The development of a generalized brand portfolio for pharmaceutical companies for analyzing brand architectures within the pharmaceutical

market

By Prof. Dr. Christoph Burmann

Dipl.-Kfm. Christopher Kanitz

Research Paper Submitted to

The Thought Leaders International Conference on Brand Management Lugano, 18 – 20th

April 2010

Contact: Dipl.-Kfm. Christopher Kanitz Chair of innovative Brand Management (LiM) Univ.-Prof. Dr. Christoph Burmann University of Bremen Hochschulring 4 / WiWi-Building 28359 Bremen / Germany e-mail: christopher.kanitz@uni-bremen.de Tel: +49 (0)421 218 8605

The development of a generalized brand portfolio for pharmaceutical companies for analyzing brand architectures within the pharmaceutical market Abstract The pharmaceutical industry is faced with high competition, decreasing growth rates and a less number of innovative, new ingredients. This raises the question whether the current innovation and product-oriented business model of pharmaceutical companies is the right one to face future challenges. One of the most important and necessary constituents of possible changes is to be able to coordinate, communicate and address all the existing brands to the different stakeholders. This requests a systematic approach of strategic pharmaceutical brand management. Although past research already dealt with several pharma-specific brand topics, only specific areas were covered. A holistic approach is still missing. With the help of the identity-based brand management approach this paper systemizes the field of strategic pharmaceutical brand management to widen the field for future research. For this purpose a highly diversified pharmaceutical brand portfolio is affiliated and structured. The research purpose based on the main hypotheses regarding pharmaceutical brand architecture is derived and states an increasing importance of corporate brands within pharmaceutical brand portfolios. Keywords: identity-based brand management, brand portfolio, brand architecture, pharmaceutical market

The development of a generalized brand portfolio for pharmaceutical companies for analyzing brand architectures within the pharmaceutical market 1. Introduction The pharmaceutical industry is faced with high competition, decreasing growth rates and a less number of innovative, new ingredients. Many high volume patents are expiring in near future (Bernard, 2009; Illert and Emmerich, 2008). The age of billion dollar drugs, which are called ‘blockbusters’ seems to be almost over (Scott, 2008), even currently existing blockbusters are generally a result of M&A activities from large pharmaceutical companies (Jasch, 2008). Also the R&D process is going to get more and more conservative. The focus switches from new innovative ingredients to the better improvement of already existing drugs because of less significant research results in developing new revolutionary entities (Barczak, Griffin and Kahn, 2009). Although companies with high innovative drugs realize higher profits than companies which concentrate on small therapeutical improvements (Bierly and Chakrabarti, 1996; Roberts, 1999; Sorescu, Chandy and Prabhu, 2003; Yeoh and Roth, 1999). An investigation further shows that the ideal pipeline with new ingredients should be larger than it actually is (Ding and Eliashberg, 2002). This explains the current lack of new entities within the industry for most pharmaceuticals. Also societal pressure increases underlining the ethical and social responsibility of pharmaceutical companies and their influence on the health environment (Leisinger, 2005). Besides to the fact that pharmaceutical companies are commercial institutions with the intent to gain profits, their part is highly delimited by their role in health care, while health is defined as “…a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity” (WHO, 1946, p. 2). These changes raise the question whether the current business model of pharmaceutical companies is the right one to face future challenges or if significant shifts have to be placed. Very early Wernerfelt and Karnani realized that the strategic fit between the innovation and the corporate strategy is highly important for a competitive corporate profitability (Wernerfelt and Karnani, 1987). The increasing trend towards customization also takes place in the pharmaceutical industry (Scott, 2008). The consequence for the pharmaceutical research is to develop ingredients which are focused on very specific parts of an indication and have to be able to heal or palliate scarce diseases (Gassmann and Reepmeyer, 2005). To follow Wernerfelt and Karnani also the corporate strategy has to adapt to these changes which has an influence on business models and marketing investments. One of the most important and necessary constituents is to be able to coordinate, communicate and address all the existing brands to the different stakeholders (cp. Chapter 2) (Chailan, 2008; Rajagopal, 2007). A brand has a certain personality and gives additional value, also for drugs (Kapferer, 1997). This requests a systematic approach of strategic pharmaceutical brand management. Although past research already dealt with several pharma-specific brand topics, only specific areas were covered. A holistic approach which deals with the specific destinctions of the pharmaceutical market is still missing. The aim of this paper is to systemize the field of strategic pharmaceutical brand management to widen the field for future research. For this purpose a short overview of the specific characteristics of the pharmaceutical market is given, the relevance of brands within the pharmaceutical industry is derived from the specific setting and the highly diversified brand portfolio is affiliated and structured as a basis for specific branding strategies. The paper finishes with the discussion of the research purpose, where the main hypotheses based on the pharmaceutical brand portfolio are affiliated.

2. Specific characteristics of the pharmaceutical market To define a competitive brand context it is necessary to understand the actors in the pharmaceutical market. The constitution of stakeholders is very specific. On the demand site the majoritarian addressees of communication activities are physicians, pharmacies and hospitals. Patients are addressed with different approaches between the US and other countries. In the US the FDA (Federal Drug Administration) explicitly allowed the direct advertising of prescription drugs (Rx) with patients (Benson, 2001; Devereux, 2001; Friedman and Gould, 2007). The direct-to-consumer-advertising enables a broader marketing approach in US and explains in parts the high importance of the US pharmaceutical market (EFPIA, 2007; Tipton, 2001) but is also under particular surveillance because of the threat of inadequate risk communication (Friedman and Gould, 2007). In other countries only the communication of over-the counter (OTC) drugs can be directed to patients. But none of these stakeholders are typically payers (except for OTC drugs). This is the responsibility of the health care system in each country, including the government and health insurance companies (Breedveld, Meijboom and De Roo, 2006). A health care system is defined as “…a formal structure for a defined population, whose finance, management, scope and content is defined by law and regulations. It provides for services to be delivered to people to contribute to their health and health care, delivered in defined settings such as homes, educational institutions, workplaces, public places, communities, hospitals and clinics […]” (Roberts, 1998, p. 46). In contrast to traditional consumer markets the pharmaceutical sector is characterized by a split between buyer, payer and consumer. The physician is typically the “buyer” of a drug because he has to prescribe it. The health care system is generally responsible for reimbursement and earns the “payer” role while the patient is the “consumer” of the drug. Also the pharmacies take a specific role in the process as dispensers of drugs (European Commission, 2008). This leads to a specific market with a more complex stakeholder structure and the necessity of diversified messages. 3. Systemization of pharmaceutical product brands While the stakeholders of pharmaceutical companies are very multifaceted especially in the way they have to be addressed, also the portfolio of different brands is highly diversified. Before going into detail the brand term has to be defined. A brand is a “bundle of benefits, i.e. an object with other dimensions added in order to differentiate it sustainably in some way from another object designed to satisfy the same need” (Burmann, Hegner and Riley, 2009, p. 116). Specific product characteristics of pharmaceuticals require a stronger delineation of several brands, e.g. the degree of innovation. There is a significant difference between innovative original and generic “me-too” drugs within their brand attitudes and possible strategies of differentiation. Prescription drugs usually have a very restricted and short life cycle. Marketing investments are focused on short and midterm effects within the term of a patent (Moss, 2008). Also the need of prescription restricts regulatory feasibilities. A differentiation between Rx drugs (Prescription drugs, which have to be prescribed by a physician) and OTC drugs (which are traded over the counter) seems necessary. The innovation as well as the need for prescription allows all possible combinations for a drug. This implicates four different possible kinds of product brands within the portfolio. In the current view especially OTC drugs are managed as consumer goods because of less

restrictions and direct-to-consumer-advertising. The originator companies focus on their most important blockbuster brands and communicate mainly important medical information through the sales force at physicians. A strategic brand management that includes the examination of different drug types within a brand portfolio is not implemented yet in the industry. The last paragraph highlighted the different types of already marketed products. In the pharmaceutical industry also the development of drugs has an important role in building significant brand perceptions. Stage II of the clinical trials focuses on the efficacy of the ingredient and stage III gives further information about security and efficacy reasons with a larger sample. In these stages before market approval study results have to be published regularly. Physicians as one fraction of the addressees can get these information and form their opinion. These research results can have an influence on the drug perception of physicians. There is a first preference building process within the pre-marketing phase although the drug is not allowed to hold a branded name during this stage, therefore INNs (International Nonproprietary Names) are common (WHO, 2009). A further dimension that frames the marketed drugs and drugs in development is the fact whether it is either a single-owned brand of one corporation or a shared brand owned by two or more companies. Branding approaches could also differ between these two shapes. Fig. 1 summarizes the different kinds of product brands relevant within the pharmaceutical industry.

Insert Figure 1 Variety of product brands within the pharmaceutical industry

4. Derivation of a pharma-specific brand portfolio Before discussing possible models and their ability of adapting them into a pharmaceutical brand context the main vocabulary used has to be defined: “The brand portfolio includes all the brands and subbrands attached to product-market-offerings, including co-brands with other firms.” (Aaker and Joachimsthaler, 2000, S. 134). Brand architecture “…specifies the structure of the brand portfolio and the scope, roles and interrelationships of the portfolio brands. The goals are to create synergy, leverage and clarity in the portfolio and relevant, differentiated and energized brands” (Aaker, 2004, p. 13-14). The remarks in chapter 3 show that there are different kinds of brands within a pharmaceutical company. The diverse characteristics need a specific marketing approach for each kind of brand. The current trend, the economic changes within the industry and the multitude of different brand types need a systematic approach to manage these brands. Former research was mainly concentrated on R&D and how an optimal portfolio of entities has to look like (Ding and Eliashberg, 2002) or evaluated the costs of pharmaceutical research (DiMasi, Hansen and Grabowski, 2003). Some studies also concentrated on brand management in a pharmaceutical context but e.g. performance measures were only applied for single brands without a broader view on the corporation (Tebbey, Bergheiser and Mattick, 2009). Also brand recognition was investigated for brands in US with direct-to-consumer-advertising (Ladha, 2007). It was further tried to transfer theories of consumer brand management to pharmaceutical brand management, as it was examined in a study from Kapferer. It concludes that in the view of a physician a pharmaceutical product gives a certain efficacy while a brand has a certain personality and is able to give additional value to the brand as differentiation from other competitors (Kapferer,

1997). Branding could represent a new competitive advantage in the pharmaceutical sector and the possibility to extent marketing and branding strategies (Schuiling and Moss, 2004). The main premise for using this advantage is a systematic approach of outlining a pharma-specific brand portfolio to set competitive strategies for a profitable brand architecture against diminishing pharmaceutical sales. Moss did a first step to create a structure of pharmaceutical brands through adapting existing brand management models from Aaker and Kapferer to the pharmaceutical industry (Moss, 2007). But the step to start with a brand strategy hierarchy seems to be one step further the initial approach to create a brand hierarchy for all different pharmaceutical brands followed by a brand portfolio. Especially the two dimensions of the Kapferer, 2004 model are not free of contradiction. While the indicator of origin doesn’t have to be an indicator for the strength of potential corporate brands also the product differentiation doesn’t have to be an indicator for the strength of product brands. Fig. 2 visualizes the model from Moss, 2007.

Insert Figure 2 Pharmaceutical Brand Strategy Hierarchy (adapted from Moss, 2007, p. 319)

To give an example: A specified biopharmaceutical company could be known for innovative drugs within a very small and specific indication, but instead of the single drug the corporate brand is the strong brand that drives differentiation. During the first years after foundation Genentech was an example for this relationship. In this example the product differentiation is as high as the indicator of origin, a relationship that is not considered in the model. A further example demonstrates the other way around. A me-too drug (not necessarily a generic drug) within an indication can be branded professionally as a single drug without any reference to the corporate brand. This works very well within the pharmaceutical industry with products whose original competitors suffered from bad research results within the marketing phase. These products lost their innovative advantage through disadvantageous publicity and the me-too drug is the profiteer. In this example the product differentiation is as low as the indicator of origin, a formation that is not considered in the model, too. These two examples have outlined the constraints of this model especially regarding the fact that a brand hierarchy should be set in advance. Another approach is to use the Aaker corporate brand strategy for structuring the pharmaceutical brand portfolio (Aaker, 1996). But before concentrating on possible strategies resulting from the portfolio structure the brand logic itself has to be created (Moss, 2007). Aaker differentiates between corporate brands, range brands, product line brands, subbrands and branded features regarding the hierarchy within a brand portfolio independent from the resulting strategy (Aaker, 1996). To adapt the model for the pharmaceutical industry the different shapes of brands within a company have to be identified. While the corporate brand, “…which defines the corporation behind the product or service offering” (Aaker, 1996, p. 242) is fully consistent with the logic from Aaker most of the other brands have to be added into this logic. A range brand as “…a brand that ranges over several product classes” (Aaker, 1996, p. 242) for example can be the corporate brand itself, e.g. Bristol-Myers Squibb, but it could also be a company brand which belongs to the corporate holding, e.g. Sandoz from Novartis. Even pharmacy chains and wholesalers as part of a pharmaceutical holding are conceivable. Product line brands as “…brands associated with the organization’s specific products” (Aaker, 1996, p. 243) can be

indication-specific brands which cover the whole product portfolio of a company within a specific indication like Henning, which is the roof of all thyroids drugs of sanofi aventis. But it can also be interpreted as a group of brands in an indication which stands next to other brands in the same indication, e.g. Aspirin from Bayer as the product line brand over several subbrands with a direct connection to the ingredient acetylsalicylic acid and only an indirect connection to the indication because different indications are covered with the entity. Subbrands are basic product brands which refine the product line brands as Viani mite from GlaxoSmithKline, Aspirin Plus C from Bayer or L-Thyroxin Henning from sanofi aventis (Aaker, 1996). Branded features or services finally delineate the brand (Aaker, 1996). Examples from the pharmaceutical sector would be events as the diabetes day from NovoNordisk and also the Solostar insulin pen from sanofi aventis and the Viani discus from GlaxoSmithKline as medical devices. These features can have a significant effect on the perception of the brand and should also be considered in a brand hierarchy for pharmaceuticals. Fig. 3 summarizes the embodied brands within a hierarchical structure.

Insert Figure 3 Pharmaceutical Brand Hierarchy (modified from Aaker, 1996, pp. 242-243)

The generalized pharmaceutical brand portfolio, which will be the basis for identifying brand strategies for pharmaceutical companies and for the empirical research implements the affiliated model of different kinds of product brands and the pharmaceutical brand hierarchy, as shown in Fig. 4.

Insert Figure 4 Pharmaceutical Brand Portfolio (modified from Aaker, 1996, pp. 242-243)

5. Overview over the main brand strategies within the pharmaceutical market With the help of the generalized brand portfolio also underlining brand strategies can be discussed and adapted from the Aaker model (Aaker and Joachimsthaler, 2000). The main differentiation within his approach consists of the two ends of the continuum regarding the strength of the corporate brand in contrast to the product brand within the brand portfolio. “It vividly describes the two extremes of alternative brand architectures” (Aaker and Joachimsthaler, 2000, p. 106). While in a house of brands strategy “each independent stand-alone brand maximizes its impact on a market” (Aaker and Joachimsthaler, 2000, p. 106) in a branded house strategy “a master brand moves from being a primary driver to the dominant one, while the descriptive subbrand goes from having a minority role to little or none at all” (Aaker and Joachimsthaler, 2000, p. 118). Within the pharmaceutical market different shapes of brand architectures can be identified, depending on the present brand portfolio. Generic companies for example usually have a brand portfolio, which consists of generic single-owned Rx and OTC drugs, which are already marketed (cp. Fig. 1). There is usually no need of communicating within the development stage because of using already existing entities after their patent expiry. A branded house with a strong corporate respectively range brand is currently preferred within the industry because of less differentiating arguments on a product level. This causes the fact that differentiation on

a product level usually is associated with clinical differentiation and this is not existing for generic drugs. Examples for this peculiarity are Ratiopharm, Teva Pharmaceutical or Sandoz. In the other extreme originator companies with high innovative original drugs (usually Rx) within term of patent have a strong focus on product brands and are representative for a house of brands strategy. Even in the development stage research results for the new ingredient branded with the INN will be published and build up preferences. This strategy continues within the patent life time with the branded name. The corporate brand is usually absent or at most a weak endorser of the branded appearance of the original drug. The focus of differentiation is usually focused on clinical arguments, although a few drugs build an exception, e.g. Viagra from Pfizer, which is worse in efficacy than its competitors but has a much stronger brand which causes on emotional values (Pogoda, 2003). But most original drugs are promoted as best in class regarding the underlying indication, such as Lipitor from Pfizer, Viani from GlaxoSmithKline or Lantus from sanofi aventis. While a strong product brand offers the possibility for differentiation in a specific market, a strong corporate brand leverages the established brand and requires a minimum investment on each new offering (Aaker, 1996; Aaker and Joachimsthaler, 2000). Transferred to the pharmaceutical sector a strong product brand benefits from the ability to communicate the drug-specific advantages (mainly clinical) to the addressees. The risk of strong negative effects potential image losses of the corporate brand could cause through bad research results is low. On the other hand a strong corporate brand is usually more strategic and longterm oriented and stands for continuity and consistency in the management of a brand portfolio (Moss, 2004). Next to the branding strategies founding on the hierarchy of the brands also switches in their regulatory treatment are common within the pharmaceutical sector. After patent expiry sometimes the management tries to realize a Rx-to-OTC switch to avoid the regulatory restrictions of Rx drugs (Ferrier, 2001; Lyon, 2001). There is no patent solution at all for a brand strategy of pharmaceutical companies. And the fact that through mergers within the value-added step but even across brand portfolios of pharmaceutical companies are getting even more complex as heretofore calls for action. Also the two extremes of alternative brand architectures have several steps in between, e.g. dominating subbrands or endorsing corporate brands (Aaker, 1996; Aaker and Joachimsthaler, 2000), but the main finding is that every portfolio has be analyzed separately to build up a consistent brand architecture and therefore the affiliated brand portfolio consisting of the different kinds of product brands and the pharmaceutical brand hierarchy is the foundation (cp. Fig. 4). Analyzing this portfolio links the literature of brand architecture with further research fields, as following explanations for the empirical research will demonstrate. 6. Study basics and generating hypotheses for empirical research Before raising the initial question of the present research proposition a short overview over the used identity-based brand management approach is given. Developing and implementing a brand identity is a key element of building strong brands (Aaker, 1996). The reason is that the meaning of external communicated promises to the addressed stakeholders is less important if it is not based on shared values of internal stakeholders as sales force employees, marketing employees or the pharmaceutical management. It also has to be practiced within the corporation. The brand identity influences internal structures, processes and also the organizational culture (Burmann, Hegner and Riley, 2009; de Chernatony and McDonald, 2003). Because of this distinction between an internal and an external view the identity-based

brand management approach differentiates between brand identity and brand image. The brand identity is based on Erikson’s identity research in which he differentiates his identity whether it refers to an individual or to a social group (Erikson, 1959). Hence, brand identity is understood as a specific kind of group identity, which is expressed by a set of commonly shared values, competences, origin, vision, communication style and behaviour (Burmann and Meffert, 2005). The brand image as second dimension within the identity-based brand management approach is proposed and defined as a mental construct by members of the relevant target groups. Brand images arise as a result from processing brand relevant information from the internal stakeholders of the brand (Kapferer, 2004). As discussed before significant changes within the pharmaceutical industry will occur. The age of large high volume blockbuster drugs is over and the upcoming new entities will be of less volume because of more specific indications (Scott, 2008). The largest brands of an average pharmaceutical company will have a less amount of total sales as at present. The strategy of large originator companies focusing most of the marketing investments on a small number of high volume product brands seems to be out-dated. The solution of this problem cannot only be to focus on even more product brands. It is more complicated to coordinate them, especially if they are in specific small indications allocated to a larger general indication, where the discriminatory power is missing and would cause very high marketing investments to force differentiation. Stronger product line brands, range brands and even corporate brands have to be build up in future to compensate the sales diminishing changes. To follow the identity-based brand management approach one of the biggest issues for these changes within the brand architecture is the internal commitment of the employees. Although several stakeholders can be identified, the sales force representatives seem to be the group which offers the closest brand touch points within a pharmaceutical organization. Due to the fact that sales force representatives will have an important role to realize shifts within pharmaceutical companies their attitudes and opinions are very important. On behalf of this the study examines the brand commitment and brand citizenship behavior of sales force employees representative for the internal perspective within the affiliated brand portfolio. Brand commitment is defined as “the extent of psychological attachment of employees to the brand, which influences their willingness to exert extra effort towards reaching the brand goals” (Burmann and Zeplin, 2005, p. 284) and brand citizenship behaviour “is an aggregate construct which describes a number of generic (brand- or industry-independent) employee behaviours that enhance the brand identity” (Burmann and Zeplin, 2005, pp. 282-283). Most of the pharmaceutical companies are still working with several product lines for managing their sales force. Although a sales force representative works for a specific pharmaceutical company he is always confronted with sales force materials, studies and devices belonging to a specific brand respectively a small number of brands. Also the values he advances are strongly determined by the product management of the reviewed drugs. Therefore the study examines following hypotheses’: H1: Sales force representatives of pharmaceuticals have a stronger brand commitment to

relevant product brands than to the corporate brand of their company they belong to. H2: Sales force representatives of pharmaceuticals have a stronger brand citizenship

behavior upon product-related brand identity than to corporate-related brand identity. H3: A stronger brand commitment of sales force representatives also forces a stronger

brand citizenship behavior upon product-related brand identity.

Due to the fact that physicians will have an important role in the external environment because they are confronted with the strategic shifts of pharmaceutical companies, their attitudes and opinions are very important, too. On behalf of this the study examines their brand attitude towards different kinds of brands within the affiliated brand portfolio, while brand attitudes are defined as “consumers overall evaluations of a brand” (Keller, 1993). Physicians always have their personal purpose in mind to find acceptable and affordable health solutions for their patient’s concerns. Indication-specific product information is one of the main interests of this target group. Because of this a dominating product brand orientation will be assumed. Therefore the study examines following hypotheses: H4: Physicians have a stronger positive brand attitude towards relevant product brands

than to the corporate brands of relevant pharmaceutical companies. Sales force representatives as well as physicians are very important target groups within the pharmaceutical sector. If corroborated, the affiliated hypotheses would implicate a strong support of product-support thinking, while the derivation above has shown that a shift to more aggregated brands within the brand hierarchy could be one important step further avoiding downturns because of the upcoming changes within the industry. Due to the fact that this was only a theoretical derivation, next to the study to examine attitudes and opinions of sales force representatives and physicians another qualitative study will be drawn in which marketing experts of pharmaceutical companies will be asked about their assessment of the relationship between the different kinds of brands within the affiliated brand portfolio. Therefore the expert interviews examine the following hypotheses: H5: The product brand will get less important in future in contrast to product line brands,

range brands and corporate brands. If the above affiliated hypothesis’ will be confirmed, a complex brand architecture has to be used for pharmaceutical companies instead of mainly product-driven branding. Further it will be necessary to strengthen the corporate brand. The deductive need for action would be to internally build up a brand identity according to the identity-based brand management approach and processing the emanating brand relevant information the external target groups determining the discerned brand image (Burmann, Hegner and Riley 2009). Some of the results of this study will be presented on the 6th Thought Leaders International Conference in Brand Management in Lugano, April 2010.

Figure 1

Variety of product brands within the pharmaceutical industry

Source: own illustration.

Figure 2

Pharmaceutical Brand Strategy Hierarchy

Source: adapted from Moss, 2007, p. 319.

Figure 3

Pharmaceutical Brand Hierarchy

Source: modified from Aaker, 1996, pp. 242-243.

Figure 4

Pharmaceutical Brand Portfolio

Source: modified from Aaker, 1996, pp. 242-243.

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