Reinventing the Market Research Function

In the old pharma business model, market research was an open-ended source of insights designed to help gauge market risks by raising questions that management might not have been prepared to ask in an era when development costs were lower, payers were flexible (and forgiving), and promotional strategies relied on platform technologies that changed little over time. Today, the function is expected to respond with more metrics and added focus, in a fast-changing environment where the customer is king. More importantly, market research is expected to quantify ROI risks—chiefly by identifying and managing exposure to the soaring costs of building brand awareness among a fickle, demanding audience of payers with multiple purchasing options.

This month, Pharm Exec sits down with marketing experts Sanjiv Sharma and Susan Schwartz McDonald to discuss the latest changes in the business model, and what these hold for the future of this important "c-suite" function. We also sift through a range of marketing experiences, at all stages of the product life cycle, to uncover five basic principles that can help managers use market research tools to make successful decisions in positioning medicines to meet the escalating expectations of customers.

—William Looney, Editor-in-Chief

PHARM EXEC: What are the key goals that market research is expected to accomplish in today's business organization?

SANJIV SHARMA: There are two. The first is to identify, prioritize, and quantify new business opportunities. The second is to wrest maximum value from the opportunities the organization decides to pursue. In this latter case, guidance and support for execution strategies is increasingly important. And it should be done with an eye to obtaining real value at all phases of the product's life cycle, not just at launch or during the early years, when market research helps to build take up by providers and patients.

PE: How would you describe the role of market research today compared to a decade ago?

SUSAN SCHWARTZ MCDONALD: Management expectations about what market research can do are much higher today. In the past, the predominant view was that market research was a subsidiary activity designed to backstop decisions and confirm the intuition and judgment of the marketing team, which would steer the ship based on close knowledge of the external environment. Today, market research is driven by quantitative approaches that focus on unmasking the will of the customer, and then implementing strategies to meet their expectations. Research has become an instrument of market democracy, where all decisions are filtered through the "customer plebiscite." Although the motivating factor is to manage risk by making the approach to the customer more predictable, this can work to limit the discretion that an internal marketing team has in driving specific actions to build the brand.

PE: Doesn't this pose a challenge to the credibility of the market research function, in trying to deliver against such expectations?

SHARMA: There is an inherent danger in requiring market research to conform to a rigid ROI calculus. That can actually drive research in the wrong direction, and limit options that can provide more insights. Strict reliance on the will of the customer can mean that marketers don't rely on their discernment skills, which have often produced the most insightful thinking. It can lead to a presumption that the customer always has the right answer, or that marketers are always posing the right question. Sometimes we don't.

PE: Are you saying that market research is best viewed as a decision support tool?

MCDONALD: Yes. The problem with the notion that market research should deliver a high ROI is that management will expect too much from the function and skew outcomes away from what really counts, which is creating a true value proposition among the customers most likely to buy your product. There is also the assumption that good decision support requires adherence to a "best practices" model, along with an overwrought reliance on customer insight. Unfortunately, this is a double-edged sword; it may foster discipline and consistency at the expense of creative thinking while actually driving costs higher.

PE: Can you clarify why these two "markers of excellence" may be subverting what market research wants to accomplish?

SHARMA: Under the mantra of best practices, senior management has tasked the market research function to improve decision making with procedures that are tied to specific performance benchmarks. This fosters a sense that marketers can bend the market to their will. There is an appealing logic to this: If we don't follow the same protocols to vet opportunities and assess options, then how can we argue that decisions and follow-up actions are grounded with evidence? The question is that if the FDA holds our drug development process to rigorous standards of scrutiny, then does it not make sense to apply the same discipline to market research? You could say that the stakes are even higher here. It's the task of market research to create what FDA approval alone does not confer—a market for a new drug.

The challenge is finding the right balance between systems and serendipity. There are principles and standards that can be incorporated into company culture. But there are limits to its practical application. It is virtually impossible to rely on the same research techniques to define strategies for every product and therapeutic segment because context will have a powerful impact on the options available, as well as the accuracy by which models and metrics can be used in evaluating them. Today's complex business environment argues even more against the notion that machine-tooled, ready-to-use solutions can be drawn from the analytical hopper and applied to shape the market for your products. Market research is instead a process for uncovering insights and making inferences from multiple sources, evidence, and survey techniques. Simply handing a "how to do it" manual to a manager is not going to work, particularly if the manager is young and inexperienced.

PE: What about all the attention given to identifying, tracking, and defining metrics around "customer insight"?

MCDONALD: It is ironic that customer insight is being sold as something entirely new, a practice that will somehow reinvigorate market research or take it to a new level as a business guidance tool. That's a misconception. The function would never have survived, much less grown, had researchers not been delivering good customer insights to position our brands. A good example of flawed—and wasteful—thinking is when senior management commissions "insight research" as a separate exercise, with no alignment against the strategic, course-of-business studies that drive market research. This is like adding another course to the banquet, when we ought to be adding more flavor to what we are already serving.

PE: You mentioned earlier the importance of casting the market research net widely to cover a product's entire life cycle. Does this suggest that the real value of market research is as a forecasting tool?

SHARMA: With three out of every 10 medicines failing to obtain a positive return on up-front investment in R&D, both aspects of the market research function—opportunity assessment and opportunity optimization—are critical to P&L success. Companies must be thinking about product positioning in the earliest stages of product gestation, even before proof-of-concept has been established. This is where the market research function has to stretch to prove its mettle. At the pre-launch stage, the time horizon is longer and market conditions are harder to predict, much less set real numbers against the analysis. As a rule, once the marketing mandate shifts from foresight to oversight, the process is less suspenseful and strategic.

PE: What about the task of anticipating how customers will respond to innovation, especially in determining access and price for a new medicine?

MCDONALD: Innovative products and technology platforms require additional marketing foresight and investments in analytics because the risks of miscalculation are greater. Customers are unimaginative about their unmet needs, and can react negatively when confronted with radically new options that alter their priorities. Twenty years ago, when Merck began to explore physician attitudes toward osteoporosis in preparation for the launch of Fosamax, it was clear that the prevalence and implications of the condition were under-estimated, essentially because it couldn't be seen until significant bone damage had been done. Merck's effective deployment of market research to highlight the societal cost of osteoporosis, coupled with technical advances in bone densitometry measurement, helped support the introduction of a drug that the medical community has come to recognize as an innovative standard of care for many women entering menopause.

A lesson here is that in order to minimize risk and uncertainty, marketers must be unsentimental in understanding how a product might influence attitudes in the payer and provider communities. When you bring forward a subtly differentiated medicine that follows a path laid down by others, the market research burden shifts from strategic questions on how to develop a new market, to the tactical questions of securing a beachhead against the existing competition. The more uncertain and uncharted the environment, the tougher it is to predict outcomes by simply relying on customer insight; while the less innovative the product, the more difficult it can be to count on market research heroics to compensate for its limitations.

PE: How can market research reasonably expect to build accurate metrics that forecast the uptake of a certain innovation?

SHARMA: Statistical controls should always be incorporated in the analytical package to guard against the tendency to overstate potential demand for a product. Survey respondents often try to please the research sponsor with the "right" answer, and there is little awareness of how inertia can slow real-life uptake of a new drug. In addition, we have to account for the fact that highly innovative products are subject to a failure of imagination about how the technology might transform medical practice. This means that raw projections might actually understate ultimate demand. Lilly's initial forecast numbers for Prozac prescriptions never encompassed the impact that enhanced tolerability and safety would have on the market for antidepressants, while Pfizer's analysis failed to take into account how interest in Viagra would be fueled by the health information revolution fostered by the Internet.

PE: So do numbers really count as a benchmark for evaluating the prospective response to a new therapy?

MCDONALD: Both of those cases [Prozac and Viagra] demonstrate the importance of using market research techniques that tap a vision, rather than simply tally votes. Even when statistics are required to advance the proposition, emphasis should be placed less on large numbers—the reliability test—than on developing a product proposition or scenario that the survey population can meaningfully evaluate. A validity test. In other words, selecting the right targets in survey research is essential to ensuring that the proposition is applicable to a commercial strategy. For example, key opinion leaders are often the best "prophets" of change, and can tell us more about the prospects for an innovation than would a survey of community physicians. But when seeking to identify barriers to the uptake of a new medicine, the community physician's perspective might be more relevant due to their tendency to resist the "re-engineering" of clinical paradigms.

In addition, careful targeting of a survey audience should not be limited to products promising a dramatic technical advance; it applies also to situations where deeply ingrained customer thinking must be adjusted only a few degrees to render distinctions where none have been made. So market research has to first establish how best to tell a story, and determine to whom that story should be told, deferring costly quantitative research until there is confidence that customers are in the right frame of mind to validate a path forward.

PE: A standard tool of market research is the product positioning study, designed to help establish a clear therapeutic footprint and drive acceptance by customers. Is this approach still relevant in ensuring success in an increasingly crowded marketplace?

SHARMA: Positioning research is applied to a variety of uses, and can be described as a tool to inform the marketing process, to identify a product attribute or benefit, or assess a marketing outcome. Learning what we need to know about product positioning typically begins when the product is in early gestation, where we start to establish what outcomes or characteristics are necessary to ensure success with the FDA and with customers. It is based on a program of research that allows us to understand how competitors are viewed, what space is available in the marketplace, how well our product meets unmet needs, and how differentiated from competitors our customers believe it to be. The culmination is the positioning study, which tests one or more positioning statements with different customer constituencies. Our experience is that such work is a waste of money and resources. It is also potentially dangerous, in that it limits potential market opportunities by framing positioning as a vote on various slogans. It risks inviting customers to vote on the wrong thing—turns of phrase—at the wrong moment—before those phrases have been vetted by regulatory staff or set in a creative context by your brand agency.

PE: It looks as if we are back to your opening theme, that the "voice of the customer" must be modulated by prudent insight about the product and the overall market environment.

MCDONALD: Yes. There is a danger in the possibility that by inviting customers to have the final vote on positioning, you are entrusting them with a decision they are not fully qualified to make. Customers will often default to the obvious when asked to vote on positionings because they lack the experience and the judgment to make professional marketing decisions. The outcome may also reflect customers' lack of appreciation for ways in which they can be influenced by execution and repetition. In research, physicians may dismiss as unpersuasive any data suggesting a nearly trivial difference in efficacy, yet in real-life conditions they will learn to do so, once effective repetition creates a powerful response—as the [GSK] Augmentin team did with sinusitis. The lesson is that positioning guidance has to be applied and evaluated in an integrated manner, drawing on multiple data sources and insights rather than reducing the final decision to a single ballot number.

PE: Doesn't organizational responsiveness play a key role in building a climate that maximizes the value of market research?

SHARMA: That's a critical point. Company culture is a determinant of what gets examined and how well market research is interpreted for results. Doing more with less, which drives management expectations these days, requires a refocusing away from research mechanics and creating an organizational climate in which flexible thinking and judgment are highlighted over calculated "answers." This represents a sea-change from the perspective that market research is an analog to scientific research, with rigid standards of proof and replicatable methodologies. Market research is, after all, a social science in the service of marketing judgment, which means that the metrics and analyses are not always fool proof or universally applied. And the answers are not fixed coordinates but simply signposts that help by pointing managers in the right direction.

Five Value Drivers for Effective Market Research

A strong market research function depends heavily on the characteristics and consistency of support from the wider organization, including the senior management teams ultimately responsible for approving strategic and operational marketing plans. What are the key preconditions for a confident, flexible and effective decision-making culture that will lead to optimal P&L results? Below, Sharma and McDonald highlight five factors that count.

1. Insist on leadership from knowledgeable, career researchers who are fluent in market research techniques and can provide insightful decision support.

Seasoned professionals have the maturity to reflect on methodologies and challenge professional wisdom. In thrifty times, it is especially important to harness experience and display the confidence to avoid research when adequate decision support is available. The pharmaceutical industry is notorious for its conception of the market research function as a larval stage for career development—meant to produce young marketing "butterflies." That conception may enrich the experience of the marketers who emerge, but it tends to drain the intellectual vitality and expertise of the market research function. Experience counts enormously in managing market research.

2. Nurture an environment in which institutional memory is mined and market research "emergencies" are discouraged.

Companies that conduct market research are always struck by the propensity of clients to repeat studies in pursuit of questions that have already been answered, or to identify urgent problems that lose management attention midway through. Many companies permit a "triage" climate that insists on urgent answers to questions that might be answered with data already in the pantry or that might profit from a more deliberative conceptual approach. While it's useful for every marketing manager to hear and see customers discuss their worldview, customer insights may be more cost-effectively developed if existing data were better mined.

3. Beware the tyranny of "best practices."

At the risk of appearing to endorse something other than the very best of practices, we want to emphasize the importance of flexible use of established and validated techniques in the hands of people fluent enough to manipulate the rules skillfully. The best practice philosophy produces excellence when it inspires knowledgeable understanding of a breadth of good options while still leaving latitude for a customized approach rather than "cookie-cutter" repetition.

4. In positioning a new product for market introduction, seek decision support rather than statistical verdicts lifted directly from market research.

It is a misconception to assume that our customers know the answers to all the questions we pose, and that those answers must be traced to a statistical outcome in a specific type of study. It is possible to position a product without asking customers to vote on a positioning; indeed, positioning should be our marketing intervention—something we decide to do to effect change in the market on the basis of cues and evidence that our customers supply. The mission for market research is not simply to poll our customers, or even merely to deliver insights about them. The highest calling for market research is to help us think like our customers so that we are empowered to improvise and even extrapolate when key marketing decisions are made.

5. Insist on "customer insight" from every piece of market research.

We have accepted an environment in which customer insight is a name attached to specialized studies instead of an orientation that informs and inspires every thing we do. This is like ordering a meal a la carte: "I'll take that research with a side of insight, please."

Periodically throughout the lifecycle of a product, it is useful for a team to take stock and ensure that all are empowered to think the way their customers do. But these need not be distinct assignments. Those who argue that there is no time or space in a crowded research agenda to incorporate a broad customer insight perspective, or that insight requires a unique study mandate of its own, may want to rethink the way the research issues are framed. It is difficult to arrive at the correct conclusion if the thinking is not informed by a broader set of customer insights. It's also important that teams not ignore insights because the information does not serve their immediate needs. Insights can define boundaries as well as empowering creative problem-solving. The key to using customer insight is deciding whose worldview matters, in any given scenario, and how to take inspiration rather than dictation from that depth of understanding.

Sanjiv Sharma is vp of commercial development at NiCox Pharmaceuticals. He can be reached at Sharma@nicox.com. Susan Schwartz McDonald is CEO of National Analysts Worldwide. She can be reached at smcdonald@nationalanalysts.com