Marketers seem to have rapidly lost the ability to understand and influence their customers, panicked by generic competition, cost-cutting and rigorous control imposed by payers. Of course, when most new Pharmaceutical products are very similar to their competitors, relying on old-fashioned gut feeling and doing the ‘same old marketing as you have always done’ is no longer viable.
Pharmaceutical marketing is certainly not dead, but it is undergoing unprecedented changes that are not within the typical realms of many Pharmaceutical companies’ expectations. It is not ‘business as usual’ anymore. However, marketing success has become a key driver of shareholder value and is more important than ever. But..
How Do You Achieve Marketing Success?
Of course, the recommendations from some consulting firms do not help matters. One of our clients in Japan had just hired a ‘Big 5’ consulting firm whose recommendations were essentially to cut all marketing budgets. Now, I am not saying that throwing money at a problem will solve it, but if you are cutting anything, make sure you understand where you can cut and where you cannot cut without harming your revenue and profit.
Fortunately for this client, we had just completed an analytics project which included their brands, so we could probe the data in our analytics portal to see exactly what would happen to their revenue and profit if these recommended cuts were implemented. It was not good. If they reduced costs immediately, this would make revenue and profit look slightly better (lag effect) for a very short-term profit (1 quarter) but a longer term (2-4 quarters) serious reduction in revenue and profit would ensue and growth of some of the key brands would cease.
We then explored their budget allocation tool using our analytics portal and saw what allocations of the existing overall budget would result in optimal sales and profit increases. So, budgets remained the same and we focused on revenue and profit growth. Within the same overall budget, some activities were cut and some were increased, but the overall increase was impressive. One brand was at ¥17 billion and by not cutting the overall budget (and not increasing it either), but by reallocating it appropriately as recommended by the algorithms applied to the real market data, it was shown that the sales for one of the 5 brands we worked on could grow from ¥17 billion to ¥46 billion.
The reallocation was made and 6 months later when we checked the results, the brand was then at ¥50 billion. Maybe not exactly where we thought it would be but even better, and certainly in the right ballpark so that everyone was happy. That was one brand which was able to achieve a ¥33 billion (roughly US$356 million) increase in sales with no increase in budget in 6 months. However, when all key brands are analyzed this way, we have been able to attain even stronger results within the same time period.
Cutting jobs to slash costs is becoming the standard operating procedure when CEOs need to increase profit quickly. It is one way to go – and certainly a popular way. However, shouldn’t the question really be: how can we cut wasted budget while we grow profit in a downturn economy by making intelligent cost reductions to increase profitability?
Many companies continue to slash sales and marketing budgets, and jobs are squeezed. Sales and marketing are one of the biggest, if not THE biggest, investment in a Pharma company, yet it’s sad that many marketers could not argue strongly which components of their marketing are leading to what results. The Pharma industry is seriously lagging behind in these measures and still relies on poor metrics, anecdotes, gut-feel, basic ROI as well as competitor size, spend and actions to guide decisions in this area.
It is time to regain control and, with it, credibility. This is where using sophisticated analytics will stop spend on knee-jerk systems and campaigns that are a reaction to competitors and help concentrate on the real role of the marketing department: to know and understand the customer, and translate this profitably to the product and business strategy.
The real key to successful marketing is neither art nor science but mathematics – more precisely, strong current data-driven analytics. Winning companies in other industries have seized upon the power of analytics early to reap large rewards (e.g. amazon.com) and yet the Pharma industry does not, as a whole, seem to be tapping into the power that this can unleash. We see things like ROI and response curves called ‘analytics’ when those approaches are clearly nowhere near the power of analytics today.
I gave a simple example in ROI a while ago when I saw so many companies doing this. Why look for the highest ROI % in lieu of the highest revenue and profit? If a company spent $1 million on a marketing investment and generated a $500,000 profit (after recovering the $1m investment), the ROI would be 50%. However, another marketing spend of $3 million on a different activity might generate a profit of $1million (after getting the $3m investment back). This would be an ROI of 33.3%.
The higher ROI is not necessarily a sign of the highest financial return. Sometimes a high ROI (i.e. cost recovery) is at the expense of growth and profit; therefore, any savvy business person would choose paying more and getting even more back. And yet you would be surprised how many companies are doing simple ROI still and coming to the conclusion to look for the strongest ROI%.
In our experience from using our own analytics system, the answer to this conundrum of where to cut costs is to carefully identify and examine all the non-driver, budget-draining areas and reduce spend there. Cuts for the sake of profit cannot be made sensibly without really examining drivers to minimize the loss of some areas of profitability. Of course, modernization of marketing (e.g. new technologies, utilizing analytics, etc.) can be a slow process in the Pharmaceutical industry.
Invariably, as in life, you get what you pay for, so good analytics is not cheap. Therefore, one of the challenges for marketers trying to get budget approval to spend on results-driven (and job-saving) analytics is to balance out utilizing these for strong results, with the perceived cost/benefit of using these techniques. When looking at cost/benefit, does it make sense to spend 1-3 days of the country’s sales to reap the equivalent of 25 to 40 days of sales as a profit from doing so? Of course!
It is not the cost, but what you get for the cost. With this lack of logic for fear of spend, you can see why some companies are remaining stuck in vicious cycles of budget cuts and job cuts. It does amaze me how companies really desperately need to succeed in squeezing out as much profit as possible from their brands, yet they cut important budgets that will not allow them to do this. Get it together, people!
I’m guessing many Marketing Directors are not really showing the numbers to the CFO and, as a result, do not have the power to spend what they need to in order to return strong results. This, of course, goes back to the other chestnut about how marketing is losing credibility and power in the boardroom when, in fact, it is the engine that drives – or should be driving – the business.
You can squeeze more out but you need strong analytics and the associated insights to successfully do this and prove yourself. The proof is in the pudding; if your sales are not going up by much and you think you have a problem, sort yourself out! There is no excuse.
Your problems could be:
• planning a critical launch for your company where failure is not an option
• having a launched brand but simply not having rapid uptake
• sitting with a mature brand with generic / biosimilar competition looming
• no understanding of why you have a flat or declining market share
• trying to prioritize budget allocations or deciding where you can cut budget
• trying to figure out portfolio allocations for maximum overall revenue and profit
• no data upon which to make decisions, so all is done by gut-feel, ROI and response curves, or worse…
You may even understand where the problem lies but have no knowledge of how to solve it.
Perhaps you are:
• not reaching the key influencers successfully
• not influencing prescribers that your brand should be prescribed over competitors
• seeing a general lack of awareness amongst Doctors of the condition (for a rare condition or a condition not perceived as having a drug solution in that culture)
The problem lists could easily go on and on. You know your problem and whatever you are doing, if it is not solving it, you need analytics. Knowledge is power, and never as true as when basing a business plan around customer needs. To create and sustain operational and strategic enhancements across all areas of sales and marketing, you need to read, understand and action.
Analytics is all about making better decisions quicker, ones that are not driven by the same data that everyone else is buying into, but completely tailored to your own situation. When a company uses analytics to gain a thorough and deep understanding of its customers, different customer segments and how they perceive value in the drugs on offer, and then use that knowledge to examine all aspects of their marketing hindering their growth, the resulting cuts and increases are in alignment with revenue growth and profit, and the company is in a far better position to grow profitably in a downturn economy.
Analytics using past performance data may be interesting but can’t answer questions such as: What is happening now? What will happen in the near future and how can I impact that by making resource, allocation or focus changes? The prominence moves from measurement to understanding. Statistical techniques based on real and current market data, along with modeling and forecasting tools, allow us to develop insight into what is happening in our world and then to translate that insight into action with reliable accuracy of results. Of course, the quality of the data used is critical. Simply looking at market research data, ROI of activities or response curves is not enough, and historical data or analogues are now also shown to be highly unreliable in a dynamic market such as Pharma.
The use of the current market in predictive modeling is the type of analytics needed to get an accurate picture of what is going on and what channels are going to give the best return. The use of predictive models can not only show the measurable impact each channel has on results, but how to reallocate these precisely for vastly improved and specific financial results, allowing you to test, test and test again before committing valuable time and resources, and enabling you to ensure that you get the absolute best revenue and profit results from your marketing.
Nevertheless, there are a few things to keep in mind when running analytics to reap the strongest rewards. Firstly, the analytics models must be designed to address the specific marketing issues you are facing and focus on solving your needs and challenges. Then, they require data….and not just any data. Remember, if you put garbage in, you’ll get garbage out. The data must be collected in a way that works reliably with the algorithms and must reflect the market in which the data will be used to reflect real world results.
Conclusion
Focusing on robust analytics is critical if companies are to identify and properly support the top performing channels of the future by product, target segment, indication and line of treatment, in order to reap the maximum profits possible. Analytics is something that should be at the top of any marketing agenda because, when used correctly, it has the power to transform results, improve credibility and retrieve the brand a commanding position in the market. Such efforts should not be seen as an expense but as a critical investment in future results, and that is something most Pharmaceutical companies cannot argue about.
For more information, or to see the analytics in action in our portal, please contact the author, Dr Andree Bates, at Eularis.
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To learn more about how Eularis can help you find the best solutions to the challenges faced by healthcare teams, please drop us a note or email the author at abates@eularis.com.