Formal segmentation research defining brand opportunity

Creating brand differentiation in a crowded, heavily regulated environment only complicates their efforts. Market segmentation is the foundation from which successful marketing strategies devolve and segmentation research is the method for gaining indepth insight into the market landscape and the potential target audiences required to segment markets. Yet, while segmentation research is consistently utilized as a basic research tool for supporting brands in other industries, it is not always implemented as a core strategic tool in pharmaceutical marketing.

Segmentation research can be approached in one of two ways: informally or formally. The differences between the two are driven by the breadth of objectives and scope of effort. Informal segmentation research can be done as a by-product in the course of research completed for other purposes (e.g., positioning, pricing, forecasting, etc.). Formal segmentation research is specifically executed for the validation and exploration of customer segments that can serve as the basis for differentiated marketing strategies.

Compared to formal segmentation research, informal segmentation research involves minimal design, analysis, and reporting. Informal segmentation research searches for significant differences across respondent subgroups, e.g., based on respondent specialty, demographics, or practice characteristics. The analytical methods are more rudimentary, e.g., crosstabulation or significance testing across groups. The purpose of informal segmentation research is to determine whether or not there are important respondent subgroups which will influence a project’s conclusions and commercial findings. Due to the important benefits of segmentation research, Paragon conducts informal segmentation research on each of its projects regardless of the primary purpose or objectives of the project.

From its outset, formal segmentation research is methodically designed and executed for the explicit purpose of identifying and evaluating market subsegments. There is not only a significant difference in the intellectual energy expended, there is also a reliance on advanced analytical tools, most notably multivariate analyses.

It may be useful to briefly review the theory behind market segmentation and why markets are segmented. Market segmentation involves subdividing the total market for a product or service such that the buyers within each segment are homogeneous with respect to variables such as the characteristics of products desired, buying motivations, ability to purchase, etc. These variables in turn affect trial, adoption, brand loyalty, and ultimately the decision to purchase or prescribing. At the same time, the buyers from different segments should be as heterogeneous as possible on the same variables.

The whole purpose for segmenting markets is to understand how products or services can be positioned and promoted more effectively by linking their features and benefits to target customers’ value drivers. Thus, segmentation ultimately increases revenues and/or profits by more successfully tailoring the commercial execution and marketing mix to the wants and needs of each homogeneous segment.* If it is not possible to develop different marketing strategies for each segment or if the segments do not respond (i.e., buy or prescribe) differently to unique marketing strategies, then an unsegmented strategy should be implemented. Market segmentation research will either fail to identify the sought after segments or will derive segments without any relevance to marketing, revenue, or profit goals.

Thus, the first step in segmentation research is to determine whether the market can be successfully segmented at all. The only way to make this determination is through market insight, which resides within an organization’s marketing, research, and sales teams, within the buyers themselves, or a combination thereof. Either the organization’s leaders have already gained sufficient insight to satisfy themselves that there is a basis for segmentation or qualitative research can be executed to gain the required insight.

Once it has been decided that there is potential for segmentation, it makes sense to explore the research required. But even then, such research should be approached with the knowledge that it may fail. For example, the research may find that there are no homogeneous segments or the available research technology may fail to detect the underlying bases leading to successful segmentation strategies. Of course, more often, such research succeeds. Paragon’s approach to formal segmentation research seeks to:

1. Identify potential measures relevant to the description and segmentation of target prescribers,
2. Define distinct market segments and or identify potential new customer categories,
3. Describe typical drivers and needs of customers within each segment,
4. Measure the relevant value of each segment,
5. Determine which segments are most commercially viable,
6. Identify the competitive terrain which will comprise each segment and prioritize the relative positions of competitive products by segment,
7. And outline business or brand strategies that can differentiate an asset/product that will stimulate awareness, trial and long-term brand loyalty with customers of each segment.

There are a number of considerations underlying the approach to effective segmentation which influence the objectives we pursue. The first step in segmenting a market is to separate those who are qualified marketing targets from those who are not. This is usually done with the support of secondary data and may be based on physician specialty, types of patients treated or conditions treated, medical coverage (drug access), products prescribed, and prescribing volume quintiles, i.e. the types of variables typically thought of as study screening criteria. The second step involves separating the marketing targets into homogeneous subsegments which can be linked to unique product features and benefits, brand positions, promotional message platforms, brand personalities, and customer emotions for each subsegment in order to establish a durable market strategy to maximize sales potential.

Any number of different variables can be used to segment the market but, generally, they can be divided into reach vs value proposition variables. Some attributes (such as demographic characteristics, prescription deciling or category prescribing, geographic location, venue or setting (e.g. hospital, office, clinic), customer access, practice type, board certification, clinical investigator experience and/or media preference make it possible to identify how to “reach” the targets prescribers. “Value proposition” attributes tend to focus on prescribers’ purchase or product use motivations (e.g. needs, benefits sought, psychographics, etc.) and, in so doing, help marketers decide the types of products desired, strategy, positions, and category definitions that products should establish, the core messages to communicate, and potential promotional activities to execute. Unfortunately, the two variables do not directly correlate as “reach” variables do not assist in the preparation of messages and the value variables provide no means to deliver the messages.

Another consideration is the importance of targeting any given segment for marketing. It must be established that it is either strategically or financially worth the investment of developing customized strategies for each segment targeted. Ideally, each segment’s importance would be measured by its demand (number of prescribers multiplied by rate of use in terms of new, refill and total prescriptions), revenue, or profit potential. Often, however, some surrogate for demand is used to justify segment targeting. Common surrogates include satisfaction, likelihood to recommend or prescribe products, identification as early or late adopters, or company awareness or association. Related to the determination of value is the need to insure that the differential appeal of the product(s) exceeds the appeal of competitive products within all targeted segments.

In general, segmentation research involves two stages. The first is aimed at the creation of comprehensive sets or batteries of variables, called the bases for segmentation, for use in gathering the data needed to segment prescribers. The second stage involves the application of these batteries to achieve the objectives specified above.

Creation of Potential Segmentation Bases

Any combination of prior research (primary and secondary), internal expertise (via joint planning and/or design brainstorming meetings), and added, custom-designed qualitative research is used to generate the potential bases of segmentation. Examples of segmentation bases include physicians’:

1. Attitudes toward:

• Current drug classes and available agents,
• Patient needs;
• Patient trial, persistence, and compliance issues;
• Corporate equity and market positions;
• Interactions with sales representatives;
• Payer influences;
• Employer influences;
• Clinical trends;
• And patient lifestyles;

2. Access to pre-launch data or participation as investigators;

3. Patient populations and subpopulations;

4. Current prescribing patterns, either from survey or audit data;

5. Willingness to prescribe specific types of agents;

6. Perceived patient acceptance of specific types of agents;

7. Definitions of patient populations and subpopulations appropriate for different therapies;

8. And demographics, socioeconomics, psychographics, practice characteristics, and geographic measures.

Application of Potential Segmentation Bases

The second stage of segmentation research involves the testing and application of the batteries designed in stage one to gather the data needed to achieve segmentation objectives.

All of the measures included in the batteries are studied to determine if they can be used to define distinct segments. Cluster analysis is used to search for the segments. Discriminant analysis is used to describe segment customers members. Alternatively, latent class analysis can be used for these same purposes. Paragon first searches for segments employing the “value” attributes. The profiles of these segments helps develop brand strategies and related message platforms for each segment. Then, we use the “reach” attributes to profile the segments aid in the design of communication/media strategies. This analysis achieves three key objectives, the identification of segmenting attributes, derivation of the actual segment, and description of typical prescribers within each segment.

The next three outcomes (measuring the value of each segment, prioritizing the right segments, and measuring the appeal of the competitive terrain within each segment), are accomplished primarily by measuring product preferences. Respondents are provided with profiles for the products of interest (if necessary) and asked to rate their intent to prescribe each product.

Product profiles are typically not required for existing products. Their market histories and physicians’ experiences with them have established their brand images and value propositions. For pre-launch products whose target product profiles have been established or whose package inserts have been approved, product profiles with fixed features and benefits are used. However, the clinical profiles of many products (such as those in phases I, II, or III of development) have yet to be definitively established. These products are presented by sets of alternative product profiles describing the potential ranges of their product features. Often, these scenarios take the form of conjoint-choice designed “what if” scenarios.

The value of the segments is determined through a combination of the number of appropriate patients treated by respondents in each segment and the likelihood of prescribing for all products of interest. Thus, the research generates measures of demand for each product. The right segments for any given product are those where its potential of demand is sufficiently high to warrant promotional efforts that will generate a measurable ROI and where a product has a sustainable positioning advantage over its competitors.

The last objective (outlining segment strategies) is addressed by gathering ratings of respondents’ product perceptions relative to attributes explaining their prescribing intentions, e.g., product features and benefits, appropriateness for different types of patients. On a segment-by-segment basis, this data can be used to prepare perceptual maps, quadrant charts, gap analyses, and/or analyzed by means of multivariate modeling (e.g. conjoint-choice modeling, ad hoc regression-based models, etc.). The goal of these analyses is to identify the key rationales justifying the communications strategies.

In the end, market segmentation research reveals who to target, what is of value to them, how to reach and influence them, and establishes the criteria to forecast and measure the potential value of a brand by segment or in total.

Pharmaceutical markets have never been fraught with more risk and competition. While the costs associated with drug development have always been high, a number of forces (managed care, government regulation, generic competition, shortened patent lives, and so forth) have conspired to reduce the benefits of drug development in the current market. While product innovation is still the sine qua non of pharmaceutical marketing, even innovative products are unlikely to achieve optimal commercial success without dynamic and winning marketing strategies. Winning marketing strategies are creatively tailored to the unique wants, needs, and motivations of each market segment. Segmentation research cannot replace marketing creativity, but without it the most creative marketers lack direction.

Robert N. Zelnio, PhD
President