By IESE Insight
Pfizer’s Lipitor has been prescribed to over 29 million patients to help lower their cholesterol. Looking back at Lipitor’s lucrative and record-breaking 20-year run — as it competed with rival statins that also work to lower cholesterol — there are many lessons to be learned to help managers, in boom times and more challenging ones.
A forthcoming article in the Journal of Marketing Research by Eelco Kappe, Sriram Venkataraman and Stefan Stremersch tracks how four main statin competitors reacted to each other’s changes in marketing policies over several years.
More specifically, the co-authors take an empirical look at what happened when a statin company decided to cut back its salesforce to fit market conditions and boost profit margins. Importantly, the paper introduces a new data enrichment method to help mangers predict the consequences of possible future policy changes before they happen.
In short, the co-authors’ new data enrichment method combines what actually happened with what industry experts said would happen when certain hypothetical policy changes were made. With this combined data, more scenarios can be tested, helping managers better predict competitors’ reactions, while also tracking consumer behavior.
Follow the Leader
To look at consumer and competitor reactions to salesforce reductions, the co-authors analyze data on pharmaceutical sales calls to doctors and subsequent prescriptions written for Lipitor (Pfizer), Zocor (Merck), Pravachol (Bristol-Myers Squibb) and Crestor (AstraZeneca).
They also worked with a leading pharmaceutical consultancy to gather industry experts’ statements, predicting competitive responses to an array of scenarios. Specifically, they asked what would happen if a competitor cut their salesforce by 10, 25 or 40 percent.
The empirical study reveals the following:
- Salesforce reductions by the market leader — here, Lipitor — tend to cause competitors to follow suit and reduce their own salesforces.
- The scenario is different when a market follower — e.g., Pravachol — is the first to make cuts. Competitors are then more likely to respond by increasing their own sales calls, perhaps sensing an opportunity to fill the gap.
- With a smaller salesforce, pharma companies tend to send salespeople to see fewer doctors, focusing their efforts on the busiest ones (who write the most prescriptions). They tend not to decrease the frequency of their sales calls to these busy — and more responsive — doctors. Note that the abandonment of other doctors may present an opportunity for smaller brands to make headway with them.
- The company that cuts its salesforce first increases profits as a result. Followers here have mixed results.
- But when the initiator of salesforce cuts is the market leader, all firms end up with increased profits. Profit gains are most impressive when the leader’s cuts are drastic (e.g., 40 percent of the salesforce in the study).
Anticipating competitors’ reactions to salesforce cuts can help hone sales strategy. And applying the proposed method of data enrichment could help predict responses to other changes, such as pricing or advertising — in the pharmaceutical industry and beyond.
Methodology, Very Briefly
The authors work with data from a market research firm (IMS Health) tracking a representative panel of 1,585 doctors from across the United States as they received sales calls and wrote prescriptions for statins. The time periods covered included 2003 to 2012. A leading consultancy (Quintiles) helped with the survey of industry experts who were given scenarios involving competitors’ hypothetical salesforce reductions and asked how they would respond. They then compared their data enrichment method to two benchmark methods to test its validity.