Marketing Strategy - Part 6
Despite the fact that it is true in several instances that the cost of the ingredients in a pharmaceutical is significantly less compared to its retail selling price, such a belief disregards the most significant costs that pharmaceutical companies should put up with in order to survive in business. According to Ogbru (2002), so as to legally sell a product in the U.S.A., a pharmaceutical company should establish both the efficacy and safety of the drug to the Food and Drug Administration (FDA). These standards enforce the significant challenge of looking for compounds that are effective and helpful in dealing with the symptoms or causes of a specific condition and then confirming that they are safe for use in human beings. To get a drug approved, a pharmaceutical company spends more than $800 million, and numerous compounds will obtain significant amounts of spending that determines that they cannot be approved (Harris, 2001). Hence, as a consequence, so as to survive and remain in business, a pharmaceutical company should not merely recover or get back the development cost of an approved drug, but should likewise produce enough profits to include expenditures on compounds that did not cause for a product to be approved.
As maintained by Ogbru (2002), there are also other marketplace factors that are parts of the causes of the high cost of pharmaceuticals. One reason is that pharmaceutical companies feel compelled to market their products as a consequence of a desire to ensure that all of the patients who could be helped by the drug are conscious of it in order that they sell as much as possible. Another reason is that since it is less dangerous to come up with drugs that are comparable to an existing drug, marketing is required to push demand for a drug which might otherwise be little dissimilar compared to an existing product. And lastly, the majority of patients do not pay the actual retail price of their medication, thus making them mostly price insensitive. Despite the fact that drug costs are being indicated in health insurance premiums, patients do not consider they have any direct control or power over their health insurance premiums, thus they have little incentive to focus or concentrate on drug cost and value.
The Philippines is an outstanding market for American companies and United States exporters must be aware that Philippine imports increased in January 2003. The 14% growth recorded from the period December to January in the year 2003 brought entire Philippine imports to US $2.92 billion, and accounted for a 45% increase over the same time in the year 2002 (Fulton, 2003).
Although the market is competitive, U.S. pharmaceutical companies maintain several advantages in the Philippines, including name recognition, quality and the use of U.S. pharmacopoeia. Currently, the U.S. is the second largest supplier of pharmaceuticals to the Philippine market, holding an 11% market share (Massie, 2003). U.S. pharmaceutical suppliers shipped approximately US $24 million in pharmaceuticals to the Philippines in 2002 (Massie, 2003). Retail trade liberalization allowing foreign drug store companies to enter the Philippine have led to additional market development, and will likely present a continuing opportunity for pharmaceutical suppliers.
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Description of Products to be Exported
The products to be exported are pharmaceuticals including generic drugs, over-the-counter drugs, especially antibiotics, vitamins and vaccines, which are in demand in the Philippines.
Characteristics of Target Market
In spite of latest political and economic challenges in the Philippines, requirement for medical products continues to increase. In fact, in the year 2003, the United States exported around $ 12 million of medical products to the Philippines (Philippines: Market Profile, 2005). Products coming from the United States are highly regarded in the Philippine market. Nevertheless, U.S. manufacturers confront growing competition from third-country suppliers.
Antibiotics and anti-infectives are the highest-selling drugs (Fulton, 2003). Pharmacies are the most important distribution channels for pharmaceuticals. Hospitals, supermarkets and small neighborhood stores are other important distribution channels. Foreign drug stores are also allowed to enter the market. The increased incidence of self-
medication has resulted in greater sales of over-the-counter (OTC) medicines. Total sales of all OTC healthcare products amounted to an estimated US$487m in 2003, up from US$463m in 2002 (Philippines: Market Profile, 2005).
Size of Market
According to Massie (2001), the Philippines pharmaceutical market is worth $960 million in the year 2001. Multinational companies (MNCs) control around 69 percent of market, whereas the generic companies own the other 31 percent.
Despite the fact that the Philippine economy confronts challenges, it continues to support an outstanding market for American exporters, posting current GDP growth of 9.5 percent (4th quarter of 2005) (U.S. Library of Congress). In 2003, Philippines was considered to be the U.S.’s 19th largest export market (U.S. Library of Congress) .
Basic Need Potential
From 2003 to 2004, imports of pharmaceutical products to the Philippines rose from $321 million to $355 million, or 11% (Philippines: Market Profile, 2005). Pharmaceutical companies attributed the increase to continued demand for OTC and prescription drugs for the maintenance or treatment of various diseases. Overall, the pharmaceutical market is expected to grow by 5.5% per year. The country falls under the Third World country category and will thus continue to battle poverty-related diseases in the foreseeable future (Massie, 2003). Although statistical data on local production are not available, industry players report an increase in local manufacturing activity.
Export Marketing Strategies
The plan is to adopt a multinational style of marketing, with extensive product range, a well trained sales force, and continuous investment in image building. The company will market patented and non-patented products leveraging on the image and resources of multinational principals to enhance the company’s products image. An important strategy is to form subsidiaries to market different products. The strategy is intended to conceal the monopoly of the generic market. In effect, the doctors will continue their support, unaware of the fact that they are dealing with one company for a majority of their prescriptions.
The biggest distribution channel for generics will be through the retail pharmacies, where this accounts for at least 71 percent of market revenues. Distribution through private hospitals is the next distribution channel. This channel is highly influenced by image, support and skilled medical sales representative. The investment in this channel will be the highest but will have sustained effect.
Because the Philippines is an archipelago, it is uneconomical and inefficient for most pharmaceutical companies to distribute their own products (Fulton, 2003). Therefore, the company will use professional distributors like Zuellig Pharma, Marsman, Metro Drug, and Philusa.
Government and Public Attitude Toward Buying American Products
Almost any U.S. product or service can find an interested buyer in the Philippines (Fulton, 2003). The country is solidly pro-American, and the government and people are strong allies of the United States. The United States exports almost $8 billion annually to the Philippines, making this our 19th largest export market and our biggest customer in SE Asia (Philippines: Market Profile, 2005). Thanks to our close relationship over the past 100 years, Filipinos are very knowledgeable about U.S. products and services and have a great affinity for them. Moreover, the Philippines is the world’s third largest English speaking nation, so U.S. firms seldom encounter language problems when doing business with Philippine companies (U.S. Library of Congress). The U.S. presence is strong and growing.
Size, Number and Financial Strength of Competitors
Unlike China, Indonesia, and Thailand, where a relatively large domestic pharmaceutical industry has taken root, the Filipino pharmaceutical industry depends heavily on imports for both raw materials and finished products. Of the $170 million of pharmaceutical imports brought into the country in 1992, less than 2% (by volume) were raw materials (Massie, 2003). The leading national suppliers of pharmaceuticals to the Philippines, in order of sales, are Germany, Switzerland, the United States, Australia, and United Kingdom (Fulton, 2003). Leading foreign companies include Hoffmann-La Roche, Warner-Lambert, and Bristol-Myers Squibb.
Foreign pharmaceutical companies control about 66% of total industry sales, with market shares of individual foreign companies ranging between 1% and 6%. One hundred and forty-three European companies command a combined market share of 38%, and 76 U.S. companies control a combined market share of 28% (Philippines: Market Profile, 2005). Japanese companies have less of a presence in the Philippines than in many other Southeast Asian countries, controlling 4% of the market. Thus, only 30% of pharmaceutical sales are accounted for by domestic Filipino companies (Philippines: Market profile, 2005). Unilab, the largest Filipino company, has the largest individual share of the domestic market (about 22%), while more than 200 smaller Filipino firms share the remainder (Philippines: Market Profile, 2005).
Attitudes and Beliefs
Filipino consumers have a strong affinity and distinct preference for American products (U.S. Library of Congress). American culture and lifestyle is nowhere more evident and emulated in Asia than in the Philippines. American products are highly regarded for their high quality and product consistency. Filipinos are brand conscious but price sensitive at the same time. Popular American brands can afford a small price premium versus competing products from third country suppliers. About 80 percent of imported products in Philippine supermarkets are American products and/or brands; the variety and range of American product lines are similar to those available in the US (U.S. Library of Congress). Local stores are becoming more sophisticated; most of which now compare to US/western stores. Practically all Filipinos have families in the United States who regularly send or bring home food gifts, which has become the initial yet very effective way of introducing American products to Filipino consumers.
Drug prices in the Philippines are considered to be amongst the highest in Asia (Massie, 2003). Since the generic market corresponds to an insignificant part of the market, drug prices continue to be high, particularly considering the majority of the population live below the low-income category. Thus, the pharmaceuticals to be sold in the Philippines will be priced similarly to the other pharmaceuticals and generics sold in the country. There will be no high mark-up because there will be fast turn-over considering that there is a high demand for these products. Growing health concerns will make the Philippine market a dynamic opportunity for American exporters. Since the pharmaceutical market is expected to grow by 5.5% per year, the exports prospects are bright for American exporters (Massie, 2003). Because Philippines is a third-world country, it will continue to battle poverty-related diseases, which will spur the demand for pharmaceutical products in the years to come.
By using the tri-media, promote the image of the company as providing high-quality medicines at affordable prices. These promotions will result in a wider penetration of medicines particularly to households that previously could not afford them, translating to higher awareness levels. Thus, various OTC products aimed at the mass population will enjoy healthy growth.
Another way to promote the company’s products is to conduct Trade Mission, which will provide market entry into the Philippine for the company, as well as first-hand market information and access to key government officials and potential business partners.
The mission will be promoted through the following venues: tri-media, Export Assistance Centers and the healthcare team; industry newsletters; relevant trade publications; relevant trade associations; past Commerce trade mission participants; various in-house and purchased industry lists.
Fulton, D. (2003). Best Markets in the Philippines. International Market Insight, Asian Development Bank. Retrieved June 19, 2006 from http://strategis.ic.gc.ca
Harris, G. (2001). Cost of developing new medicines swelled to $802 million, research
study reports. The Wall Street Journal.
Philippines: Market profile. (2005). Healthcare & Pharmaceuticals Forecast Asia & Australasia.
Massie, R.S. (2003). The Generic Invasion – An Inside Scoop to the Pot of Gold. Frost & Sullivan Asia Pacific. Retrieved June 2, 2006 from http://pharmalicensing.com
Ogbru, O. (2002). “Why Drugs Cost So Much.” MedicineNet, Inc. Retrieved June 20, 2006 from http://www.medicinenet.com.
U.S. Library of Congress. The Philippines. Retrieved June 18, 2006 from http://countrystudies.us/philippines/53.htm