Advancing business leadership

The evolution of pharmaceutical sales: new models for a changing environment

Article Reprinted from the ©Feb 2008 issue of

Art

icle

Re

pri

nt

Nu

mb

er:

07

38

Facilitating a necessary change in the pharma sales force involves more than merelysuperficial adjustments, explain Anthony Morton-Small and David Ziedman.

Rules of Engagement

It is now generally accepted that the sales force armsrace has come to an end and that the pharmaceutical

sales model needs to change. Yet, understanding how itshould change in the future, knowing how to facilitate thatchange, and determining the impact of that process onthe organisation still eludes most companies. Many havetaken the approach of simply cutting back resources andre-labeling some representative roles as ‘accountmanagers’, only making the most superficial ofadjustments to their operating models. More far-reachingsolutions are needed.

Complexity arises from the fact that there is no single‘new model’ solution; the right sales model has to beselected to fit each organisation’s situation.Pharmaceutical companies usually face at least one, if notmore, of three common issues that trigger an urgent needfor a sales model restructure. Some find themselves in thedifficult situation of suffering from all three simultaneously:

1. Country environments that are undergoing radicalchanges in the economic mindset, funding pressuresand regulatory complexities of healthcare, as currentlyseen in most European countries. In these markets,sales force effectiveness of traditional representative-oriented selling is rapidly diminishing, and characterisedby a breakdown in the relationship between share ofvoice and sales results.

2. A fundamental shift in portfolio structure.Because of changes in the types of products emergingfrom R&D pipelines, many companies are operating innew market segments involving therapeuticenvironments that are quite unlike those previouslyexperienced and where the stakeholders are verydifferent. For instance, some are moving frompredominantly selling in primary care to enteringspecialist markets as they launch new products inareas such as oncology. Others are for the first timeentering the primary care sector, having previouslygained strong experience in selling in the hospital andspecialist markets. These companies face the complextask of building and supporting new franchises inmultiple therapy areas whilst also managing theirexisting product portfolios.

3. A requirement to significantly alter thecompany’s cost base to maintain profitability.Typically, leading products may have gone off-patent,sales force productivity could be declining, or theremay be poor R&D productivity. As a result, manycompanies can no longer afford to keep adding salesreps, and because their cost base is unsustainable,they must cut back across the board. There areprobably only a few pharma companies among thetop ten that do not currently suffer from this problem.

which have promoted integratedhealthcare contracts and direct pricenegotiation with the sick funds,bringing the prospect of greater use ofrisk-sharing agreements ever closer.This means that internally, alongsidethe traditional representative salesmodel, companies need to managenew teams involved in account-basedselling, healthcare management,health economics and the growing useof budget impact assessment. At aregional and global level, they mustalso deal with the varying pace ofchange in different markets (seeFigure 2), according to the stage ofdevelopment.

Re-orienting the sales modelImplementing ‘coalface’ solutions atthe local sales team level requiresclose collaboration with the company,right across its line of command. Aswell as regional interaction, the abilityto interlock with the company’s localaffiliate organisation is important. A framework is necessary to helpcompanies think about preparing andre-orientating their sales models. A high-level, three-step processbased on the following phases offersthe most complete, effective and risk-managed approach:1. Reviewing internal capabilities andexternal environment

Defining new sales modelsThere are four forces that define thesales model, two of which are internaland two external. Internally, the modelis determined by the company’sproduct portfolio value propositionand organisational structure.Externally, it is directed by the contextof the broader healthcare environmentand by the needs of the company’scustomers and stakeholders in thewidest sense (Figure 1).

New market influencers aredetermining the choice of sales modelwith the emergence of additionalgatekeepers to market access,whether they be government,healthcare payers, channel entities orkey opinion leaders. Mastering thecomplexity of the changingstakeholder landscape requiresinnovative models to drive productapproval and acceptance, not justadoption.

Over the last two decades, thetraditional sales model has developedon the premise that companies withnewly priced and approved potentialblockbusters can simply power them topeak sales by maintaining a heavyshare of voice and detailing force. Now,the challenge for companies launchinga new product is far more complex, notjust in terms of gaining uptake byprescribers, but by the protractedintricacies of launch and marketaccess. The gap between introducing anew product and obtaining uptakefrom a broad prescriber base is muchlonger, slower and more difficult thanever before: it is a slow burn processthat requires a new operating modelwith new tactics. A winning share ofvoice is no longer sufficient.

Firstly, more time and qualificationsare needed to gain European, nationaland local regulatory approvals. Then,acceptance must be garnered from awhole range of additionalstakeholders, such aspharmacoeconomics and HTA bodies,regional gatekeepers, and local carenetworks. Engaging with thesestakeholders demands different skills.New competences and capabilitiesneed to be nurtured, while job roles,teams and organisational structuresneed to be realigned to maintaincompetitive advantage and deal withnew mechanisms for limiting marketaccess. For instance, the industry mustadapt to the 2007 reforms in Germany,

Figure 1: The four defining elements of the sales model.

Futureoperating model

Company

• Organisational structure• Capabilities, processes and systems• Resources and investment

Customers

• New types of customers• Changing needs, demands and expectations

Productportfolio

• Need for differentiating value propositions• Shift of focus towards specialist care

Healthcareenvironment

• Structural change alters landscape• Emergence of new stakeholders• Changing attitudes

Figure 2: Environmental challenges.

• Pharma in wait mode, not a burning platform for change• Relationship selling, access not yet an issue• Basic methodologies for sales deployment

Evolution

• Prescriber access challenges• Major ROI concerns• Industry reputation• Distribution complexity• Increasing no. of stakeholders• Shifting portfolio• Potential data visibility issues

• Developing or fundamentally changing healthcare systems• Poor market metrics• Pharma looking for sales deployment models and potentially leap-frogging

Emerging Markets (15%)Changing/Developing models

Mature Markets (25%)Some pressure for change

Advanced Markets (60%)Urgent need for change

USA

CanGer

UK

Benelux

France

NordicItaly

Iber

L.A.

CEE

Japan

TurkeyChina

India

Sweden

2. Optimisation of sales models andoperations3. Transitioning and implementation ofchanges.

Diagnostic reviewIn rethinking a company’s sales model,it is essential to understand therequirements of all the stakeholdersinvolved with that organisation, byreviewing the comparative effectivenessof potential levers that are being used toinfluence those individuals and bodies.

The diagnostic stage assesses the keysales model drivers of today and thoseexpected in future. As importantly, thepace and direction of change in thelocal operating environment should be

mapped, allowing identification ofcritical signposts and ‘check points’ foroperating model changes to be alignedwith landscape change. Closeconsultation with companymanagement and its sales teams yieldsinsight into the company’s immediatecause for concern and its operatingstrategy, which can be matched againsta stakeholder analysis andtherapy/market forecasts.

At the same time, a detailedassessment should be made of themajor elements of change, currentsales strategy and the existing salesand marketing structures. This not onlyenables analysis of the currentpredicament but also provides the

starting point for a three- to five-yearvision of the relevant sales forceoperating landscape. An importantbenefit of this diagnostic review is toachieve early buy-in to the changeprocess itself from key internalstakeholders. This allows for continuity,speed in decision-making and efficientimplementation as the new salesmodel is designed and rolled-outthrough the organisation.

The diagnosis is based on acombination of top-down, qualitativeworkshops where the pros and cons ofvarious sales models are assessed,combined with a bottom-up,quantitative analysis which provides thehard evidence required. Informationsources at anonymised individualcustomer level are currently available inkey European markets to allow for trueevidenced-based analyses as inputsinto the process.

Optimising the sales modelWhen defining the criteria required foran optimal sales model andidentifying alternative designs, asupportive SWOT analysis will help toestablish the rationale and evidencefor the right criteria for potential salesmodel assessment (see Figure 3).With those, the ‘best fit’ sales modelcan be identified and evaluated froma range of options directly driven bythe internal and external situationalrequirements. Each pharma companyin each country is likely to require itsown customised operating modelwhich would include: strategy,organisation & governance,processes, capabilities and systems,all of which will depend heavily on thecurrent/future portfolio, thecompetitive landscape, the requlatoryenvironment, the amount ofmovement in the customer base andthe level of acceptable change thatcan be absorbed. Once a selection ismade, a gap analysis can beundertaken by evaluating currentsales and marketing capabilitiesagainst best practice. Thoroughknowledge and experience areessential throughout to ensure a trueassessment of the situation.

Transitioning andimplementationNext, the sales model transition can beplanned and a roadmap developed that

Figure 4: Example of a change management road map.

Organisationalgovernance

Processes

2008 2009

Capabilities Communication

2010 ILLUSTRATIVE

2010

2009

2008

Figure 3: Input used to perform gap analysis between current and desired states.

Weaknesses• Not ready for changing environment & no field structure for new decision-makers• Lack of launch readiness & funding (staff + $) & short range planning• KPI activity targets may not suit changing environment, e.g., too much focus on daily productivity, frequency targets not available everywhere

Strengths• Portfolio breadth & launch success • Corporate citizenship & ethical position• Medical & scientific knowledge & clinical development programme• Collaboration between Medical/Sales/Marketing• Sales Force motivation with industry leading activity level + external customer focus, doctor education

Threats• More extreme cost reduction • Pricing impact• Reimbursement environment for new launches, drug formulary setting • Sales force access restrictions/limits in last 2 years• Patent loss on key products• Enforced generic prescribing

Opportunities• New product launches• Increased integration of medical + sales & marketing functions• Act SMART — take lead within industry• Move to more customer-tailored marketing• New teams & health economics department• Refocus on new decision-makers

Case study examplesThe approach to choosing the rightsales model for an individual companycan be scaled up or down, used forwhole regions, in multiple or individualmarkets, for single products, groups ofproducts or across entire portfolios.One IMS engagement involved anarrow-model focus project in multiplemarkets for a top ten pharma company.Faced with the challenging newenvironment, a different set of moresophisticated stakeholders, the patentexpiry of leading products, and theneed to manage new launches in morespecialized areas, the company urgentlywanted to change to an accountmanagement sales model forsecondary care markets.

Firstly, the pace, direction and keydrivers of change in the top fivecountries where the company wasoperating were identified andthoroughly analysed. This included anassessment of the healthcarestructures, regulations and standards,decision-making processes andcompetition. This was followed by an in-depth internal review of the company,which pinpointed its operating strengthsand weaknesses and highlighted theareas where account managementcould be adopted.

Next, an evaluation of the waydifferent stakeholder roles werechanging across each therapy classwas conducted, revealing where thecompany could achieve ‘quick wins’.

aligns the organisation to the proposedchanges. This involves setting timelinesand milestones, as well as definingresource requirements, business rolesand responsibilities, and also settinginto motion an operational excellenceplan that minimises potential risks.

Because of the broaderconsequences that will accompanychanges in the sales model, the entirebusiness must be aligned and changemanaged correctly for the model tooperate effectively. It is thereforeessential that the plan involves thecompany’s management structure andorganisational design as well as itssales strategy. It must also provide forthe right capabilities in terms of skillsand competences and alignment withroles that have been identified. Finally,it must supply the processes andsystems needed for successfulintroduction. The change processtypically benefits from a formalroadmap to chart implementationtowards the future sales model andincludes timeline management of roll-out programmes (see Figure 4).Underpinning this approach should bea systematic benchmarking ofcompetencies and processes againstbest practice to highlight areas forimprovement, allowing benchmarkingand the development of newcompetency models and sales force skills.

Implementation is the crucial stepwhen redesigning sales models and itis frequently a reason why companiesseek help. There are a range of toolsavailable to ensure that the new salesmodel is successful, including:organisational restructuring,simulation-based training,communications planning, sales forcecompensation schemes,implementation and performancemanagement tools, social networkingand sponsorship. For companieswishing to remain best-in-class andstay ahead of the competition, it isessential to conduct an on-goingreview process, whereby theorganisation benchmarks its progressagainst the plan and its competitors,and monitors the impact of the newsales model on its performance. Thisprocess can be facilitated by means ofjourney progress reports andrefreshed scorecards against keyperformance indicators.

Figure 5: Example of sales model score card.

Figure 6: Example of gains from changing the sales model.

25

2003 2003 2003 20032007Jan Feb March Apr May June July Aug Sep

2007 2007 2007 2007 2007 2007 2007

+83%

+59%Units

Value (euro)

2007

%

20

15

10

5

0

New sales modelimplemented

More importantly, the futureenvironment through 2010 was definedand the trajectory of the pace ofchange plotted. This allowed earlyidentification of warning indicatorswhich would require a response fromthe company.

A further IMS client engagement —again with a top ten pharma —involved working across the company’swhole portfolio of general medicineand specialist care products in a singlecountry. This covered both the primaryand secondary care sectors where thewhole environment was experiencingrapid change. The company’s currentsales model was traditional and notequipped for the future, requiring thedevelopment of new skills, as revealedby the SWOT analysis (see Figure 3).

With the SWOT analysis in place, ascorecard was then developed thatrated a range of sales models optionsagainst key criteria (see Figure 5) andfacilitated the ultimate choice ofsales model.

These tools, combined with IMS’knowledge of best practice, enabledthe company to achieve the optimumreduction in sales force size andstructure and increase marketadoption. Particularly crucial for theorganisation was building the capabilityto show clear clinical benefits from itsproducts, based on health economicsand outcomes research (HEOR) data to support acceptance andrecommendations by the key decision-makers.

A third case study, focused onchange implementation, involved a top European company that leads themarket in a specialist category ofproducts. This company urgentlyneeded to re-educate its sales teamsso they could deal with switchingcustomers from a mature, market-leading product to a new product in

countries where the key decision-makers were changing. This involvedworking closely with the client’s localmanagement and sales teams in fourlocal affiliates using four differentlanguages. In-depth interviews wereconducted and reps accompanied onsales visits, before introducing aprogramme of classroom teaching andcoaching for all individual sales teammembers. As a result of the work, oneof the four markets achieved an 83%gain in value sales and 59% growth inunits in the first five months after thenew sales model was implemented(see Figure 6). Success in the first fourmarkets has led to the project beingrolled-out to another 10 markets.

Improved value propositionBy taking this three-step approach,companies can obtain a ‘right fit’ salesoperating model and organisationalstructure that matches their particular

circumstances at a given time and isproofed against future risk over a three-to five-year period. Furthermore, it is an‘end-to-end’ approach that involves fullcommitment from the very beginning,unraveling a company’s problems,setting a plan for reorganising the salesprocess and enabling change whilstmonitoring the impact.

Undergoing the process of diagnosisand constructing a roadmap forimplementation ensures thatcompanies build selling muscle in theright areas to equip them to competein future. At the same time, providinggrass-roots help with implementation isfundamental. This approach goesfurther than merely satisfyingstakeholders: it provides an improvedvalue proposition to a broad range ofstakeholders, including shareholdersand employees as well as customersand market influencers.

Now, at last, the industry is beginningto take more decisive action to addressthe changing healthcare landscape.This requires innovative commercialoperating models to drive approval,acceptance and adoption. Rather than a threat, the new environment shouldbe seen as a significant opportunity forpharmaceutical companies to recreatevalue for customers and, through closer interaction, influence theoutcome of change. ■

Reference: Source for all figures: IMS

Management Consulting

About the AuthorsAnthony Morton-Small is a principal, sales and accountmanagement, at IMS Health, with a focus on designing,managing and implementing sales force effectivenesssolutions. Formerly with GlaxoSmithKline, Anthony has over10 years of pharmaceutical industry experience addressing

issues in sales force effectiveness, marketing effectiveness, franchisemanagement and portfolio optimisation. He has particular therapeuticexpertise in CNS, respiratory, anti-virals/HIV, diabetes and smoking cessation,from brand launch to product maturity and patent expiry.

David Ziedman is director, sales force effectiveness at IMSHealth, with particular expertise in resource optimisation,call planning, compensation systems, and issues aroundsales force size, structure and product allocation. He drawson extensive experience of the sales function and a broaderknowledge of the pharmaceutical industry to helpcompanies optimise the deployment of their sales

resources and improve sales productivity. During the course of his careerDavid has worked in the USA, Benelux, Italy, France, and the UK and currentlyresides in The Netherlands.

As a result of the work, one of the four marketsachieved an 83% gain in value sales and 59%

growth in units in the first five months after thenew sales model was implemented. Success in

the first four markets has led to the projectbeing rolled-out to another 10 markets.

The operating environment for the Germanpharmaceutical industry is changing dramatically

through accelerating integration of stakeholders andgrowing economic pressures. As a result,pharmaceutical companies are facing increasingcommercial risk due to more volatile demand andbeing dependent on new, fewer and more powerfulcustomers. They must innovate their business modelto meet those challenges.

An industry in turmoilFor the German pharmaceutical industry, 2007 was ayear of upheaval. The implementation of the GKV-WSG(Sick Fund Competition Act: legislation to strengthencompetition in the statutory health insurance) inparticular triggered and accelerated mechanismswhich will transform the pharmaceutical landscape.There are three underlying forces which are drivingchange in the German market: horizontal integration,vertical integration and the rise of an economicmindset (Figure 1).

Horizontal integration drives the like-with-likeconsolidation of healthcare stakeholders, which hasalready started to re-shape the German market place.

Physicians, for example, are forming networks (such asthe Kinzigtal doctors’ network) or are joining forces toset up medical care centres (which may also co-operate with hospitals — see below); as the privatehospital sector continues to expand, we are witnessingthe rise of private hospital chains, as operators try toexploit economies of scale while at the same timecreating centres of excellence. With restrictions onmultiple ownership being relaxed, pharmacy chainsare likely to become a common sight in German highstreets in the near future. Sick fund mergers can alsobe expected in response to changes in the fundingmodel by the national health fund, which will unleashmarket forces in the hitherto protected Germanstatutory health insurance sector. The result is a newcustomer landscape where demand, and thereforenegotiation power, is concentrated in fewer entities.

Vertical integration combines different players alongthe healthcare value chain and results in new types ofstakeholders. Managed care models integrate payersand care providers and strongly align their traditionallyindependent agendas and interests. This scenario hasalso been provided for within the legal frameworkunderpinning medical care centres. For example, it is

The German pharmaceutical industry is at a crossroads. Frank Wartenberg and MarkusGores ask which commercialisation model will provide the path to future success.

New Model Pharma

The rise of an economic mindsetmanifests itself in the way keystakeholders are starting to makedecisions on therapy options. Healtheconomic assessments, such as thoseundertaken by the Institute for HealthCare Quality and Economic Efficiency(IQWiG), are growing in importance.The recent reforms in Germany havestrengthened the role of IQWiG inevaluating new drugs and

technologies; from 2008, cost-benefitassessments are included in the remitof IQWiG, which means Germany nowjoins a growing number of countrieswhere pharmaceutical products aremeasured against a set of economiccriteria. In this new world, where thefocus is shifting towards cost-effectiveness — and ultimately risk-sharing — the development ofcompelling value propositions willbecome an important safeguard forthe industry.

Pharmaceutical companies mustinnovate their business model inresponse to those dramatic changes inthe German operating environment.Faced with fewer, more powerful andmore institutionalised customers andchannels, an account-basedcommercialisation approach will play akey role going forward. Further, as theinterests of care providers and payersbecome increasingly aligned, new,holistic marketing and sales strategieswill be required to address the needsof these emerging customers.

Commercialisation modelsIMS Health has developed a frameworkto support pharmaceutical companiesin making strategic choices betweendifferent commercialisation models.This framework also reflects the futuredynamic of the operating environment(Figure 2).

The key defining dimensions in thisframework are the value propositionof the individual products and thecomplexity of the relevant healthcarestakeholder environment.

The value proposition includes aproduct’s intrinsic qualities, such astherapeutic benefit, its patent status,and any value-added servicesprovided. The strength of a valueproposition is also highly dependenton a company’s ability to demonstratevalue to relevant stakeholders. Thecomplexity of the relevant healthcarestakeholder environment depends onthe number of stakeholders apharmaceutical company has to dealwith in the sales process and howthey interact and influence thedecision-making process.

Our framework defines threecommercialisation models: payer contracting, with sick funds asthe key decision makers in a tender-driven market;

possible for legal entities, sick fundsor wholesalers that own a pharmacychain to act as provider for a medicalcare centre. New stakeholders arealso emerging in the pharmacy sector,where the acquisition of pharmaciesby pharmaceutical wholesalers isleading to new structures andownership models such as pharmacychains with similarities to those in theUK and Switzerland.

Figure 1: Forces re-shaping the German healthcare landscape.

Healthcarelandscape

Vertical integrationIntegrated careManaged care

Horizontal integrationHospital chainsPharmacy chainsSick fund mergers

Rise of an economic mindsetFocus shifts fromprice to value & risksharing

Figure 2: Commercialisation models.

Account-based

Complex

Simple

Sta

keh

old

eren

viro

nm

ent

Today

Value proposition*Weak Strong

Physician-centric

Payercontracting

* Defined by product features incl. clinical benefits, patent status, value-added services, ability to demonstrate value

2. Developing and communicatingcompelling value propositions

● What capabilities do I need to put inplace to demonstrate superior valueof my products?

● What evidence in terms ofoutcomes and economic data isrequired to support my valuepropositions?

● How can I leverage value-addedservices to differentiate my valueproposition?

3. Creating flexible cost and capitalstructures

● What levers should I pull to makemy cost structure more flexible?

● What is the optimal ownershipstructure for my assets andprocesses (for example, whatopportunities exist for outsourcing)?

Once the strategic choices havebeen made, the transition to a newbusiness model must be managedvery carefully to avoid a loss of focus

Figure 3: Pressure to innovate the business model.

Fewer, largerinstitutionalcustomers

Dependenceon single, less

frequent events(contracts)

Risk-sharing

Newbusiness

model

Dynamicenvironment

Marginpressure due tovolatile demandand high fixed

cost model

Safeguardthrough

differentiated valuepropositions

Elevation ofnew stake-holders and

decisions points

Figure 4: Critical choices pharmacos have to make today.

Where to play

How to play

When to play

Develop a clear vision for the future business• Portfolio focus decision (continue/enter/exit)

Develop clear strategies• Which commercialisation model?• Which capabilities?• Which resource and investment levels?• Which cost and capital structure?

Develop detailed transition roadmap• Which commercialisation model when?• How to manage the transition?

physician-centric, where traditionalstakeholders are the relevant decisionmakers; and account-based, with institutional careproviders as key customers, wheredecision-making involves complexnetworks of multiple stakeholders.

Trends and implications through 2010Over the next few years, we expectthe relative importance of these threecommercialisation models to change,as indicated by the arrows in Figure 2.There are a number of key harbingersthat drive this assumption:● Tender contracts with sick funds

are expanding beyond generics toalso include mature, patent-protected brands.

● Already in the US we have seen anexample of the contracting modelextending its reach and relevanceacross the entire pharmaceuticalmarket.

● Vertically integrated care modelscreate new institutional customerswith reach into the traditionalterritory of physician-centricprimary care. The public tenderinitiated by the AOK Baden-Württemberg for primary careprovision, by-passing theprofessional association ofphysicians, is a case in point.

● At the same time, horizontalintegration leads to account-likecustomer and channel structures.

● Pharmaceutical companies areincreasingly taking control of theirsupply chain, for example throughexclusive wholesaler contracts ordirect-to-pharmacy distribution, by-passing wholesalers altogether.

A call to actionIn answering the call to re-think theirbusiness model (Figure 3), companieswill need to look at ways of managingsignificantly higher levels ofcommercial risk and volatility, makingcritical choices for theircommercialisation model, developingand communicating compelling valuepropositions, and establishing flexiblecost and capital structures. Criticalelements to consider at this point willbe the current and future portfolio aswell as the capabilities required forthe various functions in the newbusiness model — such as sales and

marketing — and how these skills canbe acquired and developed.

The time is nowEstablishing a viable business modelfor the future means making strategicchoices — now (see Figure 4).Companies that rise to the challengewill focus on addressing three keyissues and their associated questions:

1. Re-defining the commercialisationmodel:

● Which model works best for mycompany / portfolio?

● What capabilities do I need in orderto manage the new stakeholdersand decision points effectively?

● What is the role of the sales forceand marketing function in the worldof account-based selling andcontracting?

● How do I make sure the model isflexible and can adapt to furtherchanges in the operatingenvironment?

on the day-to-day operations. In ourexperience, establishing a cross-functional project team can be helpful,allowing as it does for the input ofdifferent perspectives when preparingfor and facilitating key decisions.Leveraging pilot projects and drawingon insight and experience from otherindustries are also useful tools.

Implications for marketing and salesEach of the three differentcommercialisation models has its ownset of key success factors, capabilityrequirements and implications for therole of the sales and marketingfunctions.

1. Payer contracting. Correct scopingof contracts is a key success factor forthis commercialisation model.Pharmaceutical companies need tocarefully consider which products andservices to include in a contract,especially when negotiating directlywith individual sick funds on contractsthat are not based on public tenders.

The choice of sick fund is alsocritical, as these can differconsiderably in terms of access theyprovide to the market and thepurchasing power they wield (cf. Becket al. [2007]).

Successful companies willdistinguish themselves throughcreative deal structuring; they willunderstand the broader needs of therelevant sick fund and use terms andconditions in a smart way to createcompelling win-win propositions withbenefits for both parties involved.

Once contracts have been put inplace, effective compliancemonitoring is important to ensure

agreed terms are being implemented.This is particularly relevant for morecomplex deals.

Finally, as companies oftencompete for contracts on the basis ofprice, the ability of an organisation toabsorb margin pressure is also a keysuccess factor. Here, successfulcompanies will derive an edge fromtheir commercial productivityleadership position, which allowsthem to operate profitably in a muchtighter environment.

Distinct capabilities are required toput these key success factors in place.Establishing a dedicated seniornegotiation team, comprisingmembers of the affiliate managementteam or other senior leadership roles,is a good approach. Subject matterexperts are also needed to supportthe decision and negotiation processwith quantitative models that allowscenario-based analyses.

As payer contracting is still arelatively new commercialisationapproach for the Germanpharmaceutical industry, companiesshould reach out to traditionallytender-based industry sectors insearch for key talent.

With contracts being the key marketaccess vehicle in thiscommercialisation model, the salesorganisation plays primarily asupporting role. The sales team willfocus on new channels and secondarydecision points, depending on theemerging decision processes. In thegenerics segment, we expect a shift infocus towards pharmacies, with thepharmacist becoming an important,secondary decision point once acontract with a sick fund has beenagreed. Sick funds are likely to allow

limited choice within a treatmentcategory, so even when a contract isin place, managing the point ofdispensing is key. Companies withprevious experience and a strongposition in the pharmacy market (suchas an attractive OTC portfolio) willhave an advantage here.

The other secondary decision pointwhich still needs to be managed is thephysician, again because of the choicesick funds are likely to offer. Theextent of activity dedicated tophysicians will also depend on thelevel of value-added service agreed inthe contract with the sick fund.

In the world of payer contracting,the most important role for themarketing function is supporting thesenior negotiation team withcompelling value propositions whichmust be tailored to the needs of thesick funds. In addition, marketing willalso provide messages for secondarystakeholders (pharmacists andphysicians). The messages must focuson the needs of those targetstakeholders; for example, in the caseof pharmacists they need to include astrong consumer angle.

2. Physician-centric model.Companies that succeed in thephysician-centric commercialisationmodel will rely on superior customersegmentation and tailor bothpromotional activities and messagesaccordingly. At the heart of this we willfind unique customer insight whichallows granular segmentation ofphysicians on the basis of value,potential, attitude, behaviour andquality of the relationship. Thesuccessful company will use theseinsights as a foundation for a best-in-

There are three underlyingforces which are drivingchange in the German market:horizontal integration, verticalintegration and the rise of aneconomic mindset.

class sales process which targetsmicro-segments with the highestprecision using tailored messages ofhigh quality and deep content.

Recent proprietary research by IMSHealth suggests a strong correlationbetween the complexity of a giventherapy area and the quality anddepth of content physicians expect intheir communications with salesrepresentatives.

Successful companies will distinguishthemselves through their unique abilityto develop highly targeted anddifferentiated messages. At theextreme end of the spectrum thismeans dealing with ‘segments of one’,which require their own specificcontent and engagement strategy.These companies will also overcomefunctional silos between sales andmarketing to enable much closercollaboration; insight gathered by thefield force will be fed back to marketingto refine even further specificengagement strategies for individualcustomer segments. Closed-loopmarketing can further enhance thisapproach.

By and large, the role of the salesrepresentative remains unchangedcompared to the traditional salesmodel. They will continue to focus onphysicians as the principal decision-makers for prescriptions and providerelevant information which in turninfluences their prescribing behaviour.However, as outlined above, thephysician-centric model of the futurerequires a highly differentiatedapproach and much deeper contentknowledge than in the past. Therefore,the quality of the sales force needs tobe enhanced considerably throughtraining and skill-building activities or,as a last resort, by hiring new talent.

Marketing needs to build thefoundation for the sophisticatedapproach to the customer in thephysician-centric model of the future.The starting point is granular customersegmentation, followed by developingrelevant, highly targeted and tailoredmessages for each segment. Finally,each segment will require its distinctmarketing and engagement strategy.

3. Account-based model. Theaccount-based model is a responseto the emergence of complexstakeholder networks and decision-making processes, as can be found in

institutional customers such ashospitals or managed careorganisations. Unlike the one-to-onesales process in the physician-centriccommercialisation model, thesuccessful company in the world ofaccount-based selling penetrates the different layers within astakeholder network and uses aholistic approach to influencecomplex decision-making processes.

Orchestrating the various activitiesand touch points with a stakeholdernetwork demands a sophisticatedplanning process. Traditionally,professional service firms andcompanies selling capital goods withlong sales cycles have been operatingbest-in-class account managementprocesses. The ability to map thedecision-making and influencenetworks is a critical success factorhere. Again, this is only possible if thedifferent touch points with an accountare coordinated and the differentpieces of information, gatheredthrough interactions with individualstakeholders, are put together to yieldthe full picture of how the stakeholdernetwork operates.

The account manager plays apivotal role in making this happen, notonly developing an integrated pictureof the account, but also ensuring thatthe specific needs at the differenttouch points are addressedappropriately. For this purpose, the

formation of dedicated account teamsensures alignment around oneaccount, including a commonunderstanding of priorities, whileallowing for specialisation whenservicing the specific needs ofindividual stakeholders within anaccount. Furthermore, the accountteams must be empowered and havethe right skills to negotiate contractswith their institutional customers.

In the world of the account-basedmodel, the sales function has asupporting role and will continue tocover their traditional target audience— prescribers. For example, in thecase of a medical care centre with acentral authority that sets treatmentguidelines, the sales force ensuresthat front-line physicians implement

Faced with fewer, morepowerful and moreinstitutionalised customersand channels, an account-based commercialisationapproach will play a key rolegoing forward.

Figure 5: Building critical capabilities for key account management.

Simulation-basedaccount planning

training

Review/adjustmentof account planning

process

Tactical planningworkshop

Accountplanning

In-field coachingof KAMs

Product trainingAlignment of

incentives withcommercial

strategy

Training oncoaching skills for

managers

Tacticalplanning

Successfulkey account management

Performance management& incentives

Sellingskills

Coaching

those guidelines and translate theminto clinical practice. The accountmanager focuses on non-traditionalstakeholders with budgetresponsibility or with influence ontreatment decisions.

The marketing function developsspecific messages for all relevantstakeholders within an account. Thesemessages must be tailored to theneeds of the different stakeholdergroups, including both traditional andnew stakeholders. Marketing alsocontributes significantly to accountplanning, for example by developing avalue-added service offering,providing funding arguments tohandle budget holders or shapingspecific stakeholder engagementinitiatives.

The account-basedcommercialisation model presents aparticular challenge for the traditionalsales function as it implies a mindsetshift from ‘selling-to-one’ to ‘selling-to-a-network’, which typically isaddressed through a comprehensivedevelopment programme. IMS Healthhas developed a conceptualframework for this: the House ofAccount Management (Figure 5).Successful key account managementrests on four capability pillars —strategic planning, tactical planning,selling skills and coaching — whichare supported by a foundation ofaligned incentives and an effectiveperformance management system.Figure 5 also provides examples ofcapability-building activities that havebeen successfully applied to enablethe transition of traditional salesfunctions to an account-based model.

The way forwardAll pharmaceutical companies shouldbe looking to establish a specificaction plan for developing theirbusiness in the short and medium-term. In our experience, focusing onthe following four elements is critical:portfolio & franchise strategy;commercialisation model; capabilities,organisation & infrastructure; and cost& capital structure.

While many questions are relevantfor the pharmaceutical industry inGermany as a whole, specific actionplans need to reflect the uniquesituation each company is facing.

Focusing on the portfolio in thecontext of the sales and marketingmodel provides a good starting pointfor this exercise.

ConclusionThe dramatic changes in the Germanhealthcare environment leavepharmaceutical companies at acrossroads, facing the need to re-thinktheir commercialisation model toreflect both the emergence of newstakeholders and the rise of aneconomic mindset amongst decision-makers. Those who choose to act nowwill position themselves for greatersuccess as the transformation of theoperating environment unfolds. ■

About the AuthorsFrank Wartenberg is vice president, managementconsulting, at IMS Health, where he helps large and mid-size companies with their market entry strategies,reorganisation of sales structures across multiple channels,launch preparation, and customer value managementacross Europe, MEA, Japan and China. With a strongbackground in consulting, he has a deep understanding of

market dynamics and their organisational implications for marketing and salesand is in regular demand in the industry for his insights and perspectives onmarketing and sales strategy.

Markus Gores is senior principal, management consulting,at IMS Health, with a focus on helping clients innovate andimplement their business models and subsequent changemanagement programmes. He has extensive experience ofthe biotech and pharmaceutical sector and particularexpertise in commercial strategy and organisationalperformance management. His consulting backgroundspans roles in London, New York and Frankfurt, advising

leading pharmaceutical and biotech companies as well as principal investorsin this sector on strategic and operational issues at board level.