Adopt A Hybrid Business Model For Better Sales – Not A Large Field Force

For aggressive business expansion or to attain greater market access, creating a large sales force has been the thumb rule in the pharma industry, since long. To meet the challenge of changing market dynamics, going for a thorough re-engineering of even a rattling sales and marketing machine, is still considered a risky proposition.

Many studies have captured the common reasons of such hesitations. For example, the McKinsey article titled, ‘Cutting sales costs, not revenues,’ finds that field force being a major growth engine for sales, since long, the thought of overhauling it fills senior executives with dread. Thus, to keep sales flowing, companies will make piecemeal ongoing repairs as long as they can – ‘no matter how patched up or spluttering that engine may be.’

Nevertheless, some compelling business reasons have now prompted several pharma players to accept the ground reality – fast-evolving over the last one and half decades. Many of them have realized that in today’s changing market dynamics, a leaner and smarter sales force (or field force or medical rep, or MR) will fetch the desired results than ‘flabby’ and larger ones.

In this article, I shall not discuss the obvious reasons of downsizing, such as to record profit under trying circumstances, or when per rep productivity keeps declining consistently, or during a change in the promoted product-mix, or a decision to reduce focus on volume intensive-low margin generic brands. But, what I shall discuss is, the reasons for an urgent need of creating a hybrid sales and marketing model, during this changing paradigm.  

It begins with accepting a change in the business environment: 

If the objective of sales force size reduction remains limited to cost-cutting for short-term improvement of the bottom-line, it could be grossly counterproductive, possibly with many unforeseen consequences. Field staff will continue to remain one of the key growth drivers in pharma and biotech business, but not the sole mechanism to increase brand prescriptions. Finding a well-integrated alternative model would begin with acceptance of a significant change in pharma business environment.

Undoubtedly, a perceptible change is noticeable today in pharma stakeholders’ mindset. This change is being further fueled by rapid increases in their usage of various digital platforms and networks. For example, many patients are trying to be reasonably informed of even various disease treatment options and the cost of each, much before they visit a doctor’s clinic or a hospital. The nature and quality of their interaction with health care providers, including doctors, are also changing. Patient-experience during a treatment process, and the value offerings that come with a pharma brand, will have increasing relevance to business performance – more than even before. Anything going against the patient-interest will possibly be shared with all, mostly in social media, which has a potential to precipitate serious consequences.

As this trend keeps going north, pharma market dynamics would change, commensurately, making pharma’s key business success factors significantly different with medical reps no longer being the sole prescription generators. A new hybrid – digitally empowered sales and marketing model is, therefore, the need of the hour. In this new ball game, as a growth driver, the role and size of the field staff will be quite different, where the senior management warrants a new vision for pharma business.

The situation warrants a new vision for pharma business:

In this changing situation, to generate more prescriptions from doctors by deploying a large field force, could prove akin to swimming against a strong tide. Whereas for achieving business success at this time, pharma players would require creating a well-oiled augmented value delivery system for enhanced customer experience, primarily for patients during their entire treatment process.

While creating this sleek and effective system, it would be necessary to cut unproductive or less productive flab in the frontline, with great precision. However, this process must be dovetailed with implementation of other communication and customer engagement platforms, mostly digital, to achieve the set objectives.

The new strategy being augmented value delivery to customers, the process would entail, besides innovative and modern tools, a different genre of field staff members, possessing some critical skill-sets. The goal of need-based field force downsizing complemented by new synchronous measures for operational synergy, must not only be clear to senior management, but also be explained to all concerned.

What would ‘augmented value delivery’ to customers lead to?

Another McKinsey article titled, ‘The few, the proud, the super-productive - how a smart field force can better drive sales,’ articulated: ‘Indeed, our perspective on the past five years is that leaders that used field reductions to actually rethink the commercial model – rather than taking a “blunt instrument” approach to cuts – are reaping rewards.’

As the current pharma sales and marketing models are undergoing a metamorphosis, globally – this transition phase throws several tough challenges – from defining new roles and capabilities for field staff to creative use of various interactive communication platforms.  As the McKinsey article underscores: ‘new capabilities need to be added even as we continue to use the tried and true current model, albeit with less success.  It further adds: ‘The inconvenient truth: we will have to sweat the current model and build the capabilities for the future in parallel. Those hoping for a ‘flip the switch’ transition, are likely to be disappointed.” With his, I reckon, will emerge a robust ‘augmented value delivery system’ for the business leading to:

  • Higher profitable sales through satisfied customers
  • Increase in sales per employee ratio
  • Containing/reducing sales and marketing spend as a percentage of total revenue.

Several initiatives to translate this concept into reality is now palpable, globally. A few examples may suffice to drive home this point.

Downsizing field force complemented by new measures for synergy pays:

Here also there are several research studies to bring home this point. One such is the paper titled, ‘Big pharma proves that oncology pays as workforces shrink,’ published in ’Vantage’ of Evaluate on July 23, 2018. The researchers touched upon this area while discussing the workforce productivity for Bristol-Myers Squibb (BMS). It found that a substantial shrinking of its workforce, alongside some other important measures, has given BMS a big boost in sales, with a dramatic impact on its overall performance. As the study indicated, even investors will find this fact hard to ignore. Let me hasten to add that ‘downsizing workforce’ mainly involved sales and R&D staff in this analysis.

The article further highlighted, during the period of 2007 to 20017, the management teams of some other pharma majors, as well, such as GlaxoSmithKline), AstraZeneca and Eli Lilly, either reduced their workforce significantly or kept flat. According to this study the changes in the workforce of these 4 companies are as follows:

Workforce Bristol-Myers Squibb GlaxoSmithKline AstraZeneca Eli Lilly
2007 42,000 103,483 67,400 40,600
2017 23,700 98,462 61,100 40,655

However, even in the year 10, all the four companies - Bristol-Myers SquibbGlaxoSmithKlineAstraZeneca and Eli Lilly posted not just sales growth, bit all-round performance improvement, as may be seen by clicking on each.

Having deliberated on the impact of downsizing field force, let me now focus on powerful complementary measures for augmented value delivery to customers.

Today’s reality for pharma business in India can’t be wished away:

The EYstudy titled, ‘Reinventing pharma sales and marketing through digital in India,’ captures the current situation quite well. I am quoting below just a few of those:

  • Today’s tech-savvy physicians are relying far less on reps and more on digital devices for healthcare information. Only 11 percent of healthcare professionals in India prefer in-person visits from a company representative, according to a 2016 study by Health Link Dimensions. Likewise, many patients arming themselves with medical knowledge available online, gradually relying less on only physicians’ decision-making. Thus, the rules of engagement need to be redefined.
  • With a shift in focus toward more complex or specialty medicines, pharma companies continue to add new layers of MRs to increase geographic coverage. The increasing number of MRs and the number of brands under each of them have drastically reduced the time and quality of sales pitches – from being scientific to mere brand name reminders.
  • Physicians’ place at the center of the pharma ecosystem as almost the sole-decision makers, is very likely to become a thing of the past with the emergence of a broad array of customers with a new mindset.
  • New tech-based entrants providing information platforms, analytics, e-consultation services and access to medicine online are challenging pharma’s value creation story.

Enhancing customer experience needs a hybrid business model:

The new market dynamics, demands cutting-edge brand-value augmentation measures, enhancing customer-experience with some tangible benefits. These telltale signs can only be ignored at one’s own peril. Let me also illustrate this point with the findings from another research study.

According to 2015 Oncology Customer Experience Tracker of ZS, “Oncology companies can add USD 50 – USD 75 million in incremental sales for every USD 1 billion in current sales by delivering a better customer experience.”

This vindicates that creating a better customer experience should be the key goal of pharma’s augmented value delivery system – going much beyond the traditional communication of key product features and its clinical benefits. This new concept is fast emerging as the fulcrum – not just for creating a strong brand pull, but also enhancing the public image of the organization. And can be achieved with a right blend of:

  • ‘Must do’ mindset of top management,
  • Expertise in well-targeted – multi-channel content making,
  • Expertise on data-science and analytics to churn out the right information from a large pool of data,
  • Wherewithal for effectively using the right digital platforms, either directly to customers or through a leaner and digitally-skilled sales force having a ‘can do’ attitude, as the situation will demand.

Some companies are testing the water:

Conventional ways to improve Sales Force Effectiveness (SFE), especially with soft skills, besides, of course product knowledge, is not new to the pharma players. What they need to do is change the primary focus of increasing sales through delivering mostly the key intrinsic value of the brand, to increase profitable sales by delivering augmented brand value, leading to enhanced customer satisfaction.

This is a major shift from the traditional paradigm and would surely entail application of digital technology and data science. As I wrote before, many companies have started adopting this approach – mostly with one baby step at a time, right or wrong.

Observation and findings of an India specific study: 

Noting that ‘Indian pharma’s journey to a digital world has just begun,’ the same EYstudy, as quoted above, reported the following findings, among a few others:

  • Lack of a clear digital strategy/value proposition and change management are the two key barriers to embracing digital.
  • Whatever was being done manually earlier is now being done digitally. But we are not adding additional value. On the other hand, companies globally are now cautiously moving toward being digital practitioners.
  • Indian pharma majors will need to grow into integrated health care providers – offering both products and services, forging patient-centric partnerships and demonstrating value to a broad array of customer groups.

The good news is, some of the key observations of the study also include the following:

  • Some are using digital technology to capture untapped and unstructured data, to make their sales and marketing decision making process more agile and robust.
  • Powerful apps with dynamic, meaningful content and the right value proposition are gaining popularity.
  • Several players, while staying within the realms of regulatory boundaries, are enabling patients to actively manage their care. 

Conclusion:

As we look around, many drug companies, especially in India, continue to remain focused on the age-old transactional sales and marketing models, delivering the intrinsic brand values, irrespective of the changing pharma market dynamics, especially disregarding what today’s customers in the knowledge economy look for. Traditional training and incentivizing a large, and often flabby, sales force on product and rupee value territory-sales against the target, are the general ways to achieve these. The focus on achieving the internal sales targets, regardless of the processes being contentious or not.

Modern time warrants a different conversation altogether – creation of a unique customer experience – with augmented value delivery systems. Achieving this goal would entail astute applications of modern technology, complementing the reach and impact of the right-sized field staff efforts, and leading to improvement in ‘sales per employee ratio.’

Thus, I reckon, higher sales or the need for an expanded market access, may not necessarily entail a larger field force, but a new breed of leaner and especially skilled MR to deliver the needs of the changing healthcare landscape.

By: Tapan J. Ray     

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Higher The Healthcare Spend, Better The Healthcare Performance: A Myth?

It is generally believed, higher the per-capita expenditure of healthcare, better is the overall ‘healthcare performance’ of a nation.

However, this myth has recently been busted by a new study, the take-home message of which would be quite relevant for India too. It flags a very important point, just as too low per-capita expenditure on healthcare fails to deliver an optimal healthcare performance to the target population, higher health expenditure, on the other hand, does not have any linear relationship with commensurately better healthcare performance either.

The question, therefore, comes up: What then would be the optimal per-capita spending on healthcare to offer quality healthcare performance in a country like India?

The study:

According to this recent Commonwealth Fund report , per-capita expenditures on healthcare in 2011 of eleven wealthy nations were as follows:

Per-Capita Healthcare Spend in 2011

Rank Country US $
1. United States 8,508
2. Norway 5,669
3. Switzerland 5,643
4. Netherlands 5,099
5. Canada 4,522
6. Germany 4,495
7. France 4,111
8. Sweden 3,925
9. Australia 3,800
10. United Kingdom 3,405
11. New Zealand 3,182

Against the above spend, the ‘Healthcare Performance’ rankings of the same 11 nations were as under, showing no linear relationship between higher per-capita healthcare expenditure and better healthcare performance:

Performance of Healthcare System

Rank Country
1. United Kingdom
2. Switzerland
3. Sweden
4. Australia
5. Germany
6. Netherlands
7. New Zealand
8. Norway
9. France
10. Canada
11. United States

The basis of ranking:

Interestingly, though the healthcare expenditure of the United States of America at 17.4 percent of Gross Domestic Product (GDP) is the highest in the world, according to this report, America ranks worst among all these nations, namely, France, Australia, Germany, Canada, Sweden, New Zealand, Norway, the Netherlands, Switzerland and the United Kingdom.

The ranking was made based various factors, which include quality of care, access to doctors and equity throughout the country.

The U.K. ranked best, with Switzerland following a close second, though their respective per-capita expenditures on healthcare were much less than the United States.

Holds good in BRIC perspective too:

Coming to the BRIC nations’ perspective, though India’s per-capita healthcare spend has been the lowest among these 4 countries, the following quick example would clearly establish that here also the healthcare performance does not have any linear relationship with the per-capita healthcare spend:

Per capita Healthcare expenditure in 2011: Country Comparison

Country US $ World Rank Physician/1000 people Hospital/1000 people Life expectancy at birth (years)
Brazil 1120.56   41 1.76 2.3 73.4
Russia 806.7   55 4.31 9.6 69.0
India 59.1 152 0.65 0.9 67.08
China 278.02   99 1.82 3.8 73.5

(Source: WHO data)

Taking the United States as an example:

To illustrate the point further, let me take the US details as an example, as it incurs the highest per-capita expenditure on healthcare. When that is the fact, does high healthcare spending of the US help the patients commensurately? 

Going by these reports, it does not appear so, as:

  • The Commonwealth Fund report also states, “Moreover, US patients were the most likely to find it very difficult to get after-hours care without going to an emergency room – 40 percent said it was very difficult, compared with only 15 percent in the Netherlands and Germany, the lowest rates of any country on this measure.”
  • The 2008 Commonwealth Fund survey, of 7,500 chronically ill patients in Australia, Canada, France, Germany, the Netherlands, New Zealand, the UK and the USA, reportedly also found that: “More than half (54 percent) of the US patients did not get recommended care, fill prescriptions, or see a doctor when sick because of costs, compared to 7 percent – 36 percent in other countries. About a third of the US patients – more than in any other country – experienced medical errors or poorly-coordinated care, while 41 percent spent more than US$ 1,000 in the past year on out-of-pocket medical costs, compared with 4 percent in the UK and 8 percent in the Netherlands.”

The study also highlighted the following for the United States with the highest health expenditure:

  • Lesser number of doctors and hospital beds among developed nations:

The US has fewer physicians per 100,000 populations than any of the other countries apart from Japan, and the fewest doctor consultations (3.9 per capita) than any except Sweden. Relative to the other countries in the study, the US also had few hospital beds, short lengths of stay for acute care and few hospital discharges per 1,000 populations.

  • Highest rates of potentially preventable deaths from asthma and amputations due to diabetes:

While the US performs well on breast and colorectal cancer survival rates, it has among the highest rates of potentially preventable deaths from asthma and amputations due to diabetes, and rates that are no better than average for in-hospital deaths from heart attack and stroke.

  • Individual payers negotiate prices with health care providers:

In the US, individual payers negotiate prices with health care providers, a system that leads to complexity – and varying prices for the same goods and services, says the study.

Where is the high healthcare spending of US going?

High health costs in the United States are mostly due to higher prices driven by free-market economy and not quality of care, says the study. Some of the key characteristics of the US healthcare space in the areas under discussion are as follows:

High and totally decontrolled drug prices:

The drug prices are totally decontrolled in the US, unlike most other developed nations, where price negotiations for reimbursed drugs are the common norms.

The above study highlights that US prices for the 30 most commonly-used branded prescription drugs are more than double the prices paid in Australia, France, the Netherlands, New Zealand and the UK, and they are a third higher than in Canada and Germany. In contrast, prices of generic drugs are lower in the US than in any of the other 12 nations due to very high competition. This reinforces the point that any delay in the entry of generics after patent expiry would impact the patients and the payor very adversely

Expensive hospital stays:

US hospital stays are far more expensive than in other countries, at more than US$18,000 per discharge compared with about US$13,000 in Canada and under US$10,000 in Sweden, Australia, New Zealand, France and Germany.

Conclusion:

In 1999, according to a WHO Study, per capita healthcare expenditure in India was just US$ 18.2. The figure rose to US$ 28.7 in year 2004 and US $ 59.1 in 2011, which reflects a double digit Compounded Annual Growth Rate (CAGR) in per capita healthcare expenditure of the country from the 2004 study to 2011. The absolute numbers may be far from adequate; nevertheless, the trend is ascending. This needs to be accelerated, possibly by the new health minister with the prime minister’s direct help and intervention.

There is a lot to learn from the US healthcare model too, especially from its pitfalls and regulatory structure, as deliberated above.

Finally, taking a cue from all these, India should decide at what per-capita spend, with all necessary regulatory measures being firmly in place, the country would be able to ensure quality ‘access’ to healthcare for all its citizens.

Mere comparison of per-capita healthcare spend of each country, I reckon, may not mean much now. India needs to ‘reinvent the wheel’ in this area, as it were, to arrive at its own health expenditure model for quality healthcare service delivery to all in the country. This is more important than ever before, as higher healthcare spends do not necessarily mean commensurately better healthcare performance.

By: Tapan J. Ray 

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.