Value based KAM and B2B selling – are they possible in pharma?

Stronger and more concentrated buyers, intense competition and genericization of products, price pressure and shrinking margins – this may be a new experience for pharma, but other industries have been there before. And have found solutions. Could some of these solutions work for pharma as well?

A game changer in other industries has been the introduction of value based selling approaches, i.e. partnering with the customer in a business to business relationship focusing on creating tangible win-wins through jointly designed programs that include mutual investments, shared risks, and shared benefits.

Leaders in their industries have been able to reap substantial benefits from this value-oriented approach, including:

• Sustained or even increased prices
• Accelerated product adoption following launch
• Increased share of wallet with top customers
• Significant growth in revenues and profits
• Increased operating margins

Early evidence – such as the Partnerships for Healthcare Value (PHV) that some pharma companies have started to engage in with payers and provider networks - indicates that pharmaceutical manufacturers can garner many of these same benefits by switching to a value-based KAM model from the prevalent old-style model that emphasizes the hallmarks of account-based selling but lacks the crucial value orientation.

Challenges to Overcome

A value-based version of KAM has consequences. In other industries it has fundamentally changed how companies are structured and function.

Take IBM, for example. Over the last 20 years, IBM has transformed itself from a hardware and software manufacturer to a de facto consulting business (ironically, it had been a service business before, but decided that it would be better off selling only computer products rather than total solutions). Today, IBM has far fewer sales representatives, and they do very different things—and have vastly different skills—than IBM representatives of the past.

The pharmaceutical industry may someday look very different as well. This is not an easy path to follow, especially for an industry as risk-averse and slow to change as pharmaceuticals.

Some pharmaceutical executives believe such a transition is worthwhile, perhaps the only way to go. Consider that companies that have tried this value-based approach have increased sales growth as much as 50% and have achieved ROIs of 500% on their value-based programs. Reason enough for others to strive to become “fast followers.”

But can this really be done on a large scale in the pharmaceutical industry? In a market in which relationships between payers, health care providers and pharmaceutical companies are at best distant and frequently adversarial, it’s fair for a pharmaceutical executive to ask, “How can I find ‘on the other side’ a partner who is willing to work with us on joint solutions and share the risks as well as the benefits? And even if we manage to create win-win partnerships, won’t authorities and the public frown upon such ‘cozy’ relationships?”

Reasons to be optimistic

The experiences of the first pharmaceutical companies that have ventured into this space show that while such concerns are understandable, they can be resolved to the ultimate benefit of both parties.

Key customers in the United States have responded like this CEO from a major hospital group we spoke with: “We’re very open to working together as partners. No pharmaceutical company had ever approached us this way—what took them so long? The old way of ‘we know how to do everything’ is gone. We are looking for things like this.”

In the UK, typically more a “pharma-skeptical” market, the Department of Health recently endorsed and encouraged “joint working” between the NHS and the pharmaceutical industry as “a realistic option for the delivery of high-quality health care.”

These recent experiences with a value-based style of KAM have been eye-opening. Perhaps most telling, though, is what one key account manager told us: “I used to get one meeting per quarter with the pharmacy director, and never [met] with senior leadership. But since we started this, I’ve had 12 meetings in two months with senior players across this account. They want this solution. We are working with their people now to make it happen. We even have a seat at the table when they have their annual planning meeting.”

This reflects a relationship for the KAM that is a far cry from the annual dog-and-pony show presentation and haggling about rebates that characterized his work before his company introduced a value-based model.

Initial skepticism has been replaced first by pleasant surprise and then optimistic expectations about how Partnerships for Healthcare Value resonate with key customers, are supported by authorities, and improve business results. The desire is strong to approach more customers in this way.