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Segmentation and targeting remain critical ingredients for sales and marketing success, despite significant changes in the healthcare environment, but little has substantially changed in the way big pharma segments its customer base.

By David Laws on Aug 13, 2014

In either business model, the traditional approach or a new, more customer-focused business model, segmentation and targeting remain critical ingredients for sales and marketing success, despite significant changes in the healthcare environment, but little has substantially changed in the way big pharma segments its customer base.

The customer base has changed and expanded a lot over recent years to include new customers like physician assistants, pharmacists, payers, patient associations and the like, but HCP’s remain the largest customer type for most pharma companies so we will focus on this customer type for the moment.

There is so much discussion about value these days and we are beginning to see changes in the commercial model, but it hasn’t yet truly reached the industry’s approach to segmentation.

It’s time to revise the current thinking to a more value-based segmentation approach.

The key is to think ‘value to’ and ‘value from’

Of course, some would say, the industry has always practiced value-based segmentation, but what this typically means is, segmentation based on the customer’s value to ‘us’.

And the tricky thing with value is that it has two dimensions, the value to the company and the value to the customer. And it is crucial that both aspects should be considered if the company is to maximize sales and revenues by delivering value to customers.

That is a big statement and is at the very heart of any new ‘value-based healthcare’ approach as it applies to pharma. Martha Rodgers, from Peppers and Rodgers, once said that ‘if all you want to do is sell more stuff, then you will compete on price. But if you instead focus on delivering value to customers then you will sell more stuff’.

Value to the customer is critical and if pharma focuses on delivering more of the things customers value, as opposed to solely selling drugs, then it will generate significant additional value to itself and its shareholders.

Most pharma companies continue to use a pretty traditional approach, identify segments based on how valuable that customer is to the brand, based primarily on scripts written, current value, with perhaps an element of potential value thrown in for good measure, usually by evaluating the size of the patient pool for each customer.

Customers are then put into prioritized buckets and resources allocated against segments, with higher value customers usually being seen more often by the field force, probably with access to a greater range of on-line services as well, relative to lower value customers. It is a  simple matter of resource allocation and contact rate.

Let’s be fair, things have moved on a bit since days gone by, and now higher value customers often have access to a more comprehensive range of services and offers available to them compared to their lower value colleagues.

Usually this approach, with some variation, results in a relatively small number of segments, certainly less than eight, usually a lot less than eight, that are identifiable and actionable. Why eight or less? Across most industries the number of segments is kept small regardless of the total number of customers, because it is easier to work with.

I can just picture some of you shaking your heads in despair and in some cases disagreement. ‘That may have been the way it used to be, but times have changed and our segmentation is much more sophisticated!’

I would argue and from what I have seen across the industry it still seems this is the norm for HCP’s and is certainly alive and well in many companies.

Segmentation continues to be seen primarily as a way to effectively allocate resources and effort as opposed to the way to develop unique and relevant value propositions to key customers.

Beyond resource allocation and call rate

Value propositions continue to be primarily developed around products not around customers. Different customers need different things, have different aspirations etc. and the role of customer focused segmentation is to cluster groups of like-minded customers together based on what is important to them. Each segment will demand a different value proposition.

Robust segments and powerful customer value propositions exist beyond any single drug and remain relevant to customers over time, after all they reflect the deeply-held beliefs and values that each customer has as a HCP. And, therefore, the challenge to the brand teams is to align their brand messaging, in a very real sense, with the relevant customer segment.

Of course, current and potential value to pharma will always remain key components of segmentation, perhaps, to some, even the most important components, but the criteria needs to be expanded.

Successful customer orientated segmentation is quite multi-dimensional and includes a broader understanding of the individual customer beyond product usage and perceptions.

Behavioral and attitudinal aspects of customers beyond simply drug usage need to be captured and included in the segmentation process if the segmentation schema is to resonate with customers and the sales force alike.

When the field force are presented with a segmentation approach that succinctly captures customers hopes, needs, wants and expectations, and they can visualize customers they know well fitting into one of these segments, then the approach can gain significant traction at the sales and marketing level.

When customers experience a more relevant and value-based interaction they begin to work differently with the company as it becomes clearer that this is more than simply selling products, that the company is beginning to understand the customer better and provide information, solutions and services that meet their needs. It changes the paradigm.

Of course, not all customers want to engage with pharma differently, many don’t want to engage with pharma at all, but they still have needs and wants that could justify a segment of their own or they may best be addressed at the targeting stage.

Next generation segmentation

For now though, here are some best practice guidelines:

• A single segmentation schema for each customer type, where a customer exists in only one segment regardless of how many product teams see them as a customer
• You have effective segmentation for all customer types, not only HCP’s based on their hopes, needs, wants and expectations.
• You have a 360-degree view of the customer and can measure, in real time, the number and variety of contacts they have with the company as a whole across all departments and via all channels.
• You treat different customers differently, not just in resourcing or messaging but have a unique value proposition for each segment.
• You have allocated resources dedicating to developing strategies to engage specific segments and have a clearly articulated customer strategy in place.
• The number of segments clearly identified is somewhat irrelevant, but there should be segments and customers you will deliberately choose not to engage.
• Brand teams need to ensure their tactics are aligned with the customer segment strategy.
• Segments resonate with customers and the field force because they demonstrate a unique and powerful understanding of individual customers
• Factual customer data is used to ensure individual customers are in the most appropriate segment and supported by customer behavior over time.

Of course, so much of segmentation and targeting is reliant upon a good understanding of customers and, for most of pharma, that is not a reality.

CRM is still poorly understood and implemented, old world thinking and perceived legal and ethical issues about capturing and storing customer data in such systems belittle the benefits such systems can deliver. And without a database of proprietary customer information it is difficult to move beyond the more simplistic, traditional approach to segmentation.

With the addition of new customer types, like payers for example, a new approach will be required if pharma is to be seen as a relevant and trusted partner. Let’s see how this develops over time, but there is a significant commercial advantage to the pharma company that moves quickly and decisively.