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R & D TO MARKETING TRANSITION:

USING MARKETING RESEARCH

TO ACHIEVE

HAND OVER VS. HURL OVER

C.E. Sibley

25 June 1999

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OUTLINE

• Marketing, Marketing Research and R&D

• New Product Development

• Marketing Research in the Consumer

Products vs. Pharmaceutical Industry

• Marketing Research Role in Pharmaceutical

New Product Development

• Case Studies

• Conclusions

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THE DILEMMA:

R&D VS. MARKETING VS. THE CUSTOMER

THE NEW PRODUCT

As Manufacturing made itAs Marketing requested it

As Managed Care wanted it As Advertising sold it What the customer wanted!

As R&D developed it

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THE DILEMMA: WHAT DOES THE CUSTOMER WANT?

A VW CONVERTIBLE

WHAT THE...

DAUGHTER

WANTED

MOTHER

WANTED

FATHER

WANTED

DAUGHTER’S BOYFRIEND

WANTED

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MARKETING RESEARCH: THE LINK BETWEEN MARKETING AND R&D

R&D: “Ready! Aim!”

Marketing: “Fire! Ready! Aim!”

Marketing Research: “Ready! Aim! Fire!”

MR

• PROFIT

• PRODUCT LAUNCH

• PRICING/PROMOTION

• SALES

• SCIENCE

• PRODUCT

DEVELOPMENT

• SAFETY/EFFICACY

MARKETING R&D

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Dimension Marketing R&D

Time Orientation Short Long

Projects Preferred Incremental Advanced

Ambiguity Tolerance High Low

Departmental Structure Medium Low

Bureaucratic Orientation More Less

Orientation to Others Permissive Permissive

Professional Orientation Market Science

Professional Orientation Less More

1) Lorsch, Jay & Lawrence, Paul: Organizing for Product Innovation,

Harvard Business Review Jan - Feb 1995

2) Gupta, Ashok et al: R&D and Marketing Managers in High Tech Companies: Are

They Different? IEEE Transactions on Engineering Management EM-33; Feb 1986

MARKETING AND R&D DIFFERENCES

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MARKETING AND R&D TRAITS

Goals and Aspirations:

•Knowledge as a source of value to mankind

•Research for research’s sake

•Peer evaluation and recognition

•Organizational survival and growth

•Organizational recognition

Needs:

•Autonomy

•Peer recognition, creative environment

•Continuing education and development

•Plans, procedures, policies, rules

•Organizational recognition, status

•Teamwork

Motivation:

•Publications

•Patents with name attached

•Freedom to solve problems, and advance

knowledge

•Rewards and sanction system with pay and

advancement through organization

R&D Traits Marketing Traits

3) Saxberg, B. and Slocum J.W.: The Management of Scientific Manpower, Management & Science, 14 (1968)

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“Marketing is too important

to be left to the

Marketing Department.”

David Packard

Co-founder, Hewlett-Packard

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NEW PRODUCT DEVELOPMENT (NPD): THE BASICS

1) Determine what customers want and need

2) Develop the product or service that meets

that need

3) “Shepherd” the product through the

corporate infrastructure and into the

marketplace

4) Abbie Griffin, Professor, The University of Chicago Graduate School of Business

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CRITICAL SUCCESS FACTORS IN NPD

• Clear Goals and Objectives

• Realistic Assessment of Company’s Core Competencies

• Competitive Assessment

• Senior Management Support

• Product Champion

• Dedicated Key Resources

• Multidisciplinary Teams

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BUT NEW PRODUCT SUCCESS IS ELUSIVE FOR CONSUMER PRODUCTS...

• 13 new product ideas 1 product

• 56% of products launched are not on the market 5 years later

• Only 17% of new marketed products meet stated businessobjectives

• 39% of proposed new products begin developmentprocess*

• Product failure rates have not changed much in 25 years

5) *Group EFO, 1992

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…AND EVEN MORE ELUSIVE FOR PHARMACEUTICAL PRODUCTS

• $600 million to develop a new drug

• 1 in 5,000 chemically synthesized agents is approved in US

• 3,300 person years estimated to develop a drug (Lilly)

• Probability of product reaching market:

(Lehman Brothers/Zeneca estimates, 1996)

• 3-5% in preclinical

• 10% Phase I

• 30% Phase II

• 60% Phase III

• 90% after application filing

• 50% of R&D devoted to innovation, 50% to “me-toos” (Genesis report, 1992)

7 OF 10 MARKETED PRODUCTS DO NOT RECOUP R&D COSTS

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KEY AREAS OF

MARKETING RESEARCH INPUT

1. Identifying/assessing unmet needs

2. Generating and screening new ideas

3. Developing new products according to the

market’s needs

4. Identifying and segmenting customers

5. Testing promotion/advertising/communications

6. Post-launch tracking and evaluation

Asking the right questions!

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MARKETING RESEARCH IN THE CONSUMER PRODUCTS INDUSTRY

• Significant role of Marketing Research in NPD

- concept/idea screening

- concept testing

- product use tests

• Decision criteria: Hurdles/Norms

- “red pepper pieces”

• Customer use is observed

• Heterogeneous populations

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PHARMACEUTICAL INDUSTRY: R&D ISSUES

• Focus on science (The “steak” vs. the “sizzle”)

• Very difficult to “kill” new products

• Pharmaceutical “Field of Dreams”:

“We will build it and they will come!”

• Long new product development time

- up to 5 years in animal studies

- up to 10 years in human/clinical trials

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PHARMACEUTICAL INDUSTRY: MARKETING ISSUES

Decision Maker Prescriber User Payer

- Decision maker may be committee

- Prescriber is physician

- Dispenser is pharmacist

- User is patient

- Payer may be Managed Care Organization (MCO), Government

•Regulations govern promotion

•Product managers frequently come from sales

•Homogeneous populations

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• Limited ability to modify the product

• How to test concepts based on animal data?

• How to research diseases with no current

adequate cure? (“Woodwork” diseases)

• How to assess impact of non-drug

therapies? (surgery, herbal medicine)

PHARMACEUTICAL INDUSTRY: IMPLICATIONS FOR MARKETING RESEARCH

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• Historical dependence on secondary (sales) data

• Later adoption of primary research techniques,

especially quantitative

• Importance of Opinion Leaders

underrepresentation of “typical” MD?

• Segmentation based on physician specialty,

type of practice, rather than demographics

• Cannot conduct in-use product tests: how to evaluate

pill size, color or flavor?

PHARMACEUTICAL INDUSTRY: IMPLICATIONS FOR MARKETING RESEARCH cont.

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HOW IS THE PHARMACEUTICAL INDUSTRY CHANGING ?

• R&D spending increases may exceed sales

growth

• Focus more on Outcomes

Marketing Research has a more important

role & contribution

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MARKETING RESEARCH ROLE IN PHARMACEUTICAL NPD: PRE-CLINICAL

• Establish medical need

- identify gaps

- preliminary market potential

• Competitive Assessment

- size, dynamics of market

- habits and practices

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MARKETING RESEARCH ROLE IN PHARMACEUTICAL NPD:

“The goal is not simply an approvable NDA, but an

approvable and marketable NDA”.

Dr. Domenico Criscuolo, Head of International

Clinical Research and Drug Safety;

Roche Italy (1994)

“It’s not the risk of failing to achieve an R&D goal that

worries management. It’s the risk that it may fail to turn

an R&D success into a commercial success”.

François L’Éplattenier, R&D Head, Novartis (Ciba-Geigy)

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MARKETING RESEARCH ROLE IN PHARMA NPD: CLINICAL TRIAL DESIGN

• Dosage

• Why develop TID (3x/day) when market is BID or QD? (“Make it QD or nothing!”)

• Patient Lifestyle Issues*

• Trials among schizophrenia patients functional in community; hospitalization

required for administration of the drug

• Outcome: poor trial recruitment since patients feared loss of accommodation in

halfway house due to hospitalization

• Comparator Selection

• choice of leading (older) product vs. newer product likely to become Gold

Standard

• Key Indications

• identification and assessment of most important indications and levels

• Outcomes

• identify relevant outcomes

• *McNally, Moench, Abrams, Scrip July/August, 1996

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- Estimating Market Potential

- SWOT analysis

- Competitor assessment

- Market evolution

- Risk Factor Analysis

- perceived need/satisfaction with current treatments

- cost-effectiveness issues

- differentiating attributes

-portfolio impact

- Target Audience Identification

- potential prescribers

- new vs. switch therapy

- optimal target profile

- Pricing

MARKETING RESEARCH ROLE IN PHARMA NPD: THE PRE-MARKET PLAN

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MARKETING RESEARCH ROLE IN PHARMA NPD: LAUNCH/POST-LAUNCH

• Positioning

- development

- testing

• Communications/Advertising

- development

- testing

- tracking/measuring

• Post-Launch Tracking

- awareness & usage

- market impact

- “early warning” signs

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PHARMACEUTICAL CASE STUDY: CLINICAL ATTRIBUTE ASSESSMENT

Business Issue: The number of potential indications and attributes

which could be pursued was excessive, given budget

and time constraints

R&D Issue: All were desirable

MR Issue: Identify differentiating attributes from “nice to haves”

and “so whats?”

Prioritize attributes/indications in terms of

contribution to product share/value

Choice modeling and part worth assessments

were used

Outcome: Key attributes/indications were pursued

Filing was on time

Market success

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PHARMACEUTICAL CASE STUDY: VARICELLA ZOSTER VIRUS FORMULATION

Business Issue: R&D developed a drug for treating Varicella

Zoster Virus (herpes zoster, or shingles)

R&D Issue: R&D strongly recommended spray formulation, based

on Opinion Leader input

- patients avoid touching lesions

- “cooler” feeling

MR Issues: Obtain reactions from actual users

Patients aren’t scientists

Outcome: Patients overwhelmingly preferred cream formulation

- more soothing

- no “sting”

- no aversion to touching one’s own lesions

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MEDICAL PRODUCT CASE STUDY:SURGICAL ADHESIVE TAPE

Business Issue: Develop a surgical tape to compete with the market

leader

R&D Issue: Tests included adhesion to glass, ease of dispensing

MR Issues: Patients’ skin is not like glass

Ease of dispensing measured pressure needed to pull tape

straight out, not at angle with one end in mouth while

subduing squirming child!

Outcome: R&D team members invited to focus groups

Developed understanding of real-world product use

Developed new tests to evaluate adhesion and ease of dispensing

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A CASE STUDY: EURO DISNEY

The Business Issue

• Transfer the successful Disneyland concept

to Europe

The Situation

• Euro Disney opened April 1992

Hartley, Robert F.: Marketing Mistakes, Sixth Edition; 1995.

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Outcome

• Attendance approximated forecasts (11 million per year)

• But revenue and profitability were significantly under forecast-average stay was 2 days vs. 3-4 in US

Research Issues

• Cultural-no alcohol served in the park

-breakfast: “We were told that Europeans don’t take breakfast, so we downsized

the restaurants.”

-miscalculation in peak times (Monday vs. Friday)

-inability to make employees redundant in slow periods (French law)

• Pricing-higher absolute pricing than in US ($43 entrance fee, $340 per night hotel stay)

-economic recession in Europe

Result consumers brought their own food and did not stay in hotels

A CASE STUDY: EURO DISNEY cont.

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A CASE STUDY: (NEW) COCA-COLA

The Business Issue

• Coke lost share to Pepsi, despite heavier advertising budgets

and more outlets

• In taste tests -- by both Pepsi and Coca-Cola -- consumers

preferred Pepsi’s sweeter taste

The Situation

• Massive Market Research program implemented (200,000

Consumers; $4 million budget)

• Coca-Cola was reformulated: New Coke (sweeter)

• Introduced with huge media campaign

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Outcome• Consumer backlash against the Coca-Cola Company

• Decision to re-introduce “Old” Coke as Coke Classic

POST- MORTEM

Research Issues• 55% favored New Coke

• Consumers weren’t told that New Coke would replace “Old” Coke

• Strength of preference was underestimated: emotional ties to product

• Bottlers were expected to be opposed to adding another cola

(they were not!)

• Taste Tests: sweeter flavors preferred in US, but preference tends

to diminish with use

A CASE STUDY: (NEW) COCA-COLA cont.

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CONCLUSIONS: TEN WAYS TO MAKE MARKET RESEARCH LOVED AND NEEDED BY R&D

1) Provide insight and foresight -- not just hindsight

2) Analyze -- do not paralyze with data

3) Speak their language (probability, confidence intervals)

4) Involve them in Market Research to hear real users discuss

their product use in real life...

5) …and to hear why non-users do not purchase/use

6) Focus on outcomes and applications

7) Focus on the “steak”, not the “sizzle”

8) Develop Go/No Go decision for each stage based on

MR and clinical research results

9) Provide “typical” MD input to complement OL input

10) Help avoid “creeping elegance” (overdesign of features)