Pharmacia Corporation: Pharmaceutical Segmentation

INDUSTRY OVERVIEW

Pharmacia is one of the top pharmaceutical companies in the world. The recent merger with industry leader Pfizer increased its global market share from 4 to 12 percent. (GlaxoSmithKline, the sec- ond major player in the industry, has slightly more than 7 percent global share.) Pfizer and Pharmacia will bring 11 one-billion-dollar products (in revenues) to the pipeline and approximately fifteen new products within the next five years.

BRIEF HISTORY

Pharmacia traces its roots back to 1853 when a leading Italian pharmacist started his own company. In 1931 the company merged with Kabi Pharmacia. In 1995 Pharmacia merged with Upjohn, an es- tablished Michigan company. In 2000, Monsanto, Pharmacia, and Upjohn completed a merger, creating a dynamic new competitor in the industry, Pharmacia Corporation.

In 2002, Pfizer acquired Pharmacia Corporation, making it the larg- est pharmaceutical company in the world. Sales for Pharmacia alone exceeded $13 billion in 2001. There are six key pharmaceutical prod- ucts: Celebrex (arthritis/inflammation), Bextra (arthritis and dysmenorrhea), Xalatan (open-angle glaucoma), Detrol (overactive bladder), Camptosar (colorectal cancer), and Zyvox (gram-positive infections). The company's major markets are the United States, Japan, Argentina, Italy, Brazil, Canada, France, United Kingdom, Germany, and Mexico.

INDUSTRY CHALLENGES AND MARKET SEGMENTATION

A new conservatism within the world's most important regulatory agency, the U.S. Food and Drug Administration (FDA), is slowing product flow within the industry and introducing many uncertainties. Delays in new product flow are adding stress to those companies that are losing marketed products to generic erosion. In addition, reduced government revenues are increasing pressure for tighter health care budgets and more stringent price controls on drugs. One of the greatest challenges is to build new and better medicines, providing patients and physicians with a choice of the best and newest treatments. In order to accomplish this, companies must implement strategic seg- mentation plans for physicians, patients, and managed care organizations.

PHARMACEUTICAL SEGMENTATION BASES

The pharmaceutical industry is in need of more segmentation tools in an ongoing effort to establish close and sustainable relationships with customers. Market segmentation is the method of choice for identifying and influencing target groups. A predominant approach in this industry is to crudely divide physicians into categories such as rational, intuitive, traditional, or aggressive. Some companies seg- ment customers as "dynamic innovators" or "old conservatives." Other segmentation approaches used in the pharmaceutical industry include these:

1.Heavy versus light users: Prior to 1996, Pharmacia operated on the basis of key heavy users or prescription volume to segment the market; for example, a physician's volume was the predictor for the product potential. Today, physicians are segmented into heavy versus light users or loyal versus nonloyal customers.

2.Buying styles segmentation: There are four basic buying styles:

a.Control and choice: These physicians are drivers and tend to be directive, to the point, and fast moving. They are catego- rized as outgoing and task oriented, focused on the bottom line. These physicians like a challenge, so appeal to their sense of individual accomplishment.

b.Attention and approval: These physicians are spontaneous and people oriented. Physician who exhibit this style want to connect with their patients. They tend to be more expressive and want to inspire and influence others. These physicians buy because they will stand out from the crowd and their sense of popularity and position will be fulfilled.

c.Quality and correctness: These physicians have a need for facts and figures to determine product quality and perceived correctness. They are logical and analytical and tend to be cautious. These customers buy as a result of the representa- tives' accuracy and accountability.

d.Safety and security: These physicians are steady and support- ive. Physicians who exhibit this style want things to be the same and they know what they like. Representatives should emphasize the safety and efficacy information of the drugs.

3.Demographics: Constant demographic changes will continue to provide the industry with opportunities for growth well into the future. People are living longer and enjoying active lifestyles at an older age; they are demanding new and better medicines to help them maintain their quality of life. Even with the dramatic advances in science in recent years, there is a wide range of un- met medical needs in disease areas as cancer, inflammation, stroke, Alzheimer's, depression, and asthma. Pharmacia Corpo- ration has taken advantage of this opportunity and has launched different medicines to cover these areas. For example, the launch of the hormone replacement drug Activella in 1998 opened a window for better health and management of symptoms for menopausal patients. Detrol, introduced in 1998, allows pa- tients to have more bladder control and increased quality of life.

4.Managed care segmentation: Managed care influences physi- cians' prescription behavior. Physicians are segmented by man- aged care plan activity and patient volume within each plan. Short-term promotional campaigns are implemented to advise physicians of formulary changes, especially if a medication is the first choice in a particular plan.

5.Segment based on region: Each sales representative is responsi- ble for a group of zip codes or regions. Some regions, such as New York City, Chicago, or Miami, have a large volume of pre- scriptions within a small region in contrast to Ohio or Tennessee where physician offices tend to be distant from one another. These regions are segmented into business volume for each zip code. The representative manages the territory according to pre- scription volume, managed care trends, and individual business potential.

AN RX FOR PHARMACEUTICAL SEGMENTATION

We are entering an age of increasingly individualized or seg- mented health care. Pharmaceutical companies have to start dealing with smaller customer groups. This case deals with different aspects of the pharmaceutical segmentation; however, there is not a universal direction for segmenting customers. This industry must analyze cus- tomers (physicians and patients) by factors such as demographics and specialties and identify precise targets. There is a need for micro- segmentation, a far more individualized approach to doing business. The suggested approach includes these steps:

1.Segment groups on the basis of health behavior, not physician specialty.

2.Develop the best offering for segments in terms of content, in- teractive tools, marketing messages, and information for con- sumers and physicians.

3.Segment by diverse patient populations and languages.

4.Segment into narrow therapeutic indications.

5.Develop a comprehensive model to predict physicians' pre- scribing behavior based on multiple, relevant segmentation variables.

END-OF-CASE QUESTIONS

1.Critique Pharmacia's approach to segmenting markets.

2.How can Pharmacia improve its physician segmentation plan? Consider prescription sales potential, regional markets, ac- count-specific information, product differentiation, and behav- ioral approaches in your analysis.

3.What variables should be part of an integrated pharmaceutical segmentation model?

Thanks in advance :)