Pharma marketing: Successful approaches to market segmentation
Rita E. Numerof argues that pharma firms should focus more on health outcomes and less on product or device features
By on Jan 4, 2012Several factors are combining to require successful companies to approach market segmentation more effectively. These factors include market dynamics, shifts in the power of who makes decisions, and the cost-benefit basis for those decisions.
With the ongoing transformation in the global pharmaceutical and medical device industry, new approaches to understanding markets, market niches, and strategic marketing are essential for companies that are focused on creating real competitive advantage. In particular, economic and clinical value (ECV), or cost combined with efficacy, is rising to the forefront in the industry, fueled by the recent changes in healthcare in the US reflected in The Patient Protection and Affordable Care Act.
Pharmaceutical and medical device products have been geared to large target markets, in part reflecting economies of scale, firms’ interest in recouping R&D costs, and few challenges to the blockbuster model. Increasing interest in more personalized medicine combined with pressures to demonstrate better outcomes for targeted patient populations presents companies with a three-fold challenge: Identify unmet clinical needs for more narrow groups, develop products to meet those needs, and focus marketing efforts to drive successful commercialization. Thus, successful companies will need to focus on markets and their various segments as competitive marketplace environments that operate under varying norms.
Market nuances
One reason marketplaces have changed is the trend in decision-making to shift authority away from individual physicians to payers and healthcare administrators. Although this has often led to public criticism of insurance providers, decisions of these payers to curtail or block expensive treatments have become more common as a measure to control the rapid growth in healthcare costs.
So, how do successful companies approach market segmentation? This assumes that they have already recognized the changing environment, implemented new strategic marketing capabilities, and established consensus around the role and responsibility of strategic marketing.
Unfortunately, some companies overlook nuance among markets and submarkets and miss out on opportunities to create competitive advantage. These companies continue to list product features and then seek a fit with an appropriate population. For example, a strategy that includes ‘going global’ by finding countries that match the US in terms of demographics, related morbidity rates, and/or disposable income will overlook opportunities for real product and service innovation.
Similarly, companies that rely on legacy procedures, bureaucratic inertia, or the ‘we have always done it this way’ mentality are doomed to repeat the mistakes of the past. Strategic marketing necessitates taking a fresh look at market segmentation and re-establishing the basis for product development efforts.
Focus on health outcomes
We typically recommend that companies set aside segmentation that has been based on the features of a given product or device. For example, that a device that is 10% smaller or a drug has fewer side effects are important facts to know, but should not be the starting point for a solid strategy.
Successful companies should focus more on the health outcome to be achieved. Then work from that point to identify the portfolio of products that would achieve that outcome, then narrow that list to products they can/should develop.
Tighter focus and more narrowly defined segments are also important for solid market segmentation. This focus is typically achieved only when the company understands its customers, end users, and distribution channels more deeply.
From this deeper understanding, trend analysis and forecasting should be an essential component of market segmentation. Companies need to respond to where an identified market segment is going and what outcomes will be expected, instead of the current set of competing products or devices.
Successful companies typically have to reinvent their internal processes to fit with the new strategic focus and emphasis on strategic marketing. In some cases, that means changes in product development and approval cycles; in other cases, reorganization of business units will be necessary.
Rita E. Numerof is president of Numerof & Associates, Inc.
For more from Rita E. Numerof, see Pharma marketing: Strategic approaches to market segmentation, Pharma marketing and market research and Pharma marketing and comparative effectiveness research.
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