement as well as the company's segmentation and strategy.

Transforming Pharma Marketing

As pharma companies become more consumer-oriented, they must be ready to reconfigure the thinking, processes and structures of their organizations. This change can take three to five years to complete. Six steps lead toward transformation:

1) Reinvent the Marketing Process

It all begins with the cardinal rule of marketing: Know your customer. Today, for the most part, the pharmaceutical industry views each physician customer in terms of his/her current performance (market share for a given product) and potential market value. Each company uses basically the same data inputs and metrics, so tactical implementation across the industry is similar from company to company. Within the industry, manufacturers have vastly different assets, portfolios, and marketing strategies, which are potentially diluted by this oversimplified view of the customer.

Using advancements in industry data sources and analytics, companies can go far beyond this simple approach by incorporating the influences and attitudes of each physician. A physician's prescribing value is a function of the opportunity to prescribe, plus his or her attitude toward prescribing, along with outside influences. By building these multiple dimensions into physicians' profiles, it is possible to understand the "why" behind the "what" and "how" of their behavior. Furthermore, when all these dimensions are assessed in a state-of-the-art segmentation technique, the model recasts itself to reveal a completely new view of each customer. This enhanced view of the customer and his or her situation is challenging the industry to change its operating model to center on individual customers or segments.

Suddenly, it is possible to see why each physician segment has a different response to promotion. These differences were masked completely when the only factor considered was prescribing volume. Imagine the frustration that many physicians in the above segmentation would experience if a company increased the number of reps who called, mirrored them to increase frequency, and pushed the commercial message even harder. This familiar scenario would irritate some, and simply waste the time of others.

With deeper insight into the attitudes that drive physician behavior, the question changes from "Which doctors should we call on, and how often?" to "What objectives and approaches should we pursue, segment by segment?"

2) Recast Promotional Strategies

Insights from deep, highly detailed segmentation help reallocate promotional channels, including the sales force, segment by segment. The following questions must be asked for each segment:

• What do we know about the segment?

• How do we approach it today?

• What new approaches might we use to build relationships while efficiently delivering our message?

• What are our objectives and our plans for achieving them?

• What promotional efforts will be involved?

Only at this point can a new sales model revise workload requirements and change role definitions and organizational structures. The result will be:

• More effective allocation of the field force

• Fitting the sales force/representatives to each segment

• Company-wide business and promotional plans for penetrating each segment

• More efficient and effective delivery of marketing messages

• Overall improved relations with the customers.

3) Reengineer Business Processes and IT Infrastructure

In order to take advantage of everything that they know about physicians—and will learn through more meaningful exchanges and deeper analyses— pharmaceutical companies need to have the IT infrastructure to maintain and access a single view of the customer.

While Big Pharma is now starting customer master initiatives or commercial excellence programs to eliminate functional data marts in favor of one, integrated, granular data source, most companies are still years away from being able to leverage a 360-degree view of customers across the organization. A company's speed and flexibility in adapting to a new IT infrastructure will be a critical factor in its ability to compete.

4) Reorganize, Inside and Out

Today, nearly all pharmaceutical companies are organized by functional areas, whereas CPG companies almost always run brand-centric or franchise-centric businesses, in which brand teams are made up of research, marketing, and sales, all under one umbrella. Their rationale is that each brand is different and deserves its own team dedicated to advancing it. The structure eliminates duplicative work, fosters greater focus on the strategic plan, and brings greater cohesion to marketing and sales. AstraZeneca, for example, has found success with a hybrid organizational model the company describes as "customer-focused and brand-led."

"All brand positions have two bosses—a functional manager and a brand manager—to whom they are deployed," says Don Apruzzese, senior director of consumer marketing for AstraZeneca. "For example, a consumer brand director would report to me for skill development and performance management, but also to the commercial brand leader to whom he or she is deployed for day-to-day assignments. This allows us to maintain a brand focus while sharing best practices and realizing efficiencies across brands and within the function."

As the importance of a fully integrated and longitudinally managed promotional strategy grows, marketing and market research must play a larger role in sales strategy. Outsourcing partners must also align with the brand's strategy and operate as true partners if the overall business process is to focus on the brand mission.

5) Plan to Make the Change

Introducing a radically different marketing philosophy requires the careful execution of a complete change-management plan. Beginning with a vision and definition of success, the plan must implement continuous measurement and clear communication, and provide training, motivational programs, and positive feedback to instill commitment. At the end of the day, many people will need to function or act differently, and changing behaviors is not an easy task. Most companies will choose to brand these efforts both internally and externally, communicating the intent and purpose of the shift not only to employees, but to Wall Street and to prescribers themselves. Others may choose to implement quietly, without calling attention to their strategy. Either way, focusing the company as a whole will be a strategic advantage at a time when many will be second-guessing their own and their competitor's strategy.

6) Keep an Eye on the Competition and the Changing Market

Almost every pharmaceutical company sees flaws in its operational model, and presumably, all have hopes of improving. Some are already implementing plans, and others will no doubt take longer to set goals. So one primary question is: How effective is a relationship-based model if competitors do not also change? Can a relationship model stand up against a competitor's increase in reach and frequency? What if all companies change to the same micro-territories, for example? These are valid questions, and they speak to the competitive issues that brought about the arms race to begin with. The answer will lie in careful, calculated planning that responds to competitive changes in the marketplace instead of rushing to copy or counteract competitors' moves.

The greatest dangers during implementation are ill-defined views of success and failures to measure progress toward goals. Without this clarity of purpose and progress, the industry will likely quickly revert back to the volume-based model. IBM found in its 2004 Global CRM Study that success rates in implementing a Customer Relationship Management system rose from less than 15 percent to more than 70 percent when guidelines were clarified. The importance of careful implementation cannot be overstated.

Change-management theory holds that organizations do not change until the status quo is intolerable. It would seem that many manufacturers have reached that point. They are ready to undertake significant, if not sweeping, change. The effort will require a sound strategy, consistent measurement, unwavering commitment, strong leadership, and great coordination and speed. But, ultimately, this transformation will help restore faith in pharmaceutical science and renew appreciation for the value the industry's field force can deliver in driving better healthcare.

Chris Nickum is practice leader, sales and account management at IMS Management Consulting. Tim Kelly is practice leader, business process services at IMS Information Management Consulting. They can be reached at cnickum@us.imshealth.com and tkelly@us.imshealth.com respectively.