Defining pharma's marketing future Part I - You are here
In Part I, Slocum examines the current state of pharma marketing and outlines the challenges that lie ahead as the industry works to embrace a new marketing paradigm.
By on Jun 30, 2006In Part I, Slocum examines the current state of pharma marketing and outlines the challenges that lie ahead as the industry works to embrace a new marketing paradigm. And in Part II, Slocum offers hard-hitting recommendations to the industry on how to build partnerships and embrace technologies to ensure a healthy future for the industry.
To read Part II of this article, Defining pharma's marketing future: Getting to a better place, click here.
Part I You are here
The writing is on the wall and Kim Slocum doesn'st mince any words pointing it out. Pharma's resource intense marketing model costs a ton of money and doesn'st drive sales the way it used to, he says.
Slocum illustrates his point with sales growth data from IMS's National Sales Perspective. Near the turn of the
millennium, he says, the data begins to reveal a very worrisome trend. Growth he says has decreased each successive year since 2000.
And as disturbing as the data is, it doesn'st begin to tell the whole story, he says. If sales growth data is broken down by category, it shows that while sales of specialty/biotech drugs and generics are rising strongly, sales of the small molecule, chronic disease drugs that are the research-based pharmaceutical industry's bread and butter, and represent the bulk of pharma's promotional spend, are nearly flat.
The sales increase you see is essentially zip's against ever-increasing promotional investment, Slocum says. And that tells us we'sve got a problem.
Is pharma its own worst enemy?
A study from G&S Research reveals that more than 70% of pharma reps say they do not get enough time with physicians to adequately detail their products, but 68% say the reason is there is too much competition. This, Slocum warns, is an initial harbinger that we are near or at the point of diminishing returns on our marketing expenditures.
And the impact is already being seen in the field, he says, citing a report by the Financial Times showing total rep visits to physicians last year were down 13%. It tells us all is not right with what we are doing, Slocum warns.
Depending on how you choose to slice it, sales and marketing spend, Slocum says, is either the largest or second largest category of spend for pharmas and with income statements for many pharmas in the tens of billions of dollar range, he stresses that no matter how you look at it we'sre not talking chump change.
But pharma's challenges don'st stop there, Slocum says. News headlines are riddled with accusations that the industry has exaggerated drug claims and abandoned science for salesmanship. And state governments and other groups are calling for limits on the use of prescription data and tighter regulation of marketing tactics.
Slocum says even his own mother, who lives in rural upstate New York, reports that there are more sales reps than patients in her doctor's waiting room. Our routine tactics don'st look good when they are viewed by the general public, he says.
And a recent spate of kiss and tell books by former sales reps from the industry highlighting unscrupulous behavior in the industry aren'st helping matters, he says. It really makes you wince when you read it, he admits.
But when you hire bright, aggressive, educated and motivated young people, Slocum says, it is not surprising that they occasionally step over the line.
In addition, Slocum says the industry faces policy-level problems.
Pharma products for better or worse at a policy level are seen by people as a driver of high healthcare costs, he says. And although most of us would argue that's patently false, that's the perception that's out there. And sales and marketing is seen as the poster child driver of this excess's use, making it a target for legal and regulatory actions.
Taking stock
The full slate of issues and challenges leaves most pharma marketers feeling like hamsters in wheel, running ever faster to try to keep up, Slocum says. Brute force as a growth strategy has reached the end of its run, he says, quoting Seth Godin.
Simply identifying the problems doesn'st help a whole lot, however, he says. Instead marketers must understand how the industry arrived at this juncture and how it can get to a better place.
First, Slocum says, the industry needs to reevaluate who its customers are.
Eighty percent of brand teams would say physicians are their primary customers, he says. And most would say patients are their secondary customer and they'sd add: oh, by the way, we do some stuff with these third party guys.'s
But Slocum stresses that for the next five to 15 years, pharma's primary customer will be third-party payers, with patients coming in second and at a distant third and diminishing rapidly doctors.
We'sre putting our resource in the wrong place, he says.
For those who still need some convincing, Slocum points to CMS data on the prescription drug market in the US over the past 25 years that shows trends in revenues and the payer mix. In 1980, he says, the industry was less than $20 billion in revenues. By 2004, it had grown to $190 billion.
In 1980, though, Slocum points out the industry was cash and carry. In other words, two out of every three dollars spent on prescription drugs were financed out-of-pocket at the time of purchase by patients. Now patients pay only 25% of total revenues out of pocket.
Today, 75% of prescription drugs are paid for by third parties. And Slocum notes that physicians are only an influencing intermediary. They'sre important, but they'sre certainly not our primary customer, he says.
As this transition occurred, Slocum says, the industry just assumed payers would be passive switches's or gateways through which the money passed. But he says that is no longer the case.
Slocum says between 2005 and 2015 gross domestic product devoted to healthcare in the US is, by conservative estimates, predicted to increase by 3.8%. So, if there is anyone who thinks the past four to five years is just a temporary bad patch, let me suggest that you think again, he says. It's not going to get better; it's going to get worse.
The companies that succeed, Slocum says, will be the ones that understand the macrolevel changes that are occurring and adapt their business practices, including their marketing, to accommodate it.
Pharmas need to take careful stock of the changes facing healthcare and governments for the future.
By 2015, the US Congressional budget office estimates CMS between Medicare and Medicaid will be more than 20% of the GDP.
Let me put that in perspective, Slocum cautions. That's the size of the entire US federal government now. So, if we stay on this trajectory, by 2015 the government will be nothing but a large health insurer for poor and old folks no military, no social security, no education just healthcare for the poor and old.
But, since Slocum says, that won'st be allowed to happen. Taxes will go up, benefits will go down or both, he predicts. But one thing is sure, he stresses: CMS will not be a passive player, because it can'st afford to be.
And large companies that provide healthcare benefits to their employees will be no different, Slocum says. In 2004, health benefits provided by corporations averaged 80% of post-tax corporate profits and that figure is project to exceed 100% within the next few years, he warns.
If a CEO could wave a magic wand and make his healthcare benefit expenses go away, he could double the price of his company's shares overnight, Slocum explains. And that fact is not lost on the C-suites of every company that provides healthcare in the US, because it's going to be important to get this health benefit expense so that it grows at a rate commensurate with revenues and profits.
And that means employers won'st be passive switches either, he says.
Co-payments matter
To control prescription costs, they have turned to tiered benefits that stagger out-of-pocket costs for patients from as little as a ten dollar co-pay for a generic drug to $15-$20 for a preferred or discounted brand and even higher percentages for a 3rd tier or non-preferred product.
Slocum calls the plans an uncontrolled experiment in social behavior that have now been around long enough to offer insight into how consumers behave when they are asked to pay more for healthcare. One thing the experiment has shown, he says, is that there is a limit to what people will pay out of pocket for most drugs, especially lifestyle products.
Research by David Goldman and his colleagues at Rand Health highlights an economic concept they term demand elasticity. According to the study, when co-payments double, a 25%-40% reduction in the number of days of medication dispensed is observed, Slocum says.
If you'sre wondering what happened to your market growth, there's your answer, he says. Cost shifting to patients is a blunt instrument in more ways than one.
Slocum says it is well documented that 20% of prescriptions in the US go unfilled. When people are under- or uninsured, the number of unfilled prescriptions nearly doubles. And there is little or no difference between the two groups of consumers.
Co-payments matter, Slocum says.
In addition, the same consumers are limiting visits to the doctor, not getting specialist care and skipping recommended follow-up care, he says. And these behaviors are precursors to getting a prescription in the first place, he warns.
So you take it in the neck from both sides as a pharma marketer, he says. Cost issues prohibit filling prescriptions and these same people are less likely to go to the doctor's in the first place.
Slocum says a simple algorithm applies: money trumps marketing. The problem for pharma, he admits is discovering how to reverse the equation.
In a separate, but similar, study, more than half of the people whose behavior was influenced by cost admitted that their health declined as a result. So what we are looking at is the tip of the iceberg of an emerging healthcare crisis in the US, warns Slocum. And as professional marketers, I think we have some of the ammunition we need to say that cost shifting is dumb. We have to put sweeter words around that, but we do have a strong case to make to third party payers.
To read Part II of this article, Defining pharma's marketing future: Getting to a better place, click here.
For more information, contact Kim Slocum, President of KDS Consulting, LLC at kdsconsulting@verizon.net.