The world market for Over The Counter pharmaceutical products was estimated at $51. 45 billion dollars in 1995 and was expected to sustain a compound annual growth rate of 7 percent through the year 2004. Among the factors that are driving this growth: more educated consumers taking control of their health care, governments and managed care organizations trying to reduce health care expenditures, and pharmaceutical companies trying to expand the product life cycle of key brands. The facts surrounding this case is that OTC (Over The Counter) Market is typically divided by both geography and product segment.
The biggest markets are the United States, Japan, Germany, the United Kingdom, and France. In this case study we have found that the means of self- medication changed according to the particular medical situation. The behavior of OTC consumers changed according to the particular medical situation: when suffering from an ailment, consumers either self medicated, visited a doctor, applied a home remedy, or did nothing at all. There is a development pattern in the OTC industry. In the early stages of the industry life cycle, consumer choice was limited to general-purpose products.
As OTC products evolved so too did new competitors, specialty products, and all together new product segments were created. As the growth of developed countries emerged so did their use in OTC medications. Because of this lines of new products or line extensions were created. At the same time product life cycles of old products were being extended by entry into developing countries. The key elements for this evolution were that of new medical technologies and the need to redefine the existing OTC product to remain competitive.
The demographic trends that were most important to the OTC industry were that of aging populations of the United States, Japan and Europe as well as the increasing buying power of consumers in developing countries due to rapidly advancing economies. The OTC industry has many participants but the main forces were the following: chemical suppliers, OTC manufacturers, distributors, retailers, consumers, medical professionals, governments and regulators, and managed care organizations. The OTC Industry mainly recognizes these Five Forces: Competition: being centered with the remaining four forces surrounding it.
Competition itself includes the following. Critical Mass in key geographies Name Recognition Economies of Scale Brand awareness To competition’s left is the force of Suppliers. Suppliers itself is broken into two categories. High Power Pharmaceutical Groups Galenics/Delivery systems technology groups R&D labs Low Power Packaging Co. Bulk/Fine Chemical Suppliers Depends on level of vertical integration To competition’s right is the force of Buyer’s/Influencers. High Power Pharmacies/Retailers >Shelf space >Increasing consolidation >Reach consumers Governments >Control advertising.
Control distribution >New product approval Medium Power Medical Professionals (Doctors, Nurses, Pharmacists) >Need buy-in Hospitals, Managed care facilities >Increase leverage due to influence, quantity, fixed prices Low Power Distributors Other pharmaceutical/OTC groups Above Competition are Potential Entrants. Potential Entrants Pharmaceutical Companies – control new product pipeline. Consumer Products Company; have distribution channel; hard to get shelf space; know how to market to consumers. Market Characteristics: Low barriers to entry and low exits costs. Growth Potential: Private Labels.
Beneath Competition are the Substitutes. Substitutes Alternative Remedies (I. E. chiropractors, acupuncture, herbals, traditional Chinese medicine, home remedies) Operations/cosmetic surgery Prescriptions As a producers of OTC products one must recognize and successfully address these 5 forces for a product to be successful. The OTC product we chose to study was Tylenol. Tylenol originated in the 1970’s and was the first alternative to aspirin. By 1995 the brand franchise had grown to over $857 million in the Untied States with over twenty-five line extensions. Since its induction Tylenol has held a steady share of the U.
S. pain relief market. See Exhibit 4. Exhibit 4 ? Share of U. S. Pain Relief Market | |1984 |1994 | |Acetaminophens |45% |44% | |Ibuprofen-based |2 |29 | |Aspirin |53 |27 | Source: James Dudley, Winning Strategies, pp. 1-2. Over a ten-year span and Tylenol still captures almost 45% of US market. This is through the use of new products, new advertisements, global marketing, and knowing your competitor and what other product segments will offer you the greatest competition. Exhibit 5 shows how the OTC pain relief products stack up. Exhibit 5 ? U. S. Market Share (%) and Advertising Expenditures for Major Analgesic Brands.
|Brand |Market Share |Measured Advertising ($mn) | | |1993 |1992 |1993 |1992 | |Tylenol |24. 5% |25. 2 |$74. 9 |$56. 9 | |Private label |19. 0 |17. 3 |0 |0 | |Advil |13. 7 |13. 5 |74. 7 |68. 2 | |Extra Strength Excedrin |3. 8 |4. 1 |15. 9 |4. 3 | |Motrin IB |3. 7 |3. 6 |27. 2 |28. 5 | |Tylenol PM |3. 7 |3. 2 |15. 4 |13. 1 | |Genuine Bayer |2. 9 |3. 3 |8. 2 |1. 6 | |Anacin |2. 4 |2. 8 |13. 2 |38. 0 | |Nuprin |2. 0 |2. 6 |6. 0 |11. 5 | |Ecotrin |2. 0 |2. 2 |0. 1 |5. 5 | Source: Advertising Age, September 1994. What I would recommend to Tylenol is to cut back on advertising spending.
Figures show that even though advertising dollars spent have increased sales themselves do not reflect. Tylenol may have to heed new products derived from different origins of medicine. I. E Aleve see Exhibit 6. Exhibit 6 ? Sales and Advertising Expenditures for Aleve | |1994 |1995 | |Sales ($mn) |$65 |$125 | |Advertising ($mn) |$37 |$69 | |A: S ratio (%) |57 |55 | |Share of voice (%) |9. 7 |14. 5 | Aleve entered the market as late as 1994 and has had an astonishing run. The question to ask is will Aleve be to Tylenol as Tylenol was to Bayer Aspirin? GSA 561 International Marketing Case Study 1 Jina Kim Michael Gale.