Swimming in Drugs: Blue Ocean Strategy in Pharma
By
Jacqueline Claudia, Senior Consultant, DSI
Blue Ocean Strategy1, authored by W. Chan Kim and Renee Mauborgne, has gained a tremendous following in the business since its publication in 2005. The basic idea is to make the competition irrelevant through value integration – the simultaneous pursuit of differentiation and lower cost. Unlike many of the trendy management theories of the past, Blue Ocean Strategy might be here to stay. Why? The methodology is robust, applicable across industries, and provides practitioners unique competitive advantage that is not easily duplicated – even if competitors are also using Blue Ocean Strategy (BOS).
Although this may sound too good to be true, let’s test this theory in an industry that seems like an unlikely candidate: Pharmaceuticals2. In pharma, the goal is to treat (or prevent) a condition and there are often several molecules (or pathways) to accomplish the same goal. Different molecules can be effective, patent life is short, cost pressure is high, and competition is intense. Pharma seems like a Red Ocean, where many players compete in the same segment in a similar fashion.
The BOS diagnostic map of the Pioneers-Migrators-Settlers (PMS Map) is a useful way to visualize the dynamic nature of the pharmaceutical industry. First, each business is plotted according to revenue size and the characteristics of the offering relative to the competition. Pioneers have a value curve that is significantly different than the competition in Blue Oceans that offer great potential for growth. On the other extreme are Settlers, me too businesses, that compete in a Red Ocean. Many products start out as a Pioneer, but without sufficient attention to the value curve, migrate downwards over time as competition imitates and intensifies. If we plot pharmaceutical products on the PMS Map, most products make this decent from Blue Ocean to Red Ocean quickly.
Figure 1 - Pioneers-Migrators-Settlers Map
In most highly regulated industries, Blue Ocean Strategy is about finding new space within an existing market, although not always. Slowing the descent into a Red Ocean, or “staying pink”, for a few extra years translates into a lot of money especially in the pharmaceutical world. The “creativity” of pharmaceutical companies is limited by the approvals and indications surrounding its molecules. Because there is limited flexibility with the molecule, the softer elements of the product offering may contain hidden value: patient/physician/payer experience, product features like delivery mechanism, messaging, back-end information, clinical support, etc. Often these more emotional elements can provide much needed differentiation when science or price fall short. Blue Ocean Strategy is a tool particularly well suited to understanding the softer elements of a product offering. By forcing practitioners to think in the frame of different customer groups, BOS helps to uncover how customers experience a product, make decisions about these products, and what dissatisfactions customers experience today.
The key to maximizing the value of Blue Ocean Strategy in this environment is to recognize that ideas are not regulated – only implementations are. Even though some of the ideas coming out of Blue Ocean Strategy may not seem practical, careful exploration can often unveil creative programs that stay well within legal and ethical boundaries.
For example, there are many ways to address the increasing pressure on cost in the pharmaceutical industry. Traditionally, pharmaceutical companies have focused on relationships with payers and contract pricing to keep products accessible and slow migration to generics. However, Blue Ocean Strategy exploration has uncovered some novel ideas to address this cost pressure:
- Promote creative financing schemes rather than reduce price prematurely – give away expensive hospital IV drugs for free if they agree to switch to the more patient friendly branded product on release
- Mine a customer’s own data to demonstrate cost effectiveness
- Offer value added services that reduce overall cost, like outcomes tracking or patient education programs
- Focus on simple messages that require fewer marketing dollars to communicate
- Use higher pricing as a way to signal a premium product – set an emotional gold standard that patients demand
Even though these ideas may cost money to implement, a key tenant of Blue Ocean Strategy is to reduce or eliminate elements of a product that are not contributing value. This frees up resources to add or enhance elements that will create sustainable competitive advantage. The pharmaceutical industry has a long history and tradition of how products are delivered and marketed, which isn’t always ideal. Budgets are divided up into journal advertising, trade shows, collateral, samples, sales force, etc. and typically allocated based on last year. Blue Ocean Strategy can highlight elements that are no longer important to customers and can ultimately lead to cost savings. Here are some other places that pharmaceutical teams found ways to reduce or eliminate cost:
- Internal planning efforts – it takes much time and energy to prepare three strategy presentations a year, when one well done presentation can suffice. Additionally, teams focus energy on having “new” stuff to present rather than on activities that are going to drive long term value
- Communication channels – tools should be matched to the message and customer – are trade shows, journal advertising, and quarterly updates to marketing collateral really the best way to reach and motivate targets?
- Sales force deployment – a more focused strategy can often be executed with less people
In addition to generating a portfolio of ideas and initiatives for the product, spending a day doing Blue Ocean Strategy with a team has many positive side effects. In the highly competitive pharmaceutical world, people do not always think holistically about the product. Great efforts are focused on solving tactical issues and navigating internal politics. Blue Ocean Strategy exercises require one to step back and think about the customer experience, where the product is good and bad, and how competitors are approaching the challenge. Because Blue Ocean Strategy compels a team to make trade-off decisions around the product, it can be a great integration and consensus building mechanism. Improved internal alignment necessary for successful change of any kind is gained. Teams leave energized, empowered with a clear shared vision, and armed with a portfolio of ideas to explore.
DSI’s experience guiding pharmaceutical clients through the exercises of Blue Ocean Strategy has revealed opportunities for growth by:
- improving issues that cause poor compliance
- reaching an undiagnosed population
- attacking non-customers of the industry, not just of the product
- targeting the right population – achieve deeper penetration by being selective
- bridging the gap between market perception and actual profile
- matching the right tool to the right population – sales force isn’t always the best way to reach a customer
- moving customers away from the science by making an emotional appeal
In summary, even in a highly regulated environment like the pharmaceutical industry, Blue Ocean Strategy exploration can unlock enormous value. Viewing the product offering from the various customer perspectives will uncover opportunities for growth and differentiation as well as highlight expenses that are not contributing value. Finally, the simple process of exploring Blue Ocean Strategy as a team can build a culture of innovation and collaboration, promoting an environment for positive change within the organization.
* DSI's Senior Partner, Roch Parayre, is one of a few officially certified US practitioners of Blue Ocean Strategy by the authors of the book. To learn more about Blue Ocean Strategy and how it can be applied in your industry or company, feel free to contact the author for more detailed information at claudia@thinkdsi.com.
Notes
1 W. Chan Kim & Renee Mauborgne, Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant, (Boston: Harvard Business School Press, 2005).
2 Pharmaceuticals have historically had very high returns on capital. But of late, this remarkable wealth creation has waned due to increasing regulatory pressure, fewer blockbuster drugs, changes in the delivery model, etc.
