Redefining pharmaceutical CRM
pharmafile | October 24, 2007 | Feature | Research and Development, Sales and Marketing |Â Â CRM, customer relationship management, salesÂ
Fierce generic competition, price containment regulations and poor pipeline productivity are challenges looming over many pharmaceutical companies today. In effect, pressures to improve profit margins and market share are driving pharmaceutical companies to revisit their customer relationship management (CRM) strategies.
CRM is nothing new to the pharmaceutical industry. It has been utilised in one form or another over 20 years, but not always effectively or efficiently. Today, the changing business environment calls for more effective and efficient sales and marketing strategies. As competition grows and new challenges dawn upon the industry, each company must redefine the C, the R and the M in its CRM strategy.
A strategy not a solution
CRM is not a technology solution per se. It is certainly enabled by technology, such as the internet, but at its core, CRM is a strategy. More specifically, it is the strategy used by pharmaceutical companies to maximise the value of their products through better management of their customer relationships. Ultimately, CRM aims at attracting and retaining customers, increasing or at least maintaining market share, while reducing costs attributed to sales, marketing and customer fulfillment. Technology plays a pivotal role in CRM strategies by acting as a vehicle that provides a cost-effective and systematic way to achieve the above objectives.
Such objectives keeping your customers' loyalty and increasing your company's market value seem to be common across many industries. In fact, one could argue that selling a pharmaceutical drug is very much like selling a product in any other market. For example, the main goals of a company that manufactures laptops are indistinguishable from a company that manufactures drugs. First, the company develops a product that consumers either need or want. Then, the company generates an interest in their product through multi-channel marketing. Next, customers are persuaded to purchase that product despite the availability of other comparable and sometimes even less expensive alternatives. The company then has to ensure continuous customer satisfaction throughout the product's lifecycle. With a successful CRM strategy, a company can continually record and learn from its interactions with customers to ensure loyalty.
Is pharma CRM unique?
While CRM for the pharmaceutical industry has the same goals as CRM in most other industries, the ways in which these goals are achieved must reflect the specific requirements of the pharmaceutical development, sales and marketing environments. After all, in many important ways selling a prescription drug is not like selling any other product. Few take as much money or time to develop as pharmaceutical drugs, and retaining customers throughout the lifecycle of a drug is critical to its success, and that of its manufacturer.
Due to the long development cycle of a pharmaceutical drug, if this year's release fails to meet consumers' expectations, there is no hope to recoup losses by releasing a new and improved version of a drug by the next year. Additionally, most consumer products do not have as many stakeholders in the purchasing process as pharmaceutical drugs. Consumers cannot simply approach their pharmacist and request the newest cholesterol medication. They must first see their physician to request or receive a prescription; and even then a payer (such as an insurance, managed care or government organisation) may refuse to cover the cost of a particular drug.
Unfortunately, the cost of branded medications, particularly in the US, can be the most influential factor in the decision whether or not to begin or continue treatment with a particular drug. Furthermore, in many countries such as those in the EU, manufacturers are prevented from advertising to the general public. As such, the fastest growing channel of influence i.e. consumer-directed marketing is not an option to pharmaceutical companies in most markets outside the US and New Zealand.
Lastly, because of the nature of the products being sold to consumers, the pharmaceutical market is much more highly regulated by governmental and industry authorities than many other industries. A successful CRM strategy can address these challenges by effectively and efficiently communicating and building relationships with prescribers.
Redefining the 'C' in CRM
The diverse nature of the pharmaceutical company's customer base contributes to the challenges associated with implementing CRM. In order for CRM to be successful, multiple types of customers must be catered to through various channels with variable effects on sales and business strategies. Pharma companies must ensure CRM activities that target patients, prescribers, dispensers and payers are kept separate in order to reduce conflicts of interest and remain compliant with regulations governing the industry.
Within the pharma industry, 'customer' can mean one or all of a variety of individuals and groups, including:
* Patients and caregivers
* Physicians, nurses and other allied health professionals
* Pharmacists and chemists
* Healthcare institutions and trusts
* Payer organisations
The patient-consumer factor
The relationship between a patient and a physician is always evolving and has changed dramatically in the last few years. The internet has permanently altered the patient-physician relationship because it has enabled patients to become increasingly knowledgeable and informed about their healthcare options. In effect, the internet has reduced the divide between patients and physicians in terms of medical knowledge. Empowered with information, patients become more involved in the healthcare decision-making process.
As a result, pharma companies are becoming increasingly consumer-driven in order to respond to the changing patient-physician relationship. Pharmaceutical marketing budgets, once primarily focused on targeting physicians, now have to strike a balance between physician-facing and consumer-facing campaigns. By facilitating the patient-physician relationship on the patient's side, pharma companies can potentially influence physician's prescribing habits and build brand loyalty among both patients and physicians. Research shows that physicians are more likely than not to prescribe a medication that a patient specifically asks about.
Research conducted by Datamonitor identified two difficulties that pharma companies face when opening up communication channels to their customer base. On the one hand, companies identified those customers at the top tier of the pyramid (i.e. payers, such as HMOs and governmental departments of health) as being the hardest to form a continuous relationship with. This is due to the changing legislative landscape and a disparity between the resources companies were willing to put towards building relationships with payer organisations and the need to consistently meet those customer requests. On the other hand, customers receiving the most resources from pharma are those that are already over-serviced by the industry (i.e. prescribers). Additional competition for the limited time of these key targets has resulted in a salesforce 'arms race' as pharma companies that could afford to do so began to dramatically expand the size of their salesforces to avoid losing a 'share of voice', despite the diminished value of the sales rep.
The November 2006 decision by Pfizer, the world's largest drug company, to cut its US sales force by 20% very likely marks the beginning of the end of the sales representative-centric business model that has contributed greatly to the overburdening of the pharma industry's key targets, namely prescribers. CRM can help pharma companies cope with the change in business strategy by supporting the creation of a smaller, more flexible and reactive salesforce.
At the least, CRM can help companies identify where resources are being wasted, thereby improving targeting and reducing costs per sale. However, it is important to remember that the main goal of CRM is to maintain relationships, not to increase profitability; although effective CRM implementation will ideally have that effect.
ROI: a necessary but not sufficient part of the 'R'
Forecasting return on investment (ROI) on any major investment and CRM is a cost-intensive investment is critical. An ROI evaluation and forecast is necessary in order to gain financial backing and senior management buy-in for CRM initiatives. ROI evolutions allow a pharma company to develop marketing forecasts as part of the CRM implementation. Additionally, they complement traditional marketing measures associated with a CRM evaluation, such as customer satisfaction, retention rate and acquisition costs.
However, industry experience has shown that disappointment in short-term outcomes has gone hand-in-hand with unrealistic expectations about the benefits of CRM. Therefore, it is important to keep the definition of CRM in mind CRM is a strategy not a technology. In other words, CRM is not an out-of-the box software solution that can instantaneously recoup losses due to cutbacks in salesforce and media saturation. CRM is instead a constantly evolving reassessment of the relative value of relationships with target groups and effectiveness of the mediums used to communicate with them. As such, the focus has to be on the value of the relationships supported by CRM and not solely on the ROI achieved an arbitrary number of months from the date of implementation.
'M' means more than before
For the pharma industry particularly, the 'management' aspect of CRM is coming to mean much more than it used to. Companies can no longer afford to think in terms of managing, for instance, a key prescriber's sample delivery for the next three to six months.
Instead, companies need to start building strategies around keeping that prescriber invested in the relationship with the company long-term, throughout the lifecycle of the drug and across a variety of technology-enabled touchpoints. The same is true for companies' relationships with patients. The goal is no longer a filled prescription; but rather a happy customer who will continue to refill prescriptions and resist brand switching.
The greatest demand on pharmaceutical CRM strategy is the ability to cover multiple touchpoints across a diverse customer base. In this respect, the pharma industry is unlike any other, faced with a wide and varied array of customers, each of whom interact to varying degrees and at various levels with the pharma companies. Most importantly, the way in which customers interact with the pharma industry and each other is continuously evolving, which constantly changes the sales and marketing landscape. For instance, according to a recent Datamonitor study, more than half of the physicians surveyed access at least 40% of their online, work-related content from home.
Overcoming barriers
The key barriers, namely cost, business process challenges and senior management buy-ins, are critical to understanding why companies delay CRM initiatives. The key restraining factor is cost or, more accurately, whether the cost of a project can be justified to senior management in terms of generating a tangible ROI. As pharmaceutical companies place more scrutiny on organisational budgets and look for ways to cut costs, CRM may appear as an expensive strategy to undertake.
A successful CRM strategy is approached as a holistic business solution, rather than as a sales, marketing or fulfillment solution. Although the pharmaceutical industry has been using CRM solutions for more than 20 years, the various elements of CRM have developed at different rates and are only now coming together to form a comprehensive CRM strategy.
Taking CRM into the future
The future of CRM in pharma will be driven by a series of key technological innovations and industry demands that have direct relevance to the development of future applications. Pharma companies can exploit these developments in order to gain greater returns from CRM. CRM provides value gains by eliminating costs through a more accurate re-allocation of resources, or increasing sales through a greater tailoring of marketing and sales activities to the customer.
There is a growing movement in pharmaceutical CRM towards an integrated enterprise. As this evolution continues, pharma companies will be likely to consider a broader range of interaction sources and channels.
Last, but not least, redefined CRM strategies for the pharmaceutical industry will be tailored to specific customer groups. As the CRM marketplace continues to evolve, vendor and customer commercial success will partly depend on an accurate understanding of the dynamics of the market and access to the latest, most reliable analysis of changing market conditions and events.
In the future, companies will focus on implementing a CRM system that centres on customers and the business processes, technologies and channels necessary to keep them satisfied with the level of service they are receiving over a lifetime. This means thinking of CRM in terms of the entire customer experience and not simply as a near-term sales or marketing solution.
Markella Kordoyanni is an analyst on Datamonitor's Technology team covering the healthcare and pharmaceutical industries.
For further information, contact: Krishna Rao on 020 7551 9336, e-mail krao@datamonitor.com or visit www.datamonitor.com
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