By: Bruce McWilliams, Professor, Instituto Tecnológico Autónomo de México Cristóbal Thompson, Executive Director, Asociación Mexicana de Industrias de Investigación Farmacéutica, AC Ángeles Martínez, Engagement Manager, Consulting and Services, IMS Health Edgar Cochran, Instituto Tecnológico Autónomo de México
In globally competitive markets, pharmaceutical firms face a precarious situation: declining loyalty from consumers as they increasingly switch to lesser-known, lower-priced brands, and the proliferation of generic substitutes that compete with the branded products of both national and multinational pharmaceutical companies.
Furthermore, as a large number of old patents are set to expire in the near future, fewer new patented molecules are set to take their place (Kielstra, 2011; Jack, 2011). Unless these pharmaceuticals can introduce new patented products, they fear gradual erosion of the market share and price competition as generic brands sell their products at prices that are, on average, around 55% cheaper (IMS Health, World Review 2013).
To what extent can branded Mexican and multinational pharmaceutical companies maintain brand leadership in the Mexican market?
In what follows we propose a tested strategy, developed in Mexico and Latin America, for growing market share by motivating sales force behavior. Companies using this strategy have been able to maintain or even raise their prices despite the proliferation of generic alternatives in the product category while market leaders’ prices and market shares were eroded. We call this strategy cloned rivalry.
Cloned rivalry
Cloned rivalry is based on the premise that sales forces are more committed and responsive when they are challenged to compete against an adversary brand whose characteristics are identical to their own product. The firm creates its own rival that has identical product and price characteristics as the brand it wants to promote in order to build a culture of intensive competition. Having identical product characteristics strips salespeople and brand managers of any pretext for arguing that sales declined for any reason other than their own lack of effort. The firm challenges the sales force on both sides to take more market share than the other, even when incremental market share is at the expense of their own rival brand. Prices between the rival brands are kept similar so that price cannot be used as a mechanism to compete.
To better understand the concept of cloned rivalry, it would be useful to distinguish it wi two examples of cloned products in the pharmaceutical sector that do not represent cloned rivalry. The first type of cloned products are generic brands that compete in price. Competition between the reputation of the innovative, original brand and the low-price generic brands (that do not have a dedicated sales force) can be intense, but the lost market share of the innovator brand can be attributed to the generic’s lower price, and therefore not motivate the sales force since they cannot be blamed for declining market share. In the worst case, competition degenerates into a price war in which both brands lose.
The second example is that companies often create a cloned brand based on the innovative brand, but without the intention of generating a rivalry between the brands. These new brands typically compete with other brands in different markets and cannibalization of the original brand’s sales is discouraged. If the new brand is offered at a different price then it becomes a way for the firm to price discriminate between different consumer segments. This is again inconsistent with our concept of cloned rivalry.
Schering-Plough and cloned rivalry
Schering-Plough (SP), now owned by Merck (MSD), pioneered cloned rivalry in Latin America. The regional president for Latin America and Asia, Alfredo Blanco, observed that sales of SP products in Venezuela were under-performing. To address sales force apathy, the sales force for a top brand was divided into two groups, with one group competing to sell a clone of the original brand. The new strategy worked better than expected and was quickly adopted in other countries in Latin America during the 1990s and early 2000s, as these positive results were replicated elsewhere.
SP introduced the patented molecule Rinelon SP introduced the patented molecule Uniclar, was introduced two years later (Table 1) when Rinelon had reached the peak market share attainable without cloned rivalry. The two rivals quickly took over half of the entire market despite the entry of two new patented entrants around the same time. More than a decade later, they maintain their dominance despite the entry of three new alternatives (two of them patented) between 2008 and 2010. Although these new brands captured 28% of the market by 2011, only 5% of that was taken from the SP brands, while the remaining competitors’ shares declined from a collective 42% to only 20%.
Cloned rivalry leads to important behavioral changes as explained by Critobal Thompson, a co-author of this paper, and ex-manager of Mexico as well as ex-brand manager for SP who was responsible for developing a rival brand.
Organizaciones más planas. Managers welcome insight from the sales force as they seek any small advantage they can gain over the rival brand.
Flatter organizations. Las marcas iniciaron cambios en la presentación o posicionamiento de los productos para satisfacer necesidades específicas detectadas en el mercado. Por ejemplo, en el mercado de esteroides intranasales, los diseños de los envases de Rinelon y Uniclar se modificaron para que fuesen más fáciles de abrir y usar. Por supuesto, los beneficios que trajeron muchos de estos cambios fueron temporales, pues la marca rival copiaba cualquier modificación que reportara ventajas. Sin embargo, otros competidores ignoraban esta rivalidad, por lo que los cambios podrían tener ventajas de largo plazo para las marcas rivales ante el resto de la competencia.
Rapid organizational response. The brands quickly initiated changes in product presentation or positioning to meet specific needs identified in the market. For example, in the intranasal steroids market, the designs of the containers of Rinelon and Uniclar were modified so that they could be easier to open and to use. Of course, many of these changes led to only temporary benefits as the rival would copy any changes that led to clear advantages. However, other competitors would ignore this rivalry, so these changes could have longer-term advantages for the rival brands vis-à-vis the rest of the competition.
Improved service. Since the rival products were identical and the rivalry was the focus of these two brands’ competition, salespeople had to look for factors other than product differentiation to generate an advantage. The main differentiation then became in the services provided by the salespeople as they competed to better meet the doctors’ needs, providing doctors’ requests for product information the following day instead of waiting until their next monthly visit, and preparing easy-to-read summaries that were preferred by doctors.
Identify new market segments and uses.
Rivals sought previously ignored niches as SP granted six-months to one-year exclusivity for developing previously untapped markets. New applications included getting rheumatologists to prescribe Claritin (an antihistamine for allergies) to patients before treating them with biological products in order to avoid potential allergic reactions. New niches included Claritin for patients under 2 years old.
This intense competition generated by this rivalry discouraged other brands from competing directly with the rivals. Sales forces from other brands did not present their brands as close substitutes for these brands, preferring to keep their distance from this rivalry. This explains why when new products are introduced, they primarily took market share from other brands if they are successful, rather than from the rival brands.
Outsourcing Cloned RivalryWithin-company rivalry has its downsides. At a time in which pharmaceutical firms are downsizing, firms must find ways to increase the efficiency of their sales force while minimizing new employment commitments. Also, the implementation of a flatter decentralized system could be translated into higher costs of time and organizational adaptation for the companies. Therefore, we propose the alternative of outsourcing the cloned rivalry.
In the intensely competitive painkiller market, SP agreed to pay Rimsa, a mid-sized Mexican company, royalties to manage Gammadol, a cloned rival of Rimsa’s Sinergix (Table 2) since the year 2007. The price differences were insignificant. In eight years, both brands increased market share in value despite Sinergix increasing prices by 66% and Gammadol by 33% over the period (Table 3). In contrast, Neo-Melubrina, Tempra and Dolac, which had been the market leader brands in terms of value in 2005 – with a combined market share of 38% in terms of value, and 35% in terms of units sold – lost approximately half of their combined market share in both value and volume, both decreasing to 18%. By 2014, the cloned rivals together captured 5.63% percent of the market value, that is, more than 4 times the share they had from the start of their relationship, managing to be the third most successful molecule in the market despite their high initial price (400% above the market average) and despite increasing their prices while the trend in the market was leaning towards more stable prices (Graph 1). During this same period, generic products as a group realized the largest gains in market share, growing from only 1% in value and volume in 2005, to 10% and 19% in 2014, respectively (Table 2), reflecting the increasingly competitive environment over this period.
Conclusion
Cloned rivalry generates an intensely competitive internal culture that makes it difficult for non-rival firms to compete directly with. For a patented product, cloned rivalry can both improve sales during the patented period while preparing the brand for entry into competition when the patent expires. Competing in the new market environment does not have to mean either low profit margins or focusing exclusively on a small niche of higher income consumers. Through cloned rivalry, firms can build and protect substantial market shares while minimizing price competition. Cloned rivalry provides a simple solution to motivating sales force effort when effort is difficult to observe directly. In a market where sellers depend on doctors to recommend their products, sales force motivation can reflect the difference between adequate and successful product performance.?
References
Kielstra, P. (2011), “Reinventing Biopharma: Strategies for an Evolving Marketplace”, Economist Intelligence Unit, junio, p. 6.
Cloned Rivalry: Motivating the Sales Force for Growth in the Mexican Pharmaceutical Sector
Cristóbal Thompson, Executive Director, Asociación Mexicana de Industrias de Investigación Farmacéutica, AC
Ángeles Martínez, Engagement Manager, Consulting and Services, IMS Health
Edgar Cochran, Instituto Tecnológico Autónomo de México
In globally competitive markets, pharmaceutical firms face a precarious situation: declining loyalty from consumers as they increasingly switch to lesser-known, lower-priced brands, and the proliferation of generic substitutes that compete with the branded products of both national and multinational pharmaceutical companies.
Furthermore, as a large number of old patents are set to expire in the near future, fewer new patented molecules are set to take their place (Kielstra, 2011; Jack, 2011). Unless these pharmaceuticals can introduce new patented products, they fear gradual erosion of the market share and price competition as generic brands sell their products at prices that are, on average, around 55% cheaper (IMS Health, World Review 2013).
To what extent can branded Mexican and multinational pharmaceutical companies maintain brand leadership in the Mexican market?
In what follows we propose a tested strategy, developed in Mexico and Latin America, for growing market share by motivating sales force behavior. Companies using this strategy have been able to maintain or even raise their prices despite the proliferation of generic alternatives in the product category while market leaders’ prices and market shares were eroded. We call this strategy cloned rivalry.
Cloned rivalry
Cloned rivalry is based on the premise that sales forces are more committed and responsive when they are challenged to compete against an adversary brand whose characteristics are identical to their own product. The firm creates its own rival that has identical product and price characteristics as the brand it wants to promote in order to build a culture of intensive competition. Having identical product characteristics strips salespeople and brand managers of any pretext for arguing that sales declined for any reason other than their own lack of effort. The firm challenges the sales force on both sides to take more market share than the other, even when incremental market share is at the expense of their own rival brand. Prices between the rival brands are kept similar so that price cannot be used as a mechanism to compete.
To better understand the concept of cloned rivalry, it would be useful to distinguish it wi two examples of cloned products in the pharmaceutical sector that do not represent cloned rivalry. The first type of cloned products are generic brands that compete in price. Competition between the reputation of the innovative, original brand and the low-price generic brands (that do not have a dedicated sales force) can be intense, but the lost market share of the innovator brand can be attributed to the generic’s lower price, and therefore not motivate the sales force since they cannot be blamed for declining market share. In the worst case, competition degenerates into a price war in which both brands lose.
The second example is that companies often create a cloned brand based on the innovative brand, but without the intention of generating a rivalry between the brands. These new brands typically compete with other brands in different markets and cannibalization of the original brand’s sales is discouraged. If the new brand is offered at a different price then it becomes a way for the firm to price discriminate between different consumer segments. This is again inconsistent with our concept of cloned rivalry.
Schering-Plough and cloned rivalry
Schering-Plough (SP), now owned by Merck (MSD), pioneered cloned rivalry in Latin America. The regional president for Latin America and Asia, Alfredo Blanco, observed that sales of SP products in Venezuela were under-performing. To address sales force apathy, the sales force for a top brand was divided into two groups, with one group competing to sell a clone of the original brand. The new strategy worked better than expected and was quickly adopted in other countries in Latin America during the 1990s and early 2000s, as these positive results were replicated elsewhere.
SP introduced the patented molecule Rinelon SP introduced the patented molecule Uniclar, was introduced two years later (Table 1) when Rinelon had reached the peak market share attainable without cloned rivalry. The two rivals quickly took over half of the entire market despite the entry of two new patented entrants around the same time. More than a decade later, they maintain their dominance despite the entry of three new alternatives (two of them patented) between 2008 and 2010. Although these new brands captured 28% of the market by 2011, only 5% of that was taken from the SP brands, while the remaining competitors’ shares declined from a collective 42% to only 20%.
Cloned rivalry leads to important behavioral changes as explained by Critobal Thompson, a co-author of this paper, and ex-manager of Mexico as well as ex-brand manager for SP who was responsible for developing a rival brand.
Organizaciones más planas. Managers welcome insight from the sales force as they seek any small advantage they can gain over the rival brand.
Flatter organizations. Las marcas iniciaron cambios en la presentación o posicionamiento de los productos para satisfacer necesidades específicas detectadas en el mercado. Por ejemplo, en el mercado de esteroides intranasales, los diseños de los envases de Rinelon y Uniclar se modificaron para que fuesen más fáciles de abrir y usar. Por supuesto, los beneficios que trajeron muchos de estos cambios fueron temporales, pues la marca rival copiaba cualquier modificación que reportara ventajas. Sin embargo, otros competidores ignoraban esta rivalidad, por lo que los cambios podrían tener ventajas de largo plazo para las marcas rivales ante el resto de la competencia.
Rapid organizational response. The brands quickly initiated changes in product presentation or positioning to meet specific needs identified in the market. For example, in the intranasal steroids market, the designs of the containers of Rinelon and Uniclar were modified so that they could be easier to open and to use. Of course, many of these changes led to only temporary benefits as the rival would copy any changes that led to clear advantages. However, other competitors would ignore this rivalry, so these changes could have longer-term advantages for the rival brands vis-à-vis the rest of the competition.
Improved service. Since the rival products were identical and the rivalry was the focus of these two brands’ competition, salespeople had to look for factors other than product differentiation to generate an advantage. The main differentiation then became in the services provided by the salespeople as they competed to better meet the doctors’ needs, providing doctors’ requests for product information the following day instead of waiting until their next monthly visit, and preparing easy-to-read summaries that were preferred by doctors.
Identify new market segments and uses.
Rivals sought previously ignored niches as SP granted six-months to one-year exclusivity for developing previously untapped markets. New applications included getting rheumatologists to prescribe Claritin (an antihistamine for allergies) to patients before treating them with biological products in order to avoid potential allergic reactions. New niches included Claritin for patients under 2 years old.
This intense competition generated by this rivalry discouraged other brands from competing directly with the rivals. Sales forces from other brands did not present their brands as close substitutes for these brands, preferring to keep their distance from this rivalry. This explains why when new products are introduced, they primarily took market share from other brands if they are successful, rather than from the rival brands.
Outsourcing Cloned RivalryWithin-company rivalry has its downsides. At a time in which pharmaceutical firms are downsizing, firms must find ways to increase the efficiency of their sales force while minimizing new employment commitments. Also, the implementation of a flatter decentralized system could be translated into higher costs of time and organizational adaptation for the companies. Therefore, we propose the alternative of outsourcing the cloned rivalry.
In the intensely competitive painkiller market, SP agreed to pay Rimsa, a mid-sized Mexican company, royalties to manage Gammadol, a cloned rival of Rimsa’s Sinergix (Table 2) since the year 2007. The price differences were insignificant. In eight years, both brands increased market share in value despite Sinergix increasing prices by 66% and Gammadol by 33% over the period (Table 3). In contrast, Neo-Melubrina, Tempra and Dolac, which had been the market leader brands in terms of value in 2005 – with a combined market share of 38% in terms of value, and 35% in terms of units sold – lost approximately half of their combined market share in both value and volume, both decreasing to 18%. By 2014, the cloned rivals together captured 5.63% percent of the market value, that is, more than 4 times the share they had from the start of their relationship, managing to be the third most successful molecule in the market despite their high initial price (400% above the market average) and despite increasing their prices while the trend in the market was leaning towards more stable prices (Graph 1). During this same period, generic products as a group realized the largest gains in market share, growing from only 1% in value and volume in 2005, to 10% and 19% in 2014, respectively (Table 2), reflecting the increasingly competitive environment over this period.
Conclusion
Cloned rivalry generates an intensely competitive internal culture that makes it difficult for non-rival firms to compete directly with. For a patented product, cloned rivalry can both improve sales during the patented period while preparing the brand for entry into competition when the patent expires. Competing in the new market environment does not have to mean either low profit margins or focusing exclusively on a small niche of higher income consumers. Through cloned rivalry, firms can build and protect substantial market shares while minimizing price competition. Cloned rivalry provides a simple solution to motivating sales force effort when effort is difficult to observe directly. In a market where sellers depend on doctors to recommend their products, sales force motivation can reflect the difference between adequate and successful product performance.?
References