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Brian D. Smith explains why solid value propositions are essential for survival in todays pharma market

If youre following my series of articles for eyeforpharma, you will know that Im researching the evolution of the pharmaceutical industry.

And I dont mean evolution in the usual laymans sense of gradual change, but in the universal algorithm sense used by evolutionary scientists.

This explanation of how social/technological systems develop by variation, selection, and replication offers, I think, the best way to understand where our industry is going.

In The future of pharma, I introduced the idea of organizational capabilities as being analogous to the DNA of the organization and making evolution possible.

In this posting, Id like to explore one particular capability that, my research tells me, is going to be necessaryif not sufficientfor survival in the pharma market of the future: the capability to design and deliver value propositions.

Mistaken identity

Now, Ive been in the industry enough decades to know that, for many pharmaceutical executives, this will seem old hat.

Everyone knows what a pharmaceutical value proposition is, dont they?

And the concept is built into any serious launch plan, isnt it?

Well, no they dont and no it isnt, as Ill attempt to explain before I suggest what good firms will need to learn to design and deliver value propositions.

In many pharma companies, value propositions suffer from a case of mistaken identity.

They are confused (usually by the marketers) with a strap line or slogan in marketing communications. Alternatively, they are confused (usually by the scientists and medics) with the target product profile.

Both characterizations of the value proposition are understandable, but wrong.

The product profile is surely the core of the value proposition, just as surely as the slogan or strap line packages it for consumption by the customers. But neither really captures the full nature of the value proposition.

A value proposition is the complete offer made to, and as seen by, the customer, including all its costs, benefits, experiences, and risks.

This is easy to see in, for example, an iPod, a BMW, or a package holiday. But it applies equally well to a new drug.

It therefore encompasses everything from the persona of the rep to the clinical evidence for its claims, from its endorsement by KOLs to its approval by payers, and from its ease of compliance to the way it fits into the patient pathway.

Out of the comfort zone

And theres the rub.

Pharma companies are very comfortable with some components of the value proposition, especially the clinical and selling ones, but less so with others, such as the experiential and cost-in-use aspects of the product.

And pharma companies, like people, have a tendency to focus on what they are comfortable with and neglect what they perceive to be out of their comfort zone.

That global pharma companies, stuffed with hyper-educated professionals, fall down on value propositions is a big claim for me to make, so let me back it up with two industry examples.

In October of 2007, only a year or so after launch, Pfizer had to write off $3 billion of investment and withdraw its inhalable insulin, Exubera, because it hadnt sold.

Simply put, this great piece of technology flopped because the benefits didnt outweigh the costs.

A second, more positive example is the way in which Lipitor and Crestor have, to a surprising degree, held off generic simvastatin.

In simple terms, this was largely due to the way the products, with their various claims, costs, and reputation, were positioned as valuable to certain patients, thus side-stepping the attempts of payers to treat the statin market as one huge and homogeneous group of customers.

The lesson in this pair of contrasting examples is that markets are not so much price-sensitive as value-sensitive and so, in a world where generics will only get cheaper, the capability to design and deliver a value proposition will be essential to any company that is not be the lowest cost supplier.

It also suggests that even the best of us arent perfect in this respect.

Insight, integration, and cross-functionality

So how might we develop this particular piece of DNA?

Well, three specific capability genes seem to be expressing themselves here.

The first is that for generating true customer insight, which is much more than just market research.

The second is that for crafting an integrated offer, in which price, product, and the customer experience are integrated into a complete, coherent, and consistent encounter with the company.

This requires a third enabling gene that allows firms to work cross-functionally rather than in the functional silos that often destroy value and that customers hate.

All easier said than done, of course, but it is the difficulty of developing new capabilities that makes them so valuable and, like an old dog with new tricks, so remarkable.

Dr. Brian D. Smith is an author, academic, and advisor in competitive strategy in medical markets. He is editor of the Journal of Medical Marketing, a research fellow in the marketing and strategy unit at the Open University Business School, and runs specialist strategy consultancy Pragmedic.

For Mal Barnards take on value propositions, see Mals Musings: Is Your Value Proposition Unique?.

For more pieces from Brian D Smiths future of pharma series, see The future of pharma: managing complex markets and The future of pharma: When it comes to strategy, one size does not fit all.