Marketing Strategy of GlaxoSmithKline - Essay Example

?Marketing Strategy of GlaxoSmithKline Table of Contents Table of Contents 2 Executive Summary 3 Introduction 3 Background of GlaxoSmithKline Plc 5 Marketing environment 5 PEST analysis 6 Porter’s Five Forces Model 8 Marketing Strategy 10 Market Segmentation 10 Targeting and Positioning 12 Marketing Mix 14 Evaluation of GlaxoSmithKline’s Strategy and Tactics 15 Recommendations for the Future Development 15 Conclusion 16 References 17 Executive Summary The pharmaceutical industry is one of the most profitable sectors of the world. The industry is witnessing increased growth even amidst the economic slowdown. To study the dynamics and factors affecting the Industry PEST (Political, Economic, Social and Technological) and Porter’s five forces analysis will be conducted in the study. The pharmaceutical industry is highly concentrated and only a few companies are doing well in the industry. The main aim of this study is to analyze the marketing strategies adopted by GlaxoSmithKline Plc; a London based pharmaceutical company (Chaffey et al., 2008). The study would also analyze the factors affecting the marketing strategies implemented by GlaxoSmithKline Plc. Since, the company is a UK based company it would also analyze its strategic position in UK as well as in other countries. An analysis of the marketing mix of the company would help in highlighting the key elements of the marketing strategies adopted by the company (Zhou et al., 2010). Introduction Medicines form an integral part of a human’s life because the discovery and invention of medicines have improved the health and quality of life of human beings. The consumption of drugs has increased rapidly. Every year, around 650 million prescriptions are written by the General practitioners alone in UK (House of Commons, 2005). The National Health Service, UK sells medicines worth ?7 billion annually and 80 percent of which is spent on branded products. In UK, it is the most profitable sector after Tourism and Finance. USA has the largest pharmaceutical market and most of the research and development of leading pharmaceutical companies is done in USA itself. UK accounts for 10 percent of the global research and development expenditure. The medical products manufactured by the companies have not only improved the health of the people but has also reduced the need of surgical operations to a large extent (House of Commons, 2005). One of the leading pharmaceutical companies in the world is GlaxoSmithKline Plc, a company which produces effective medicinal drugs for various diseases. It also has a separate healthcare division which produces popular oral healthcare and nutritional products like Sensodyne, Horlicks, Lucozade, Boost, and Gaviscon. The company sells prescription medicines and over the counter medicines. Most of the company’s revenue is generated from the healthcare product divisions which include toothpaste and energy drinks. The company’s top selling prescription medicine includes Avandia and Paxil which are anti depressant pills (GlaxoSmithKline Plc, 2013a). The company believes in complying with the national health guidelines of UK and providing beneficial treatment to the medicine users. Currently, the pharmaceutical industry is facing a number of challenges like slow economic recovery, high cost of development of drugs and stricter health regulations imposed by government etc. Pfizer, a leading pharmaceutical company of the world has announced plan to close down its research and development wing in UK to curb down operational costs (Gallagher, 2012). GlaxoSmithKline Plc had been witnessing a steady growth even amidst this economic slowdown. In the year 2012, the company spent ?4 billion dollars in the research and development of new medicines, consumer products and new medicines (GlaxoSmithKline Plc, 2013b). Most of the company’s revenue comes from the USA because the sale of prescription drugs is a subject to price control policies of the respective country. The USA is the only industrialized nation where there is no price control on prescription drugs. The company accounts for 40 percent of the $350 billion sales of prescription medicine sold worldwide (Albaum, Duerr and Strandskov, 2006). Background of GlaxoSmithKline Plc The company which is the second largest pharmaceutical company of the world was formed on 27 December 2000 by the merger of SmithKline Plc and Glaxo Wellcome Plc. The merger of the two companies required approvals by three governments and stockholders of the company. The European commission had granted permission in May, 2000 and the stockholders of both the companies had given approval in July, 2000. The organizations Foreign Trade Commission and European Commission had granted approvals in December, 2000. These three governmental organizations had asked the company to diverge themselves into the manufacturing of specific drugs and medical products. The companies believed that the merger will provide economies of scale and scope in marketing. Post merger, the company had a market share of 7 percent in prescription drugs. The company witnessed rapid growth during the tenure 2001 to 2003 and became one of the leading pharmaceutical companies of the world (Albaum, Duerr and Strandskov, 2006). Marketing environment The marketing environment constitute of factors which influence the company in a direct and indirect way. The marketing environment can be further divided into macro and micro environment. The macro environment factors affect the company’s activities immediately and micro environment factors do not affect the company’s activities immediately. Micro environment actors and forces comprise suppliers, distributors, competitors etc. Macro environment comprise demographic, socio cultural, economic, physical, economic, political and legal actors and forces (Kotler, 2008). Figure 1: Marketing Environment variables PEST analysis The PEST analysis is an instrumental tool used for identifying the external threats and opportunities faced by an industry. This tool divides the environment into four categories: Political, Economic, Socio cultural and Technological. Political Factors Clinical trials In UK, medicines which have not been sold before need to tested and tried. This process is called Clinical Trial. This legislation for pharmaceutical companies in UK is called Medicines for Human Use (Clinical Trials) Regulations 2004 which came into force on 01 may 2004. Clinical trials help pharmaceutical companies to understand whether the new medicine developed by them will have a disease prevention effect. Pharmaceutical companies like GlaxoSmithKline Plc carry out the clinical trials of their medicines in reputed hospitals of UK and the details of the clinical trial are easily accessible by the government (MHRA Gov, 2013). Department of Health The Department of Health is a governmental organization. It ensures that the pharmaceutical companies of UK work in the best interest of the patients and public of UK (Barros and Stoneman, 2002). They scrutinize the licensing data of the pharmaceutical companies and make sure that these companies comply with the licensing regulations. Economic Factors Most of the medicines manufactured by the pharmaceutical companies are high priced. Medicines become a necessity when a person is subjected to illness or disease. Post recession, the industry is recovering from the economic slowdown. Most of the pharmaceutical companies have closed down their research site because the cost of development of new medicines is too high and the companies are earning meagre profits. In December 2010, AstraZeneca which is one of the leading pharmaceutical companies of the world discontinued its research on Motavizumab, a respiratory medicine to curb down operational costs. Socio Cultural Factors The Britishers are very health conscious and believe in maintaining a healthy lifestyle. In UK, GDS (General Dental Services) a governmental organization offers dental services to the residents of UK at a lower cost and 55 percent of the population registers with GDS. This shows that irrespective of the economic situation the Britishers would always want to indulge in health products. Pharmaceutical companies in UK generate most of their revenue from the consumer health care products like nutritional drinks, toothpaste, mouthwash etc. Seeing the market trend and demand of these products, the pharmaceutical companies are developing innovative consumer health care products. Technology The pharmaceutical companies in UK are highly dependent on technology. The research and development department of the pharmaceutical companies develop vaccines, medicines and other healthcare products with the help of high end technologies. The pharmaceutical companies use advanced analytical tools to increase their productivity. Advanced machineries like manual 300 holes capsule filling machine, blister packaging machine and high speed automatic double head are used by the pharmaceutical companies for capsule and tablet making. Porter’s Five Forces Model Before developing a business strategy, a company needs to identify the forces which affect the profitability of an industry (Bruton and Ahlstrom, 2009). The five forces are as follows 1) Threat of new entrants 2) Bargaining power of buyers 3) Bargaining power of suppliers 4) Threat of substitutes 5) Intensity of rivalry among competitors (Henry, 2008). Figure 2: Porter's Five Forces Model 1) Threat of new entrants: If an Industry is witnessing high profits then it will attract new entrants. A lot of time and high cost is required to have a new medicine approved by the government authorities. Apart from the time and cost, most of the established pharmaceutical companies are closing down their research department to curb down the operational costs. The pharamceutical industry is still recovering from the economic slowdown and the sector does look profitable for new entrants at the present situation. The threat from new entrants is low. 2) Bargaining power of buyers: The medicines and medical products are usually high priced to support the research and development costs for new medicines and drugs. Medicines and drugs are necessary for the cure of ailments and diseases and consumers do not have alternatives. The bargaining power of the buyers is low. 3) Bargaining power of suppliers. Suppliers form an integral part of the pharmaceutical companies since they deliver the medicines and drugs to chemists and doctors. The supply of the medicines and medical products to the doctors and chemists at the right time is very crucial. High demand of medicines and medical products have attracted the suppliers in this particular sector. The bargaining power of the suppliers is very high. 4) Threat of substitutes: The threat of substitutes to medicines and drugs can be natural remedies. Although, natural remedies are very effective and often termed as safe option but one cannot deny the rigorous procees involved in the preparation of medicine made out of natural remedies. The preparation of natural remedies requires a thorough research work and a lot of time. This is not possible by the common people due to the busy lifestyle. Most of the people prefer medicines and drugs over natural remedies due to their easy availability. 5) Intensity of rivalry among competitition: The pharmaceutical industry is very concentrated and only few companies are the key players in this industry. The established pharmaceutical companies like AstraZeneca, Ranbaxy, GlaxoSmithKline, ReckittBeckinser Health care are facing stiff competition from each other. The competition in the pharmaceutical industry is high. We can observe from the above model that the threat of subsitutes, new entrants, buyers is low and the bargaining power of buyers and competition in this industry is very high. Since, most of the factors are low we can state that the threat to the pharamceutical industry is low compared to the other industries. Marketing Strategy Market Segmentation Market segment is defined as a group of customers who share a similar set of needs and wants (Lee and Kotler, 2009. P. 44). The task of the managers of the company is to identify customers based on similar interest and group them accordingly. After customers are identified based on their similar interests, the managers divide the market base into smaller segments of consumers based on needs, income, characteristics or behaviour and develop marketing strategies accordingly. This entire process is called market segmentation. Geographical segmentation: Consumers in various geographic locations are subjected to various kinds of illness and diseases. For example people residing in cold countries often suffer from chronic illness, sore throats, common cough and cold and people residing in the tropical and desert areas are subjected to diseases and illness like malaria, dengue, sun burn, onchocerciasis etc. GlaxoSmithKline should have a regular supply of medicines which can cure the local diseases. Demographic segmentation The consumers are grouped accordingly on the basis of age, sex, occupation, education and household size. Age: Aged people are subjected to various kinds of illness and diseases. Illness like high blood pressure, arthritis and diabetes are very common among the aged population so GlaxoSmithKline should keep a regular stock of medicines which cater to the needs of the aged population. Young people are less dependent on the medicines and drugs. Although, the consumption of nutritional health drinks is very high among the youth hence GlaxoSmithKline should advertise about their health drinks in areas where the population of children and youth is high. Income and expenditure: Since, medicines and medical products are expensive people with high income can afford the best quality medical products and expensive medicines. Medical products like blood pressure monitors and diabetes testing devices can be afforded by the rich class. GlaxoSmithKline should identify and divide the areas as per the income of the individuals. They should advertise about their expensive medical products near the residence of the rich people. Psychographic segmentation The segmentation is done as per the lifestyle of an individual. Lifestyle of an individual refers to the consumer habits and mode of living. Some consumers are very health conscious and prefer living a healthy lifestyle and some consumers do have the time to live a healthy lifestyle due to their busy schedule. GlaxoSmithKline should conduct a survey which includes questions like frequency of visits to the health clubs, gym, spa etc. This would help the company in identifying the consumers which are health conscious and non health conscious. Behavioural segmentation This type of segmentation is done based on consumer’s behaviour pattern. Consumers can be divided into frequent and infrequent purchasers. Some consumers may find that medicines of GlaxoSmithKline are effective while some may not find the medicines of GlaxoSmithKline not effective. This leads to brand loyalty among certain consumers while the other consumers switch to other brands. GlaxoSmithKline should analyze and identify consumers who are brand loyal and brand switchers (Needham, 1999). Targeting and Positioning Once the market segmentation is done, The marketer of the company devises various marketing strategies as per the requirements and tastes and preferences of the consumers of the chosen market segment. The marketers of the GlaxoSmithKline should select the segment which is the most profitable segment. After the market segment is selected and evaluated, the marketer tries to adopt various marketing strategies which will be used to create an image of the brand in the minds of the consumers. Positioning means to use various forms of marketing tools which would help potential consumers notice the product. Positioning of the brand means to match the company’s product with the consumer needs. Effective positioning improves the quality and competitiveness of the company. Currently, the target consumers of GlaxoSmithKline is consumers of all ages and genders. They should be more specific in their market segmentation and dide the customer base accoridng to age or gender. The company can evaluate its current strategic position by comparing its medicines with other companies. Figure 3: Position of Brands Marketing Mix This is a major promotional tool and marketers need to combine the various elements and components in an effective manner to derive success. The various components are product, place, price and promotion. Product: A product helps in satisfying consumer needs and wants. Sometimes, consumers do not realize that they have a need. The marketers of the company need to develop such a product which helps them realize their needs and wants. Medicines form the core products of GlaxoSmithKline, mostly which consitutes of prescription medicines. These are consumed by consumers only when necessary. However, the company also specializes in consumer healthcare products and development of vaccines against various kinds of illness. The company needs to communicate the benefits of these products to the consumers through various marketing strategies. Place: These are mainly distribution strategies which are concerned with the availaibility of the products to the consumers at the right time and right place. GlaxoSmithKline should stock minimum medicines in their warehouses because the medicines can cross their expiry date which can be dangerous for consumption purposes. The company should also believe in providing a round the clock medical facility to the consumers. The medicines of the company should be easily available. Price: The medicines of GlaxoSmithKline and other pharmaceutical companies are usually high priced because the money is used in the research and development of new medicines (Lamb et al., 2011). Promotion: This includes advertising, public relations, sales promotion etc. A good promotion strategy will increase the sales and reputation of GlaxoSmithKline. Since, consumers find the medicines of the company to be expensive, the company can provide discount coupons on certain medicines. Evaluation of GlaxoSmithKline’s Strategy and Tactics The company had implemented a global restructuring programme in the year 2007. The key objective of this program is to invest a significant portion of the savings into research and development of new medicines. This strategy ensures that the operational cost is at the minimum and the process of research and development of new medicines is never discontinued. The company keeps implementing new programmes for the betterment of the company. Currently, the company has implemented the Operational Excellence programme which ensures the curbing down of operational cost and improving the supply chain management. Due to the severe economic pressures in Europe, Japan and other emerging markets the company had reduced the price of various medicines in these countries. This tactic worked as the sales of the company increased from ?503 billion in the year 2011 to ?516 billion in the year 2012 (GlaxoSmithKline Plc, 2013c). Recommendations for the Future Development The company should analyze the consumption trends of medicine and drugs by their consumers, as the lifestyle of the consumers have altered drastically. The company needs to develop new medicines which improve the quality of life of the consumers by providing effective treatment. The company has implemented programmes which have helped in reducing the operational cost of the company. However, the company should focus on implementing awareness programmes which makes the consumers aware of the negative impacts of not taking precautions against the various diseases and illness. This will help consumers to not only notice their products but also understand the utility of their products. In the London Olympics, 2012 GlaxoSmithKline had been one of the sponsors which had garnered the attention of the consumers but the company failed to communicate about the products and services offered by the company. Conclusion As the population increases, we can say that the longevity of the human beings have increased which is partly because of the medical treatment provided by medical companies. Companies like GlaxoSmithKline have provided medical aid and improved the quality of life of people. GlaxoSmithKline provides high quality medicines and believes that their effective medical treatment can reduce the need of surgery. The company should continue their research and development in new medicines for the betterment of the society. References Albaum, G., Duerr, E. and Strandskov, J., 2006. 5th ed. International marketing and export management. Noida: Pearson Education India. Barros, H. and Stoneman, P., 2002. 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