Amidst the recent headlines about specialty drugs, pricing debates, and the expanded scope of pharmacists, there is a quiet, but certainly not sleeping, giant. Although the over-the-counter (OTC) category might not get the press coverage of prescription (Rx) drugs, this $4.5 billion CAD per annum business (Euromonitor International) is a significant and fast-growing segment of the Canadian health care market.
Global OTC drug sales growth surged ahead of Rx drug sales growth in 2008 (IMS Health) and has consistently outpaced it ever since, with 4.6% OTC sales growth versus 3.3% Rx drug sales growth in 2013. A recent visiongain report projects that the global OTC market will reach $145 billion CAD in 2017 — 11% of the total global pharmaceutical market. This trend is not expected to slow down anytime soon.
The switch to OTC drugs is no longer just a manufacturer-driven strategy. Payers also want to transfer more cost burden onto patients by promoting self-medication through such efforts as the FDA’s Non-prescription Drug Safe Use Regulatory Expansion (NSURE) initiative. The potential Rx-to-OTC switches for hypertension, diabetes, incontinence, and hypercholesterolemia could be worth billions globally.
At the end of the day, the question remains: how healthy is your OTC business? This category is distinct and highly sophisticated with significantly different operating principles, players, timelines, and decision matrices than the Rx category. It’s outside the comfort zone of many companies, and it may be deprioritized as a result. How can you make your company’s OTC product line more strategic and profitable? Will you opt for a longer-term play that diversifies your portfolio, a means to extend the franchise’s life cycle well beyond the patent cliff? Whether it’s a new product launch or an existing brand, success in OTC drugs requires a clear road map and promotion plan for how to get your product both on the shelf and off the shelf.
The following six-point checklist offers a quick way to assess the health of your OTC franchise:
- Unlike Rx drugs, listing OTC products is not a given. It’s at the sole discretion of the retailer, along with pricing and promotion.
- How is your brand performing? Is it at risk of being delisted? A listing fee may get your product on the shelf, but, if it isn’t performing and you don’t have an improvement plan in place, retailers won’t hesitate to delist; they have their own businesses to run.
- Do you have the right price slopes and suggested retail pricing for your brand? Is your pricing out of date, leading to declining profitability?
- There is more flexibility in planning pricing in OTC drugs than Rx drugs, but, if a price increase is done incorrectly, retailers may refuse to accept it and reserve the right to deduct or even delist. Manufacturers need to have a clear road map to ensure long-term pricing uptake.
###3) Reaching the Consumer
- Do you have the right packaging (first moment of truth) for the consumer?
- Consumers need to be able to make their purchasing decisions based on the product labelling and the principal claims on the packaging, but often other opportunities for marketing are not considered (e.g., the shelf, brand blocking, the planogram, a digital platform, and shopper marketing).
###4) Retail Partnerships
- Where is your brand listed? The retailer priority for consumer brands is starkly different
than prescription and so are the rules of play.
- How effective are your relationships with retail head office? Do you only see them when
you need something, or have you established and nourished strategic relationships to
support your mutual businesses?
###5) Investment Strategy
- How is your investment structured for the brand? Is it active or passive?
- Do you have a promotional plan? Do you need one? Trade funds can seem like a black
hole, as retail partners are trying to drive up their own portfolios and returns, and an
important source of profit is vendors’ trade funds. But, is there logic and accountability to
how they are allocated? Are they linked to a specific activity or solely to hold shelf presence?
Are the metrics linked to yours with accountability based on mutual success? Or, has your agreement been grandfathered in too long for anyone to remember what the various buckets are for?
###6) Pharmacist Plan
- Patients approach a pharmacist 11 times per day, on average, to get an opinion on OTC medications, and, 90% of the time, the pharmacist’s recommendation is accepted (2015 OTC report, Canadian Healthcare Network).
- How much does the pharmacist know about your brand versus the competition? Does he or she understand it enough to recommend it? What is your presence at the pharmacy? Does your company have a dedicated retail sales force, or are you relying on representatives to drop in when they have spare time? How does it link to your physician plan? The role of the pharmacist is continually evolving in this age of expanded scope of practice, and the skill set required for sales representatives to conduct effective pharmacist calls is significantly different than that required for physician calls.
Companies that are prepared to execute the right plans will be well situated to make the most of the tremendous growth potential that exists in their OTC franchises.
Originally published in Canadian Pharmaceutical Marketing April/ May 2016
For further information, please contact Dan Johnstone, Director, The Pangaea Group