|
||||||
| July 2008 | ||||||
 |
  The Changing World of Pharmaceutical Marketing ResearchI am finally starting to understand what has been going on in pharmaceutical marketing research over the last year or so, before which we had seen what largely amounted to the business as usual I have become used to. Although I’ve touched on some of these items in previous articles and presentations, I’d like to summarize them here and show how they fit together to form what is not a wave in a cycle, but rather a trend unlikely to change in the foreseeable future. The Amount of Marketing Research Being Conducted First, recent and numerous conversations with my colleagues from other research agencies and client companies alike support the notion that in the United States, the number of dollars being spent on pharmaceutical marketing research has dropped rather precipitously in the last couple of years. Some have talked about spending dropping by 25 percent, and others suggesting closer to 50 percent. One client told me recently that in 2007 the marketing research budget for his product was $2 million but this year it is $200,000. Why is this happening? Some factors explaining this drop-off include:
Research Focus In the good old days, when there were myriad new products to introduce, marketing research focused primarily on the segmentation of the customers to whom the product would be marketed, and the testing of the story, creative concepts, etc., to communicate information about the new product to these various stakeholders. My recent readings of relevant articles, and especially my attendance at the most recent PBIRG meeting in Washington, D.C., have all combined to convince me that health care is running out of money worldwide. Long recognized is the fact that the developed countries, and in particular the United States, have been subsidizing health care around the world, especially through the use of their significant profitability to fund the development of new pharmaceutical products. It is unfortunate timing indeed that this profitability at the top of the food chain shrinks just as the world is increasingly clamoring to provide health care to the developing countries and to provide monies to fund drug development. Thus, presentations at PBIRG focused on cultural differences in health care and how to obtain the highest reimbursement rate for your product in a given country, rather than on how to conduct marketing research that will assist you in beating competitive brands. I was also impressed that the organizational structures of both pharmaceutical companies and the agencies that serve them are changing to respond to what is happening in the pharmaceutical environment. One professional in attendance had the fascinating title of “director of developing countries,” while many marketing research agencies were moving toward more centralized structures that provide their major clients around the globe with a single point of contact while also facilitating cooperation of the in-country offices of the agencies when working on global projects. Although small, entrepreneurial pharmaceutical marketing research agencies have always been my preferred model, the kinds of projects that are being conducted now clearly demand the services of a larger, more centralized organization. Prioritization and Modeling Clearly, gaining and maintaining an understanding of the way health care is delivered and pharmaceuticals are sold in a country will demand a significant amount of work, and two subtotals appear necessary to reach if progress is to be made in these areas. First, an approach must be developed that prioritizes countries in the order in which our focus should be directed on them. While the most naïve approach would prioritize countries based solely on the percentage of the worldwide market they currently account for, a moment’s worth of thought reveals that there are literally hundreds of other factors that can be worked into the equation, including such obvious factors as trends in this percentage, but also less obvious considerations such as the percentage of global profitability a country accounts for, the stability of a country’s politics and its currency, etc. The skill sets necessary to assemble and appropriately weight such factors are outside the ken of most pharmaceutical marketing researchers, and will likely demand a team approach including econometricians and other specialists to develop an understanding of the true relative worth of a country up against its competitors. The second subtotal would appear to be that much of the work required to assemble such models will probably, because of the magnitude and cost of the effort, need to be done on a multiclient rather than proprietary basis. While any company that was able to master an understanding of the workings of the top priority countries’ health care systems and how to profit from them well before its competitors would gain a significant competitive advantage, this insight would likely come at too high a price for any one company to shoulder. Thus, as with most syndicated or multiclient information, it is likely that a company’s strategic advantage derived from these insights will come from its use of, rather than simply its possession of, this information. Hint! While numerous one-off reports are available that purport to describe the health care systems of individual countries, I am not aware of any company that has assembled such information on a systematic, easy-to-use basis for all of the major developed and developing countries. Unless I’ve missed something, which is always possible, a significant business opportunity exists for an agency that can put together and maintain such a knowledge base. Countries of Interest Pharmaceutical marketing researchers now have to learn about a far greater piece of the earth’s geography than was formerly the case. For those of us who plied our trade in the United States, for example, most were able to spend our careers without crossing the border. The United States, at the time, accounted for approximately two-thirds of the pharmaceutical marketplace worldwide, and thus marketing research efforts were concentrated here. While there were indeed “international” pharmaceutical marketing research departments divisions within most drug companies, they were very separate from the main marketing research departments and significantly smaller in size. There were also a few marketing research agencies servicing these departments that specialized in international marketing research. More recently, the revenue that had been accounted for by the United States dropped from two- thirds to approximately 45 percent, and pharmaceutical marketing researchers had to start paying attention to other countries as well. We began to talk of doing more global marketing research, by which we meant studying the United States and one or more of the G5 countries (France, Germany, Italy, Spain and the United Kingdom) because of the size of their pharmaceutical markets and similarities to the United States. In doing so, we often simply developed a quantitative questionnaire based on qualitative work conducted in the United States, translated it into the required languages, fielded the questionnaires in the European countries under study and compared the numbers obtained. Since most of the work was focused on competitive issues among products, little effort was typically made to understand the cultural and practice differences that often accounted for the differences in perceptions of various products. While each of the G5 countries accounted for only midsingle-digit percentages of the global pharmaceutical market, it should be noted, together they accounted for the second biggest analytical unit following the United States, with member countries believed to be relatively homogeneous. Japan developed into the second largest stand-alone pharmaceutical market, typically representing 15 percent of worldwide sales. Most pharmaceutical marketing researchers found it convenient to avoid studying Japan, however, since research conducted in that country was notoriously slow, expensive and thought to represent a country that was unique in its perceptions. More recently, attention has turned from these developed countries, where by definition growth in the pharmaceutical sector had largely matured, to developing countries in which many factors augured a rapid increase in pharmaceutical sales in the years to come. The BRIC countries, consisting of Brazil, Russia, India and China, are often spoken about as being of special interest in this regard. While it is amusing to reduce four countries to a simple shorthand, it is another thing entirely to decide what these countries have in common, and in what ways they are different. Each of these countries, for example, has a population ranging from large to huge. Each of these countries also has population demographics paralleling the United States, in that the populations are becoming older and sicker. While these factors all bode well for pharmaceutical sales, they might not be so attractive in terms of pharmaceutical profitability. That is, while countries such as Brazil and China have economies that are growing increasingly robust, countries such as India find it quite difficult to provide health care to their people based on cost. Also at issue in such countries as India and China is their refusal to uphold intellectual property laws, thus permitting cheap knockoffs of patented drugs to be produced and distributed freely. As an aside, the linked issues of product cost and intellectual property can be expected to gain significant additional prominence and acrimony in years to come. Here in the United States, for example, perceived price gouging on the part of the pharmaceutical companies is helping create a negative image of the industry at large. In the other developed countries, rather firm and conservative principles and practices have been established to peg a drug’s price. In developing countries, the first battle to be won is, again, the enforcement of intellectual property law. If other companies besides the patent holder are free to manufacture bio-similar agents and distribute them at extremely low cost, the price at which the patent holder is permitted to sell its drug is relatively moot. Already gathering on the horizon are “public interest” groups that totally reject the notion that if pharmaceutical companies are not permitted to make a significant profit, they will not have sufficient funds to develop new and better medications. Some such groups, for example, have argued that the price paid for a patented medication should be moderated by the gross domestic product of that country, and that such differential product pricing should be incorporated into the business models of every pharmaceutical company. Other public interest groups have gone even further, arguing that there should be no such thing as intellectual property rights as they relate to pharmaceuticals. One such group, for example, has argued that two billion people worldwide are denied critical medical care by the defense of intellectual property rights, and therefore that such concepts as patent protection should not be applied to critical areas such as health care. Many moral and legal issues converge around such points, but the bottom line is that, over the next few years as the focus of health care increasingly becomes the developing countries, the question as to whether health care is a right or a privilege will be asked with ever increasing intensity. Beyond the BRIC countries, Indonesia, Mexico and Turkey can be added to the list of developing countries that make up the E7. Again, these countries present significant population size, good and bettering economic pictures and the willingness to enforce intellectual property laws. While the pharmaceutical marketing researcher must become increasingly familiar with the various groups of countries and the similarities and dissimilarities among their members, they will also need to pay close attention to other countries that may sneak around the outside to constitute significant players in the pharmaceutical marketplace. Korea, for example, is one such country, with pharmaceutical companies increasingly paying attention to health care delivery and pharmaceutical marketing in that country. Methodologies Employed In GfK’s experience in such endeavors to date, we have discovered two major methodologies that have served us well in getting up to speed in the health care structure and function of various countries, especially those developing countries where information about the health care system is less well known. First, in 2008 it is virtually indefensible not to begin any research into new territory without a thorough search of the Internet or relevant information. But to get full value from this information source, it is necessary to employ a researcher who is experienced in searching for health care-related information, especially of an international nature. For example, for such exercises we have frequently called upon the competencies of Jane Sarasohn-Kahn, an economist by training and founder of Think-Health, to wring all of the information possible from online sources. Upon completion of the Internet search, we have routinely turned to our second line of defense, which could best be classified under the heading of ethnography. That is, once the facts of a health care system have been collected, it is then time to fill in the color behind the facts. The best, in fact the only, way to accomplish this task is to interact directly, and extensively, with people from the country who are in the know about health care and pharmaceutical marketing. For example, my team at GfK USHC and I were recently given responsibility for supporting the health care-related activities of our sister companies in Central and South America. Following an Internet search of the relevant countries described above, we convened the most knowledgeable professionals from each of the GfK companies in these countries for a two-day meeting in Miami. We asked them to come prepared with a slide presentation on what they thought we should know about health care delivery and the pharmaceutical industry in their home countries. I would not be overstating even a little bit to report that these two days were among the most enjoyable, and informative, I have spent in years. It is impossible to share in this format everything learned from that session, but we anticipate using this information as the basis for a significant publication later this year. Nonetheless, a few gems from this research can, and should, be shared. For example, many of the respondents reported that their health care systems were heavily impacted by their countries’ governments. Many of these governments, moreover, were of a mindset that relied heavily on generics, rather than premium-branded products, as a means of providing health care to the greatest number of people at as low a cost as possible. In Argentina, for example, we learned that a law had been passed making it illegal for a physician to write the brand name of a product; instead the physician writes the chemical name and lets the pharmacist sort out the most cost-effective way to provide this therapy. We also learned that, in many countries, the government had a strong predisposition toward generics made within the country by a company based in that country, rather than by a large multinational. We also learned that in many Latam (i.e., Latin American) countries, instability in both the government and the country’s currency has led many of the large, multinational pharmaceutical companies to leave the country because of the perception that the risk of doing business there was simply too high. Importantly, we found that pharmaceutical marketing research is still largely in its infancy. Much of the work being done is by researchers who spend much of their time doing consumer rather than health care-related research. TNS, several of our discussants noted, had distinguished itself by constituting a pharmaceutical division. Interestingly, respondents indicated that although Latam pharmaceutical marketing research was relatively unsophisticated and undifferentiated, pharmaceutical promotion in these countries was nonetheless relatively intense, although concentrated largely in the bigger companies. Much self-medication goes on in many of these countries as well, since many patients attempt to avoid the expense of going to see a physician by self-acquiring one of the many medications available over-the-counter. In many Latam countries, the promotion of pharmaceutical products to physicians is relatively intense, albeit largely limited to the larger laboratories. Such information tidbits, it can easily be seen, are essential to truly understanding a country’s health care system, its pharmaceutical marketing efforts and strategies and tactics for optimizing product sales. In Summary The face of pharmaceutical marketing and pharmaceutical marketing research is rapidly changing. New skill sets, new methodologies and a willingness to let go of the past will all be increasingly required to succeed in this new environment. At the bottom line, the combination of significantly fewer new drugs being introduced and health care worldwide running out of money as populations age, and the attempt to provide health care to a significantly higher percentage of humanity, leave precious little funding for the kinds of market research we used to conduct, which primarily focused on how to help Product A duke it out with Product B for market share. In the future, look for such research to be minimized and for the focus of our research efforts to be on understanding health care systems around the world and their relative strengths and weaknesses; how to improve the efficiency of health care in such areas as physician education and patient compliance; and other areas where our work can result not in victory over the competition, but rather in assisting in having good health care become good business. 
Richard B. Vanderveer, Ph.D. Group Chief Executive Officer GfK U.S. Healthcare Companies 
| |||||
        |
||||||
   |
||||||
