New Commercial Models

Sati Sian of IMS Health discusses the industry’s development of new commercial models.

“It's all too easy for leaders to underestimate the strain of transitioning to a new model”
-Sati Sian

NGP. Why are pharmaceutical companies seeking a new commercial model?
Sati Sian. Within the world’s mature markets, a confluence of environmental factors are impeding the industry’s growth. These include tighter regulations and growing safety challenges, intense generic competition, downward pricing pressure, different decision makers, and slowing innovation.

Against this backdrop, sales force productivity has been steadily declining, making for an untenable situation. Most companies are coming to realize that their commercial model is no longer aligned to the changing needs of the healthcare stakeholders. In the absence of change, companies realize that they will increasingly become disconnected from their customers’ needs.

NGP. What trends are you seeing across markets?
SS. Markets across the globe are at different stages of evolution. Those we call ‘pharmerging’ (China, India, Brazil, Russia, Turkey, South Korea, and Mexico) promise continued strong sales growth at the rate of 13-16 percent through 2013, and are expected to contribute more than half of global market growth in 2009. Here, where healthcare systems and funding models are still developing, the traditional model still operates successfully.

In a number of major western markets (the US, Germany, Italy, UK and Canada) companies urgently need to change their models. Here, payers and regulators have measures in place to control and manage the growth of prescription medicines, thus forcing a major decline in the return derived from traditional detailing to physicians. IMS forecasts that sales growth in the US for 2009 will fall off by 1-2 percent – a historic low. Growth in Japan, Canada and the major European markets will hover between 1-4 percent for the next five years.

In the middle are markets that can be described as well developed, but where the pressure for radical change is not yet as urgent. Many of the southern European and Latin American countries fall into this category. 

NGP. How can a company evaluate the urgency of its situation?
SS. Our research shows that the urgency of change is driven by two factors that vary by country: the nature of the company’s portfolio and the type of controls that payers exercise. We carried our extensive research using our local experts in each of the eight most mature markets to understand the current commercial context for products across more than 80 therapeutic classes. We’ve segmented the therapeutic classes in each market into three categories: differentiated, commodity, and transitional. This research has clarified how the need for change varies by class and country, and what investments would now make a real difference in each market. Of course, each company must determine the required changes to its commercial model by segmenting its own portfolio in a similar way, a process that we are supporting with a number of clients.

NGP. How should companies begin?
SS. Each company should understand the real return it is getting from its go-to-market efforts before undertaking the downstream work of developing a new commercial model. Without this, it is impossible to prepare the business case and feasibility study to know how a given strategy will impact profitability.

While most brand teams know that commodity products produce lower promotional returns, we found that most companies still massively over-promoted their commodity products and under promoted the more responsive products. It became clear that companies are not sufficiently re-assessing their promotional efforts as their products mature. Indeed, we identified $15 billion in promotional spending across the eight major countries that could be more profitably spent elsewhere.

NGP. How can companies settle on a strategic direction?
SS. There is no one-size-fits-all solution. Companies must proceed based on their own portfolios, the competitive landscape and their threshold for change. But the choices are overwhelming without a framework that brings focus and structure to the process. The IMS New Commercial Strategy Framework, for example, groups possible tactics into three areas: those that address the ‘how’ of sales and marketing through efficiency and effectiveness improvements, those that address the ‘who’ within the market with tactics for improving relationships with stakeholders, and those that address ‘what’ is taken to market with tactics that expand the value proposition. Each of these areas can be employed to varying degrees. One might, for instance, rely heavily on a strategy to improve efficiency and effectiveness in a commodity market, but "turn up the dial" on engaging stakeholders for products in the differentiated segment. (See Figure 1.) 

Although most companies have focused on efficiency and effectiveness tactics, we are seeing increased experimentation with new initiatives at all three points of the triangle. And we are seeing a movement towards service-oriented approaches that involve re-assessing the value proposition. This is particularly needed in the primary care market, where companies must transition from selling medicines into selling a healthy outcome achieved through improved diagnosis, presentation, adherence and persistence.

NGP. What difficulties might befall companies as they adopt a new commercial model?
SS. It’s all too easy for leaders to underestimate the strain of transitioning to a new model. Some common pitfalls include failing to completely understand the current environment, applying a one-size-fits all approach in one fell swoop, underestimating all of the associated costs of implementation, including the systems and technologies that support a commercial’s daily operation, and cutting corners in the change management process.  

NGP. Can you point to some examples of companies that have gotten it right?
SS. Companies are in various stages of examining their models, and few have completed their implementations. We are, however, beginning to see some companies moving resources from a national to a local level. In the US for example, three major players are adopting regional organizations that have the autonomy to respond to local needs. One of our clients operating in Spain has also aligned its management framework to the geography of the new stakeholders. The company is seeing significant improvement in the uptake of new products as its market access teams are integrated at the local level.

In another case, we worked with a top ten pharmaceutical company to isolate the variables that customers appreciate in their interactions with the company. We then recommended new metrics for driving behavior that included measures of customer value and plan influence by region, rather than share of voice. The company was able to realize an incremental $900 million annually in one country alone.

NGP. What does IMS bring to the challenge?
SS. First, IMS’ global capabilities and strategically focused consultants provide a unique understanding of the issue and a fresh approach to the challenge. We begin with a diagnostic assessment of a company’s existing model as it relates to the market landscape. Even companies that already have agreed upon a new commercial strategy can often benefit from exploring the gaps between their current and ideal states.

We then provide a framework for determining the most suitable go-to-market approach. We have an in-depth understanding of local markets and the outcomes that local providers are demanding. And, the fact that we can incorporate findings on patient behavior using anonymized patient-level data (APLD) is also critical. Our consultants use this base of evidence to map out a future operating environment and outline what models would make the most sense in each geography and what skills, processes and assets a company would need.

The next step is to actually shape the organization that will be needed, specifying the roles involved, defining promotional processes, determining the right sales force size and segmenting customers. At the same time, we ensure that the necessary systems and processes will be in place to support the day-to-day operation of the new commercial organization.

Then, drawing on our global project and change management experience, we can guide the onerous and lengthy implementation process and measure the success of the resulting program. Our recent acquisition of Skura enhances our ability to implement customer-centric approaches with particular experience in implementing closed-loop marketing.

Dr. Sati Sian is global general manager, Commercial Effectiveness for IMS Health. He is responsible for IMS’s commercial effectiveness activities worldwide, leading a team that manages and develops this business across the continuum of information, analytics and consulting for the company.