Many Business Unit Directors in Life Sciences have gone through this very difficult experience or are eventually right in the midst of it: Headquarters is asking affiliates to cut costs whilst at the same time it is expected that the top line continues to grow. This means that field force and non-field force expenditures need to be cut significantly at affiliate level. If there are sales representatives from a contracted sales force organization (CSO) in place then these are usually the first ones to get released. But if there are no CSO field reps it means that the own work force needs to be reduced with all the psychological and social burden that such activity implies. Additionally local teams are then confronted with the challenge to cut expenses in those areas which are least harmful in terms of negative sales impact. But how can the affiliate still grow the top line if the overall marketing and sales budget needs to be reduced?
In such difficult and stressful situation it is recommended that local Commercial Operations teams scrutinize the entire portfolio of promoted brands to identify those brands with the lowest responsiveness to promotion. In order to determine the lowest responsiveness it is required to understand for every promoted brand how much of today´s field force and non-field force investment is going to drive how much incremental sales in the future. By also taking into account the Cost of Goods sold of the individual products it is possible to determine the long-term profit impact of the promoted brands. It is necessary to model the profit response curves for the individual brands to then determine for which of them it is less harmful to cut investments.
Illustration of profit response curves for three promoted brands
It is obvious in this illustrative example that it makes most sense to reduce the invest levels for both Brand C and B. The vertical arrows represent the additional profits that will be gained by reducing the investment levels for those two brands. As brand C has the lowest profit response the incremental profits that will be gained are lower than the ones for brand B. For Brand A ideally the level of investment should be kept as this is the brand which is most responsive to promotion and the current investment is at the level where long-term profits are already maximized.
This reduction of overall promotional efforts will also have a negative impact on the top-line growth of brands B and C. Therefore this exercise should be accompanied by a thorough review of the segmentation and targeting approach. Only if the concentration curves and prescription splits per specialty and therapeutic area are made fully transparent and there is the ability to be laser-focussed with the future targeting efforts then there is the chance that the reduction of the promotional efforts gets partially or even fully compensated. This actually means that the slope of the profit response curve can change if the overall segmentation and targeting quality improves. In summary, in times of adversity where overall promotional expenses need to be cut whilst top- and bottom line is expected to be on a continuous growth trajectory it is crucial to conduct a resource allocation optimization exercise to reduce investment levels where it hurts less. And if this is paired with a thorough segmentation and targeting review down to individual customer level chances are that the impact on the top-line evolution due to the reduction of promotional efforts get partially or fully compensated. Hopefully you are and will not be in such a difficult situation like the one described above but if you are what are you planning to do? The good news is that a promotion response analysis for your promoted brands can actually be less complex and costly than you might expect.
In difficult times when resources need to be cut at affiliate level whilst at the same time both top and bottom-line results are expected to continue on a growth trajectory it is important to conduct a #promotionresponseanalysis to ensure #optimizedresourceallocation. #SFE #SalesForceEffectiveness #BusinessExcellence #CommercialExcellence
Xeleratio Consulting GmbH
We help Life Sciences executives improve sales performance with innovative best-in-class Business Excellence tools and methodologies . Expertise in Business Excellence has been gained with over 12 years of working in different global and regional roles in the Life Sciences industry.
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