Almost a year ago, an article in the Wall Street Journal described Apple’s new move to finance consumer’s purchase of their new iPhone. Apple’s move may seem minor, but it is a tectonic shift and one that the pharmaceutical products industry might learn from.
After a quick visit to the Apple website to clarify what the “iPhone Upgrade Program” was all about, it became clear that the new program brings Apple closer to its iPhone end user. Under the Upgrade Program, consumers receive a new unlocked iPhone from Apple once a year and receive support and product protection with AppleCare+—all for a fixed monthly price.
The key element of this program is the unlocked nature of the iPhones, which allows consumers to purchase their cell service from a carrier of their choosing on an annual basis. This enables Apple to move farther away from its current carrier (subsidized) distribution system to a more phone-based distribution system. No longer will the question be “when can I upgrade” rather it will be “who do I use as a carrier.” The consumer will likely choose the phone first and the decision on carrier service becomes relegated to commodity status.
In essence, Apple is redefining its phone distribution system and getting closer to the end user, which puts the iPhone in the optimal place in the consumer’s mind—as the primary transaction. What if the biopharmaceutical industry made a similar move and became the market driver.
How Pharma Can Become the Market Driver
The funny thing is the branded industry is already the market driver. Biopharma marketers push the product out through the trade distribution system through a myriad of incentives. Then they deploy marketing programs to give providers detail on why, how, and when to prescribe their product—pulling it off pharmacy shelves. Unfortunately, with all of today’s access challenges, I believe Kotler’s fundamental marketing mix (Product, Price, Promotion, and Placement) is being overlooked. This is not really the fault of the biopharma marketer; it is a function of the management and structure of biopharma companies in general.
However, let’s put aside corporate structures and explore a world in which it is possible to create a new distribution system for pharmaceuticals. Apple’s move can teach us in the biopharma industry something we may have lost. Brands have a lot of power! If you establish a strong brand, the all-powerful consumer loyalty still exists.
The major hurdle for developing brand loyalty in the biopharma industry has always been the gatekeepers. In the pre-digital world, providers had enormous control over the medicinal determination, so marketers emphasized the promotion to the providers. Then, as the environment changed providers began to cede some of that control to other players. The playing field got more complex, it was no longer enough to ensure stocking in the local pharmacy and generating prescriptions—now marketers essentially had to pay for consumers to have access to their products. First, it was the onset of generic substitution, then it was formulary inclusion, and now its prior authorization. The cost of all this “management” is breathtaking.
As digital tools have become more advanced they allow brands to develop relationships with the proper stakeholders much easier. Obviously many marketers are already looking at each patient’s journey and determining opportunities to communicate with them at various points along that journey. However, what if the industry used the new digital healthcare environment to alter its traditional distribution model? Similar to how Apple is using its marketing strength to bypass the traditional distribution system to create more direct distribution links.
Altering Pharma’s Distribution Model
Creating direct distribution links does not just mean delivering directly to patients as Pfizer did with Viagra, but it could also mean direct delivery to local pharmacies, direct from the providers EHR, direct to healthcare networks, etc. If someone ran a financial analysis on moving from the traditional distribution model to a direct model there would likely be substantial savings. Those savings would not only be generated by removing markups and other wonderful price and profit killers, such as wholesaler service contracts, but also from the efficiency of the system. Imagine if you could say my product costs X and have that price be the same across the United States.
Many could say that changing the distribution model is not within their expertise. My argument to them is that financing is not the expertise of Apple yet they found a financial partner who could help manage that part of the program. In distribution, the amount of logistics companies who would be willing to step in and assist is daunting. From the postal service to FedEx to facilitators such as Amazon, it is not impossible to see an environment where the old system could be revamped into a “just in time” system reducing the markups and excess expense.
In the interests of the patient and societal cost, the more direct the biopharma company can make their product distribution the better. The traditional wholesaler-retailer distribution system is cumbersome and costly. Come on, if Jeff Bezos believes he can deliver products from his massively successful Amazon to anyone using drones, biopharma marketers should be able to find a way to get their product to the end user faster and less expensively than they do today.