Pharmacia and Upjohn
Pharmacy and Option BY iffiest Problem Statement Situational Analysis Managers often rely on situational analysis In order to better understand a company’s customers, capabilities, and Its environment. This Is important In understanding Pharmacy and Option, Inc. ‘s decision to change the distribution of their product. This is also essential to understanding the application of goals set in place by the ensuing marketing plan. Generally, this analysis is an integral part of the marketing plan, as it defines the company’s positioning in the market. External Analysis In understanding Pharmacy and Option, Inc. Positioning, one must first consider the external facets that influence it. For instance, a well-designed product that is effective, inexpensive to produce, and touted by a major brand leader, carries a very limited potential for profitability if in fact there Is no market in which to sell the product. For that reason, It Is critical to first evaluate the market itself. Size (Current and Potential Revenue) In terms of market size, the Regain product team can rest easy knowing that there Is no shortage of people who are affected by the very misfortune that Regain remedies.
Specifically, this product works to reverse Male Pattern Balding (MOB). Prior to rebinding Regain from a prescription only drug to an Over The Counter (ETC) treatment, revenues in the United States alone exceeded $700 million (between 1988 and 1995). It is estimated that there are 38 million men in the United State who suffer from MSP, who also fit the consumer demographics detailed later in this analysis. Though, this product is not only for men. There are roughly 20 million women in the United States that struggle with thinning hair, and in turn spend an estimated $300 million every year to remedy It.
Of course, there are limitations to this vast market Imposed by the product Itself, In the way of Its cost, availability, and practicality. One critical note, however, Is that there Is little promise In the way of raw market growth, given that the product exists only as a treatment for a naturally occurring loss or thinning of hair for individuals. There simply is no evidence to suggest that more (or fewer) people are beginning to struggle with MOB or thinning. Regarding the product itself, prior to its conversion from prescription to ETC, it had reached the growth stage of the product life cycle.
As evidenced by repeat users wrought 1995, revenues consistently grew as the market went on to accept the product. Changes to the product, specifically involving consumer access and demographics, would expand the potential market size significantly. Another critical element In the situational analysis Is market profitability, which Is generally defined by Porter’s Five Force Model. The first of these forces pertains to barriers to entry. Regain, essentially, Is a medical product, Years of preparation, research, clinical studies, FDA approvals, and other necessary prerequisites to market.
Realistically, the prescription drug market may be one of the most difficult to enter. For the ETC market, an entrant would need its product to be a former prescription drug with brand recognition, or else it would need to enter the market in the form of a generic drug. Considering consumer behavior, that people seeking out a generic tend to seek out private label products (those with essentially no branding), it would be difficult for a new entrant to emerge into the market, therefore this force is relatively high.
That said, the second of these forces pertains to potential entrants. During the prescription years, Regain was able to command a 100% market share, hanks too patent on the active drug. For that period of time, Pharmacy and Option, Inc. Enjoyed no threat of new entrants. As the product transitions into an ETC medicine, new entrants could emerge in the form of established generic distributors. All things considered, the threat of new entrants is relatively low. The third of these forces is the threats of substitutes.
A substitute exists in the form off product that can be used as an alternative, but isn’t necessarily the same product. Rather than treating the hair loss, for instance, one could simply cover it up. There is an estimated $400 million that is spent on hairpieces or wigs every year by over two million adults in the United States. Or, a more invasive and costly option exists for consumers who wish to undergo hair transplants and grafts. In general, wigs and hairpieces do not generally present a less costly option, while transplants can be more expensive and frightening to consumers.
Nevertheless, there is an undeniable market for these substitutes. While the dominant poise rests with Regain, it would seem that the threat of substitutes is moderate. The fourth and fifth of these forces is the bargaining power of customers and suppliers. In the prescription years, the consumer leveraged virtually no power against the producer of Regain. The consumer couldn’t even buy the product without a prescription. In that period of time, the majority of the influencing power was left to the doctors prescribing the medication.
Considering the transition to ETC, the bargaining power of consumers will rise, as consumers may prove to be more price-sensitive for a store-bought product, and perhaps less brand loyal. So while at one point consumers held zero bargaining power and suppliers held moderate to high bargaining power, for the ETC product this force will be moderate to high for consumers and relatively low for suppliers. One potential key success factor for Regain in the ETC market is its established brand identity.
After 15 years as the only product in the market, it would be difficult for any competitor to step in and take away market share. This is further reinforced by the ETC treatment’s new cost structure, making it less costly than it’s prescription product, and therefore available to an even greater breadth of consumers. Previously, the target customer for Regain was a male or female aged between 25 and 49 earning at least $50,000 annually. These markets are divided even further by sex and age. Younger females may be more driven by outward appearance.
Older men or women may be driven primarily by perceptions of power and professionalism. Prior to 1988, there was not another product that was medically proven to reverse hair loss and regret hair. This product satisfied that unmet need for a large number of consumers in this specified target market. After converting to an ETC product, the adjustment to pricing made it possible to market the product to between $25,000 and $49,999 annually. It’s also critical to understand the competitors in a product market. In the prescription years, as aforementioned, there were zero competitors, only substitutes.
Transitioning the product to ETC, with an expiring patent and an unfavorable outcome to a suit for market exclusivity, there will be competitors in the form on generics. Generally, a business’ market share will erode by 60% once competitors have entered the market. Given the strength of the Regain Brand, the nature of the product and how its benefit forms an emotional appeal with consumers, and the higher-than-expected pricing of generic competitors, we estimate that Regain will instead incur a 20% erosion of market share due to intention.
The final component of the situational analysis is an observation of the market’s environment. One must consider the influence of the economy. In 1996, when Regain entered the ETC market, the economy was strong and growing. It is unlikely that economic conditions posed a significant challenge for Pharmacy and Option Inc. ‘s venture. Though, a force that likely carried a much greater influence (or consequence) for this transition exists in the legal realm. The FDA heavily regulates this industry, and as such, the company is subject to strict compliance.