PM360 JUNE 2010

COVER STORY

Reinventing Marketing to Reinvigorate Growth
By Rita E. Numerof, PhD, and Bill Ott, MBA

Reacting to the prospect of exponentially increasing financial liabilities, payers of all types are demanding hard comparative clinical and health economic data to justify any change with bottom-line impact. Going forward, growth will depend on country-by-country, payer-by-payer, and patient-by-patient decisions to pursue a treatment or not, or to choose a newer, more expensive treatment versus an older, less expensive one. Economic and clinical value (ECV) is now key to your brand’s success.

Marketing Got More Complicated
This new basis for competition requires product managers to rethink the answers to some very basic marketing questions: 1) Who really are our customers? 2) What do they want/need? 3) What needs are unmet? and 4) Who are we competing with to meet these needs? Finding the right answers has gotten a lot more complicated in two ways.

The concept of “customer” has become much more complex. Where once the physician was the critical healthcare product decision maker, now the wants/needs of payers, hospitals, and even consumers must also be addressed. Healthcare marketers must understand and respond to complex payer institutional needs for products that help them achieve better health outcomes at lower total cost over a managed population.

Hospitals, too, are trying to improve their competitiveness for patients and revenues in this environment. Accordingly, they are standardizing on those products that best enhance the ECV of their service line offerings. Manufacturers that can best position their company and products to meet the business needs of hospitals stand to lock in some high-volume new relationships.

Even consumers are demanding transparent comparative value and price information—and using it to get more involved in product decision making—as they take on an increasing burden of paying for their healthcare.

The concept of “value proposition” has become much more complex. The Comparative Effectiveness Research (CER) being funded by the current U.S. administration is a clear indicator of a higher order of value proposition that the market is already starting to demand. One significant implication is the broadening of perspective, which the manufacturer must take in defining product value—moving from defining the episodic impact of a therapy to its impact as part of an integrated continuum of care designed to deliver predictive superior health outcomes. For example, if a new product can arrest the progression of degenerative arthritis to avoid or delay joint replacement, such a product has a very strong value proposition in the context of arthritis disease state management.

Manufacturers must also position their products against a much broader and more complex standard of “comparative value.” Why should a new drug be prescribed when a much cheaper generic drug will work as well? Why should we pay to replace a knee for a sedentary 68-year-old man if we can manage his pain with drugs and nonsurgical therapies? Marketers who once only worried about positioning their products versus like competitors now are challenged to do so against nontraditional competitors such as alternative therapies or even “watchful waiting.”

Three Key Areas
For most healthcare product companies, rethinking customers and needs in the context of demand for ECV is uncovering a sobering reality. Fundamental market changes are rapidly making traditional marketing approaches obsolete. The symptoms of declining marketing effectiveness and unsustainable costs have been surfacing across the market for some time. Competing in this market will require a reinvention of marketing. Here are three important changes that are essential to reinvigorate growth.

1. Shifting from a product-driven to market-driven strategic approach. Most healthcare product companies got their start with a breakthrough new product. They brought something new to the market which was their basis for “crashing the party,” so to speak. This embedded in practice a product-driven marketing approach that focused on developing additional product “home runs” targeted to address broad patient populations and supported by aggressive tactical promotion to maximize target physician and patient share of mind.

In turbulent markets such as healthcare, this product-driven approach masks a growing risk of being blind to fundamental changes in the market. Such changes always result when a market is maturing, and competition and the complexity of buying influences are increasing. As a company continues to define itself by its flagship products, it may find that it is increasingly unresponsive to a declining market for those products.

In such dynamic markets, a company has to start with market strategy instead of product strategy—recognizing the fragmentation of the market, rethinking which narrower market segments it will compete for, and how it will differentiate itself to win those customers. Product strategy then needs to be consistent with this more precise definition of target customers and needs. The realities of product development should temper but not dictate market strategy. Market strategy that determines where the company will play and how it will win serves as the basis for making the best decisions regarding new products and which legacy products to obsolete.

This transition from product-driven to market-driven strategy has major implications for marketing decision-making processes and competencies. Sophisticated capabilities must be developed in areas such as portfolio planning, product lifecycle management, market research that can surface non-obvious needs and forecast demand based on reimbursement climate trend analysis, and channel creation and management that can build influential relationships with customers other than physicians.

2. Reinventing Market Research. As we’ve just described, as companies adopt a more strategic, market-driven approach, they will require nontraditional market data and analysis—research that goes far beyond demographics extrapolation to project market size for legacy products. Market Research will be required to provide information that supports decision making about how the company will be different and stronger in the future in terms of the products it makes and the market segments it will own. This calls for a new mandate for Market Research to define a future dissimilar to the past. Answering this mandate will require new processes and capabilities in areas such as:

• Conducting trend analysis, deriving implications for product portfolio decisions, and effectively influencing the right decisions based on data
• Identifying thought leaders and engaging them to capture their insights as to where the market is headed and sharing this information in a usable way
• Accurately forecasting probable demand and market acceptance in a reimbursement climate in which economic and clinical value considerations are being used to redefine care models and the products they will use
• Working consultatively with Marketing as a business partner in making strategic product portfolio decisions based on the right data and conclusions

3. Developing more efficient and effective channels. Savvy marketers in the industry have built robust commercial channels focused on the “physician as customer.” These channels have been so successful they’ve invited increasing regulatory scrutiny and control based on concerns of undue influence on physician care decisions. Reflecting the complexity of “customer” we described above, effective channels now must be built for managed care and hospital customers.

While many companies have developed managed care account teams, it’s only recently that they have begun to acknowledge the fundamental differences of this customer. The successful commercial approach to physicians has been a function of sales efficiency, where a scripted product attribute summary and more calling result in more sales. The managed care sale is more complex and more a function of sales effectiveness. It requires the development of long-term relationships with business executives, based on assessing and understanding complex payer institutional needs for products that help them achieve better health outcomes at lower total cost over a managed population.

Like managed care, hospitals are playing an increasing role in care decisions. In order to generate revenue and preserve operating margins in a climate of shrinking reimbursement, they are developing new care model/service line strategies that are more competitive in a market demanding ECV. To operationalize this strategy, they are working with physicians to standardize on practices and products based on evidence that they help achieve the best ECV outcomes. Similar to managed care, healthcare product companies must create a channel capability to assess and respond to these hospital institutional needs.

A New Level of Competition
Creating and maintaining a competitive edge in this fluid and diverse market requires the complete alignment and integration of robust marketing processes. There are significant opportunities to gain incremental profitable market share hidden in the more visible, threatening clouds of payer resistance. These opportunities can be realized by taking the lead in meeting new value demands. This requires reinventing Marketing, building new capability to develop clearly articulated strategy regarding market spaces to own and differentiated value propositions that can earn and defend those spaces. m

Rita E. Numerof, PhD, is President and Bill Ott, MBA, is a Senior Consultant at Numerof & Associates, Inc. (NAI), a strategic management consulting firm located in St. Louis, Missouri. NAI works with clients to increase revenues, reduce costs, enhance service delivery, and sharpen strategic focus, providing consultation in three broad areas: strategy development and execution, operational excellence, and organizational infrastructure.

For more information, contact NAI at 314-997-1587, info@nai-consulting.com, or visit http://nai-consulting.com