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Managing the Franchise

Published on 04/10/10 at 10:55am
Paul Stuart Kregor
Marketing planning

Commercial managers who are responsible for a number of brands face a constant dilemma in choosing where across the franchise or portfolio to invest limited human and financial resources. How can these choices be optimised?

The franchise can take a number of forms: the traditional therapy area portfolio with a number of constituent products; a brand with a number of indications each requiring resource; or, at a global level, a single brand with a number of local markets each one competing for investment and support.

This feature outlines some of the skills required to effectively manage the franchise at a global level, including:

• The use of key marketing tools to help optimise investment into each individual brand

• Identifying the considerations beyond revenue that may impact which elements of the franchise are supported

• Optimising the whole franchise whilst accounting for portfolio objectives and potential synergies between individual brands.

Learning from other industries

Various studies have shown branded consumer firms generate up to 90% of their profits from less than 20% of their brands. This suggests that many companies, pharmaceuticals included, are missing the chance to gain more efficiency and effectiveness from their portfolios.

What’s required goes beyond the de rigueur brand rationalisation. A better solution is to look more comprehensively and strategically at the portfolio of brands as a whole, or within distinct franchises, and to set up a system for managing the brand assets in those groupings as true portfolios. A cohesive brand portfolio strategy will help guide the processes by which brand assets are most effectively created, deployed, and managed - at the same time, supporting both top and bottom line business growth.

The idea is to create value by optimising brand assets to meet marketplace needs while recognising internal operating realities.

In the consumer world, value is created when relationships among brands are better managed to avoid conflicts and overlaps, and by striking a better balance between category (where relevant) and product brands and extensions.

Optimal value is created when waste and inefficiencies are reduced, so brand building is more cost-effective, with fewer and stronger brands getting the support they merit.

Most critically, a well-orchestrated franchise or brand portfolio strategy needs to be fully integrated with the company’s business model, tying in with such economic factors as pricing and profit policies (e.g. PPRS in the UK pharma market), manufacturing scale, and distribution policies).

Getting there requires marketers to adopt a more ‘investor-like’ mindset in managing their brand assets. Like investors, they must first build the asset base, then protect it, and finally seek to further leverage these assets for growth. To safeguard them requires balancing the tensions of near-term profit-and-loss demands with the creation of long term asset value. Too many fail at these responsibilities - allowing their brands to be overextended (damaging their equity) or overprotecting them (stifling equity growth).

What’s the relevance to pharma?

Pharmaceutical companies are changing their business model from a few blockbusters to a wider portfolio of relatively smaller brand assets, which means the need for franchise or portfolio-based thinking has to increase.

Added to this is the fact that many pharma companies are now realising their ‘tail’ of non-promoted or ‘mature’ brands is a significant source of profit.

These two extremes tend to play out at a global level on the one hand and a local or regional level on the other. However, no matter what level you are operating at, there are three considerations for success:

1. Prioritise your brands

Resources must be allocated to the strongest and highest performing assets. This entails detailed analysis of customer targets, brand relevance, and the brands’ impact on business results to identify which are stars and which should be pruned.

By identifying and nurturing the stars and eliminating underperformers, companies will ensure their investments are helping to drive top and bottom-line growth. How to prioritise is covered in more detail later in this article.

2. Build, protect, and leverage brand assets to maximise portfolio value

Once the portfolio is tightened, the remaining brands should be assessed for short term and long term growth opportunities. Brand managers must proactively manage their brands and determine the extent to which the brands can be extended organically or ‘lent out’ to grow new products or services. Overprotection is just as dangerous as overextension; left underleveraged, brands will underperform as a driver of organisational growth. Striking the appropriate balance is critical.

3. Establish & empower a portfolio manager

Most businesses lack the management structures, systems, or processes to effectively manage a franchise or brand portfolio strategy. What’s needed is a dedicated brand portfolio manager - a role that may nominally fall to the most senior-level marketing officer to juggle among myriad other responsibilities, and hence may well not get the attention it deserves.

At the very least, a ‘brand steward’ can help address the marketing effectiveness conundrum. This individual can manage and monitor the portfolio’s performance (including individual brands’ contributions to the business), better understand what the company is actually spending in aggregate on brand and marketing support, and offer knowledgeable insights to guide resource allocation decisions.

Effectively managed, your franchise or brand portfolio has the potential to wield significant power as a vehicle for driving business growth.

Combining a sound strategy with best practices in brand management will help ensure that the value of the portfolio, rather than simply the number of brands within it, grows over time.

Six ways in which portfolio management at a global level enhances growth are:

• Clear prioritisation of future focus by major market

• Prioritisation by brand and product

• Concentration of spend on priority markets, brands and products

• Operational cost savings through simplified business

• Disposal of brand assets which don’t fit clearly within the portfolio

• Gap filling by product development and/or acquisition.

How to prioritise your brands

We are all familiar with the classic portfolio tools (BCG Matrix, McKinsey/GE Matrix; its more friendly version the Directional Policy Matrix (DPM)) but there are some real drawbacks to these as tools.

Like a company balance sheet, they represent snapshots of the situation; they are often associated with prescriptive solutions to the situations that emerge.

They seldom, if ever reflect the interaction of several product or therapy based strategies used by the company; the criteria to assess opportunities and capabilities are often very limited.

Moreover, models are often aimed at top management decisions, and are not able to be effectively used in a consistent manner by other managers within the organisation.

Added to which the use of portfolio planning matrices has been shown empirically to harm businesses, not help them - firms that used BCG had a lower return on capital (probably because BCG assumes market share equals profits); firms whose decisions were consistent with these portfolio planning methods lost market value.

A model that aims to project, over the life cycle of the product, annual cost and revenue streams as the basis for an evaluation of the rate of return from investing in that product, a Portfolio Asset Assessment (PAA).

A well prepared PAA should be transparent and involve by markets of key importance:

• Identifying and projecting the product life cycle annual treatment prevalence for a disease state

• Identifying and projecting the current direct costs of treating patients in that disease state (medical and pharmacy costs)

• Identifying and projecting patient switching scenarios over the product life cycle

• Identifying and projecting development costs, reimbursement and sales and advertising costs, and

• Identifying and projecting sales revenues.

While this may appear daunting in black and white, the process is less onerous than it looks. Data is often a challenge, but there are usually surrogates that can be used where actual country data is missing. Analogues of other brands in similar markets can provide good fuel to help pressure test assumptions, which are inevitable given the ‘future focused’ nature of this assessment.

How this is developed and the financial ‘output’ required will vary by organisation. Use of Net Present Value calculations may be mandatory, but recognise that these do not by themselves help you decide between options.

Once the ‘financial’ picture and the expected commercial value is clear, there is then a need to look at the wider picture, namely the overall business strategy and how each brand can work to help achieve that. Our preferred approach to this is an objective scoring model. The essence of the model is to judge each of the components against a defined (and agreed) set of criteria that go beyond the commercial.

An example of this may be:

1. Reward (to the company - the financial piece)

2. Business strategy fit

3. Strategic leverage (ability of the product to leverage the company resources and skills)

4. Probability of commercial success.

By using a wider set of criteria, each clearly defined and tied into the overall business strategy, it is far easier to see which brands within a franchise, which markets for a particular brand and even which franchises should receive what level of the company’s finite resources. And which markets, brands or franchises are less critical, and perhaps should be ignored or divested also becomes clearer.

It is all too easy to assume that just because a brand, a franchise or a brand in a particular market is making money that we should continue to support it; just because a pharmaceutical brand is still delivering revenue after patent expiry does not mean it is worth maintaining.

Any brand asset uses finite resources, be that people, manufacturing capacity, supply chain space or marketing budget. We need to be more astute about which assets we choose to maintain and those we choose to divest or kill.

Maximising the value of the portfolio

This is all about balance - finding the optimal mix between risk and return, maintenance versus growth and short term versus long term within the franchise. While it is always attractive to assume you can achieve the maximal possible result over time, experience suggests that this is rarely achieved for a number of different reasons, some within our control and some not. Given as a global franchise manager you will not have direct control over much of the implementation of your franchise strategy, it is safe to assume that the franchise overall will not potentially fall short of the absolute maximum.

So what are we looking for in maximising the value of the portfolio? Clearly over and above what the individual components can deliver (as per their PAA), it is clear that synergies spring to mind. Within each of the asset assessments to what extent the individual brand can add to or support the franchise should have been included, in ‘Strategic Leverage’ for example.

A number of scenarios need to be built where we consider how we can potentially ‘punch above our weight’ by making use of common situations across brands.

One approach is to use the patient flow by brand to identify where and why bottlenecks to potential growth are occurring. Once identified, marketing budgets can be targeted to unblock these bottlenecks and achieve your desired behavioural objectives.

In franchise management mode you are looking for common problems for a number of brands where one solution can address both bottlenecks or where one of the brands can open closed doors for another. While we are not often able to market baskets of brands per se, there is no doubt we may be able use one marketing solution to facilitate penetration of more than one brand if we consider a common customer for example.

As well as identifying activities that will most efficiently drive brand value, the patient flow is also useful to assess the potential benefit from market expansion activities. This is critical to maximising your franchise in the long term, and by amortising the costs across a number of brands may be more likely to gain approval and funding.

The franchise manager

Using these approaches can give the manager the fuel for strategic thinking. More importantly it is vital this role is valued as part of the organisation’s success and to not just add to an already busy individual’s responsibilities.

In conclusion

As pharmaceutical companies change their business model from a few blockbusters to a wider portfolio of relatively smaller brand assets, the need for franchise or portfolio based thinking has to increase.

While quite a challenge at a global level, there is no doubt that there is a need to prioritise brand assets and then build, protect, and leverage those brand assets to maximise the value of the portfolio.

Without the right processes and the right people to do this, it is all too easy to manage brands as a series of individual and independent assets and not gain full value from synergies and economies of scale.

Dr Paul Stuart-Kregor is director of The MSI Consultancy. He can be contacted at pstuartkregor@msi.co.uk; or visit www.msi.co.ukFurther articles in this series will appear in forthcoming issues of Pharmafocus.

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