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Increasing salesforce effectiveness

Published on 11/05/05 at 04:50pm

Pfizer will cut costs worth $4 billion over the next three years in an attempt to return to double-digit earnings growth, but its salesforce has escaped a predicted cull.

The company's chief executive Hank McKinnell admitted that 2005 will be a 'transition year' in which earnings per share would fall below Wall Street forecasts as Pfizer works to meet shareholder expectations.

Many pharmaceutical industry observers had expected Pfizer to announce large-scale cutbacks to its global salesforce, especially in the US, a vital part of the business but one in which costs continue to grow.

But Pfizer has instead found cost savings across its business, from streamlining procurement, administration and manufacturing as well as re-organising its salesforce and squeezing greater efficiency from its R&D operations.

Karen Katen, head of the human medicines business said Pfizer's US field force had been recognised as the industry's best for the last 10 years, but now needed to be redesigned around changing market dynamics, including diminishing sales rep access to doctors.

"We are reorganising our sales regions around states to better align with our increasingly important Medicare and Medicaid customers," she says, but left the company's long-term plans for the size of the field force open to interpretation.

"We intend that the field force will remain at a scale that is consistent with meeting current customer needs, and with the capacity required to support the launches of the 20 products that we expect to file in the 2001-2006 period."

Pfizer hopes to show a greater respect for doctors' time by reducing its teams of reps to only two to three per team, though the move will also allow the pharma company to spend less time coordinating its vast salesforce. Pfizer say that another key benefit of the changes will be that reps will be able to spend an extra 10 to 15 days per year in the field.

The reorganisation of its US sales regions has echoes of changes the company made to its UK sales team last year when it restructured them to correspond with primary care boundaries.

However, in July 2004 the company said the UK change called for a 10% increase in its sales team, while the effects of the US move was a lot less certain.

Pfizer is also looking to better align its resources across all therapeutic areas to provide a single patient-centric view across the 'scientific and marketing continuum'.

"This will create an enhanced focus on all of our efforts from discovery through commercialisation," Katen says.

The $4 billion savings it wants to make by 2008 represents around 12% of Pfizer's current cost base. The company says this new efficiency drive will help it return to double-digit earnings growth as early as 2006, with an even stronger 2007 forecast.

Pfizer's business is coming under pressure from a number of sources, including patent expiries on brands worth $14 billion. Further concerns centre on the future of its Cox-II franchise and continuing pricing pressures and market acceptance of new products.

Growth at Boehringer Ingelheim

But the industry is not uniform, and individual companies clearly base their salesforce resourcing decisions on how they see their business developing over the next few years.  

Boehringer Ingelheim is a case in point, providing an interesting contrast to Pfizer. The company increased its total headcount for the fifth consecutive year in 2004, with an increase of nearly 4% to over 35,500. Over the five years the independent, family-owned company has increased its personnel capacity worldwide by 8,200, or 30%.

Among those increases, sales and marketing new hires were even more prevalent and the German company's UK operations has benefited more than most.

UK sales and marketing positions increased by 14% to 422, considerably ahead of Boehringer's average European increase of 6% to 4,391. Across its worldwide locations more than 900 such positions were added in 2004, an increase of more than 7%.

Professor Marbod Muff, head of corporate board divisions finance and human resources at Boehringer Ingelheim, says the headcount increases reflect strong sales growth and said they were necessary for the company's future plans. But Boehringer's experience as a privately-owned, medium-sized company is quite different to newly merged goliaths such as Pfizer and Sanofi-Aventis where shareholder demands and merger synergies make cost-cutting a more likely scenario.

Watching Pfizer

In March, GSK's chief executive Jean-Pierre Garnier said he believed Pfizer might lay off thousands from its salesforces, and indicated that this would trigger similar moves in his own company and across the industry.

With more than 9,000 pharmaceutical sales representatives in Europe, GSK has one of the largest salesforces in the region and says its salesforce has always ranked high on surveys with healthcare professionals.

Acknowledging the importance of doctors' time, GSK last year initiated a worldwide salesforce excellence programme with the aim of improving customer satisfaction with its sales people. The initiative, which looks at the 'when' the 'why' and the 'how' for GSK products, aims to strengthen sales representatives' product knowledge and teach them to deliver patient-specific treatment options more effectively.

Based on research showing that sales visits are more effective if reps talk to doctors about types of patients and support their messages with visual aids that illustrate clinical results, the company introduced a single global sales call model in 2004. This focuses on patient treatment with a dialogue about 'when' a GSK medicine is appropriate, 'why' it is effective and 'how' to administer it safely.

By the end of last year, all field people in the company's key markets had been trained in the new approach, which GSK hopes will help build long-term, trusting customer relationships.

Improving efficiency with job cuts and office closures

Key markets and brands are central at the second biggest UK-based pharma company AstraZeneca, which has also been investing in improving the effectiveness and efficiency of its sales organisations. The company says its efforts have resulted in improving the number and quality of interactions with key target audiences across its portfolio of key brands.

A number of companies are, like Pfizer, focusing on their spending on sales promotion in the largest pharmaceutical market in the world, the US.

Lilly closed all its US district and regional sales offices in 2004 moving their work to home-based offices. Its US salesforce has also been reorganised to "create an organisation that better meets customer needs and maximises sales potential" and it plans to cut sales and marketing support roles. This combined with other reorganisations in research and manufacturing saw job cuts of nearly 1,400 positions globally and 2004 was the first time this decade that Lilly's overall number of employees made an annual drop.

UK sales manoeuvres and a rep-less field force

There are between 10-12,000 field-based representatives in the UK, around 30% of whom are outsourced, according to specialist sales organisation In2Focus. In the UK all eyes are on a bold move made by one Japanese pharmaceutical company.

Last May Takeda made the most radical field force reorganisation yet seen when it got rid of its entire UK salesforce, replacing them with regional account directors, hired via contract sales organisation Ashfield. The company hopes its new breed of senior account managers will build genuine partnerships with the NHS and improve its return on investment.

So it seems unwise - or at least premature -  to herald the death of the rep just yet. Takeda's move is being closely watched, but it is the similarly-placed medium-sized companies most likely to follow suit if the new approach proves a success.

But for pharma giant companies with scores of products across a huge range of therapy areas, the large salesforce still makes sense. With so much depending on it, companies will not abandon the current model overnight, but are genuinely looking to adapt to the changing market place and customer demands. Making the most of the salesforce has never been so important.

 

Salesforces in figures

  •  *Around $7 billion is spent on promotional activity in Europe annually, of which around 80% is spent on salesforces.
  •  *The major European markets - UK, France and Germany - are essentially stagnant in terms of salesforce activity, but Spain and Italy are growing.
  • **There are between 10-12,000 field-based representatives in the UK - around 30% of whom are outsourced.
  • Many major companies are making substantial reductions in salesforce numbers, particularly in the US - but appear not to  be considering abandoning the model completely, as seen in the UK with Takeda. AstraZeneca plans to reduce its US salesforce numbers from 6,000 to 5,500 reps, or just over 8%.

*Figures from Cegedim   

**Estimate from In2Focus

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