David Watson | Article
Channel strategy in the marketing planning mix
Channel Strategy could be a significant ‘stone unturned’ in the battle to win customers and patients, says David Watson.
We all hope to anticipate and act on the next big thing in pharmaceutical marketing, whatever that might be: value-based pricing, personalised medicine, real life data. It could be something we’re not even currently aware of, or an area we peripherally understand but never made a connection with – such as Channel Strategy. A core focus in FMCG and DTC, it hasn’t yet landed in pharma marketers’ focus in the way that, for example, Market Access has. Yet if managed well, it could be of great value to pharma brands.
In segments such as OTC or FMCG, Channel Strategy is a core part of the overall marketing plan. The way consumers access products, the services/promotions deployed, the relationship with distributors and retailers, and the impact of these on P&L, are core considerations. However Channel Strategy has often been overlooked in pharma or considered simply as ‘logistics’.
At a time when the need to differentiate products beyond purely clinical arguments is greater than ever, the risks of failure are high, and no stone can be left unturned. Channel Strategy is a means by which some key elements of the overall marketing strategy can be properly deployed.
What do we mean by Channel?
In pharma we often use the word broadly, to signify the routes to communicate with customers. A more accurate definition includes the management of three key components:
- The logistics to deliver products and services to the customer; including the channels through which the company sells and delivers products
- The design of value-added services that augment the product. (patient compliance, diagnostics)
- Information flow through the channel, both inwards and outwards (how you gather sales data, but also the route through which patient-related data might be gathered)
A Channel Strategy is a systematic, well thought-through and integrated approach to these elements, considering channel components as a whole, and thinking through how they link to achieve an end goal. In many companies, individual teams plan and organise channel activities but with a tactical focus, in isolation of overall brand goals and other tactics.
To appreciate the need for systematic Channel Strategies, let’s consider an example: a new product in a rare disease may have only a few hundred patients in each major market in Europe. To gain reimbursement there is a requirement to provide accurate patient numbers to national agencies. The product is only used by experts, and has a risk management plan, so supply needs to be limited to key centres/hospitals. Patient persistence may be a key issue so a patient support program may be needed. Finally, there is a significant price difference across European countries which may result in product diversion and shortages.
There are three distinct goals here: the need to control supply; to help ensure patients stay on treatment; and to gather data. Each of the channel components therefore is relevant. The different goals might be achieved through working with a single specialty service provider rather than separate sales channels and suppliers.
There is always an efficiency goal too: with tighter marketing budgets, business or marketing teams need to understand the entire investment picture impacting their product: supply costs, investment in services, the costs of purchasing data. The lack of a coordinated approach can lead to greater overall effort, higher costs, and less value.
Designing a Channel Strategy should be a natural extension of existing areas of focus for marketers (e.g. thinking through patient pathways, adding value to customers, managing costs). Where a mix of activities are needed to support product differentiation, carefully planning the approach to the components of channel can result in gaining the loyalty of customers and patients. The right approach can convey to them, and maybe payers, the differentiating value and service you offer.
The evolution of Channel Options
The ‘channel landscape’ in Europe is changing, with a range of factors driving the need for more specialised channels. Over the last five years there has been significant growth in companies moving Direct to Hospital (DtH) and Direct to Pharmacy (DtP), where the business case justifies it.
DtP shifts the balance of power towards the pharma company, giving it better data, product control, and a new commercial relationship with purchasing customers. DtP is an increasingly established and successful channel.
The future industry pipeline is heavily based on launching increasingly specialist medicines (i.e. high cost, requiring risk management plans, complex monitoring, biologics, for rare or orphan diseases, or used by very limited customers). Companies increasingly need to give full consideration to channel options.
For European wholesalers, the reality of the industry pipeline changes the landscape. They face a perfect storm – reducing incomes due to changes in margins, and a reduction in branded, large volume, primary care products. But there are new opportunities for suppliers to adapt and offer new channels, some of the major pharmaceutical wholesalers are developing new service models, and a range of specialty suppliers are building presence across Europe.
At the same time, healthcare systems are also opening up to new solutions, so the companies which are able to provide well designed solutions in patient service, diagnostics, medicines sourcing, and data provision back to customers will be welcomed by payers. The design of the channel approach for a brand might become the enabler for the access strategy, if the channel approach supports eventual product reimbursement.
It is important to consider patient pathways in designing a Channel Strategy, because any service deployed needs to reflect real-life patient behaviours. Physicians may make prescribing choices partly on the basis of the overall package offered. However, there is a caveat to the importance of patient choice: European patients (mostly) don’t co-pay, so the financial incentive for the patient to access prescription medicines through lower price routes doesn’t exist.
That is why, to date, the few mail-order/internet pharmacies in Europe have tended to exist only where there is a financial incentive for the patient to use them (e.g. it may be cheaper for German patients to obtain their prescriptions from a Netherlands-based internet pharmacy), or with so-called lifestyle drugs such as PDE5s.
Evolution of channels in Europe versus the US
Channels aren’t mutually exclusive; you can have an approach which includes two or more different routes to market. But the wider the mix, the less likely the overall arrangement will be efficient either from an outcome or investment perspective.
The reason Specialty Pharmacy has grown as a channel in the US is that it meets the needs of different stakeholders. Pharmacy benefits managers and payers like the dynamic patient data they gain; most patients prefer the convenience;, and pharma companies like the ability to manage supply, and the route to sponsor services like adherence programs which support their brands.
Information is a key component of the Channel mix. One feature of Specialty Pharmacy in the US is the ability to correlate medicines supply to patients, and their actual use. There is evidence of better patient adherence to treatment when supported through Specialty Pharmacy patient support programs, compared to retail pharmacy.
This coupling of supply and service is a highly attractive feature of the channel, and gives companies a great deal of capability in gathering and reporting ‘dynamic’ patient data, enabling companies to show, for example, significantly reduced drop-off rates after one year over a non-intervention strategy.
Compare this to running a simple compliance program in Europe; how do you measure the value of the programme when in practice you have no way of measuring whether the patient is actually still on treatment? Whilst not on the same scale as mail order in the US, new channels like home delivery (Direct to Patient) have been established for years in some European countries, notably the UK.
As in the US, when patients have a combined supply and support service, the approach appears to provide better outcomes. For example IMS data in the UK shows that patients on growth hormone treatment who get home delivery coupled with a patient support program have a 30% higher medicines adherence than those who only visit a retail pharmacy.
Opportunity for Pharma to lead
The point of all of this is that companies can and should play an active role in deciding which elements are best for their brands. So what can pharma do to compete in this space?
It is important to avoid the mindset that innovation in this space is too difficult. There are of course barriers to change, including different country regulations regarding supplying to patients, and particularly around home administration of medicines. However the range of options is wider than many companies believe, and many of the specialist suppliers have good experience of working with specific country requirements.
Changing supply models for a whole portfolio – or even for a single product which has been on the market for some time – can involve altering the relationship with intermediaries. Regional marketing teams can find it difficult to unravel the complex mix of channels used across different countries, if there is no logic to how things were set up in the first place.
Internally, if there is no single ownership, channel activities can be viewed as frankly too difficult to alter compared other parts of the marketing mix. Consequently changes in channel may be small and peripheral, rather than revolutionary.
The message for marketers is – own it.
To help, I offer ten sequential steps to identify and implement channel projects:
- Understand Channel Strategy: either find internal, or bring in consulting experts who understand this space. It will save you time and result in better planning. Does your organisation think you do this well, or is there scope for a new focus?
- Identify your goal: you may have a new product launch, or an in-line brand. The starting point is understanding the benefits of focussing on channel planning. These should be directly relevant to your brand or portfolio, so linked to the overall marketing plan and key strategic questions. For a new product launch, start 18-24 months before launch; the lead-time for some options may limit what’s possible.
- Assemble the team: you need people with a grasp of the strategy, and the right mix of people to implement. It is unlikely that many people will understand the whole picture, but having a nominated project leader is a prerequisite to bring together the different inputs. If you are planning at regional level, you need to ensure that you have input from the country teams in which the project may be implemented.
- For in-line brands you will need to map out the as-is, in order to identify specifically which features of current channel plan need to change. This may involve multiple inputs from functions both at regional and country level.
- Turn your product/portfolio goals into Channel Strategies: map the overall goal to the relevant channel component. It is possible that not all components are relevant, or add no obvious value to the success of your brand. In which case the Channel Strategy will focus on efficiency and cost. You are likely to have a range of options which will be reduced to the final choice following other steps.
- Take into account your competitors, and customer needs: it is vital to map out competitor channel approaches, in order to define where you need to match or exceed their position. Customers shouldn’t be ignored; even top KOLs will have an opinion on how patients might access medicines or services. Developing a Channel Strategy with customers through a co-creation process can ensure what you develop is relevant and competitive.
- Build the business case: management will want to feel confident that the plan is justified on the balance of value gained versus costs and complexity. If planning at a regional level, the full involvement of country affiliates is particularly important.
- Build the model with your chosen partner(s): assess the types of providers you want to partner with. For a European-wide solution there is unlikely to be a single supplier, but equally if you have a clear regional plan, you need to ensure it can be implemented across affiliates as close as possible to the core plan. Be flexible enough in the RfP to build in suppliers’ experience and knowledge of the markets involved.
- Communicate your plan: if what you’re doing is intended to influence the customer, make sure they get to know about it! Build a communication plan for your customers, payers, and other stakeholders. This may involve different parts of the business and focus on launching your new arrangement to gain best possible acceptance.
- Implementation: this should be seamless, although switching from one approach to another will require a more detailed transition plan, including mitigation plans for any risks. Identify metrics to track success: these may be financially based, or based more on customer perception or brand uptake and market share.
Make no mistake: this is not always an easy area. If it was, every pharma company would be fighting and competing here. The good news is that for those companies able and willing to develop their capabilities and plans, Channel Strategy could be a ‘stone unturned’ in the battle to win customer loyalty.
Current Supply Channels in Europe
|SUPPLY OR SERVICE CHANNEL||DESCRIPTION AND FEATURES RELEVANT IN EUROPE|
|Wholesaler||Company sells to wholesaler at set price/fixed discount. Wholesaler sells to their customers in market on their terms. Little scope for company to decide end customer choice. No onward visibility or ownership of data except via third party data providers. Products can be sold to Hospitals, Retail Pharmacy. Wholesalers tend not to offer added services for manufacturers.|
|Direct to Hospital/Pharmacy||Company sells and delivers to hospitals itself. Obtains higher data visibility, can manage pricing on individual products. Company bears logistics costs, and can also decide which customers to sell to.|
|Specialty Supplier||Bespoke agreement between a company and a chosen supplier. Services can include logistics, delivery to hospital, patients services, defined data reports.|
|Direct to Patient||Supply typically involves the company selling to an intermediary (e.g. Hospital or Home Delivery Pharmacy) which in turn dispenses and delivers to the end-user at home. Although often cold chain, now more often used for ambient products and devices, since this route provides good inventory control.|
|Home care||Sponsorship of activity directly interfacing with the patient, may include nurse support to help patient with home administration of IV drugs. Can be coupled with home delivery of medicines / devices.|
|Mail order||Independent pharmacy, supplied either via wholesaler or direct from manufacturer, but dispensing medicines directly to patient via dedicated website and mail delivery. May involve contract with manufacturer on specific product initiatives.|
|Patient support program suppliers||Operated completely separately to product supply/logistics. Companies can directly sponsor a range of patient support programs (e.g. telephone helplines supporting compliance), through which various information can be reported back to the company.|