Pharmacia & Upjohn Essay

As Pharmacia & Upjohn ready their Rogaine product to be distributed over the counter the company faces many new challenges not previously considered. Pharmacia has estimated that once in the over the counter market Rogaine would reach $250 million in sales within their first year and $1 billion over a period of five years. The numbers mentioned above where forecasted under the assumption that the FDA would approve a request for three year marketing exclusivity, this request was however denied. Pharmacia & Upjohn must now consider the possibility of loosing 60% of their volume to competition. The brand will have to reevaluate their potential first year sales and decide how they will modify their marketing plan to differentiate Rogaine from comparable products. External Analysis Customer Analysis. Pharmacia & Upjohn target men and women between the ages of 25 to 49 for their Rogaine product. Since Rogaine’s introduction as a prescription drug the product has grossed over $700 million in sales. At the time of the case research estimated that there were about 20 million women and 40 million men in the United States with thinning hair or baldness. Out of this group 38. 6 percent of women say they would seek treatment for hair loss and 30. 4 percent of men say they would seek treatment. Combined men and women are estimated to spend an estimated $300 million a year on products for the treatment of balding. As of now Pharmacia & Upjohn estimate potential retail sales of $250 million a year. Management will now have to take into consideration that they could lose up to 60 percent of their sales after their patent expires. Growth Prospect. By 1995 cumulative sales for the brand had reached $700 million in the US and exceeded $1 billion worldwide. Sales from their first year offering nonprescription Rogaine were expected to yield $250 million in retail sales in year one and $1billion over a period of five years. The company obviously expects growth in this market. Based on current industry trends and indicators, the hair regrowth industry is currently in the growth stage. One major characteristic of the growth stage is increased competition. In the past Rogaine was the only product offered containing their patented formula, however, there is now the possibility of at least three other brands using similar formula’s coming to the market. True to products in the growth stage Rogaine will be making a few changes to their marketing mix. Pharmacia & Upjohn plan to increase the percentage of minoxidil from 2 to 5 percent, sell Rogaine at half the price of the prescription version, distribute to retail outlets and increase promotion efforts. Marketing Profitability. The possibility for intense competition is very high for Rogaine. This is due to Pharmacia & Upjohn’s patent expiring for Rogaine and the denial of their request for a three year period of marketing exclusivity. As a result Bausch & Lomb, Alpharma, and Lemmon Company have all considered the possibility of bringing hair regrowth products to the market. The threat of substitutes is also particularly high due to generic brands offering similar products coming to the market. Generic brands typically sell for 25 percent to 50 percent less than brand name products. As a result of a greater number of options customers will now have more bargaining power than in the past. Distribution Channels. As a prescription drug Rogaine’s strategy was to first educate members of their sales force who would then call on physicians, dermatologist, and other health care professionals. After this introduction Pharmacia & Upjohn began targeting consumers directly through television commercials, print ads and direct mailings. Their over the counter strategy will include creating a â€Å"hair regrowth category† and distributing products through pharmacy or hair care sections of food, drug, and mass merchandise retail outlets. The company also plans to send mailings to around 40,000 physicians, 20,000 pharmacists. Consumers will be targeted with mail in rebates, television commercials and by advertisements placed in periodicals. Overall 92 percent of the target will see Rogaine through television and 77 percent of customers would be reached through print advertisements. Marketing Trends. Two major trends that will affect the marketing mix for Rogaine is lower pricing and increased promotion. A single, twin and triple pack of Rogaine will now retail for $29. 0, $55. 00 and $75. 00 respectfully. Overall their products will be selling for half the price of the prescription version of the product. Increased competition will also be a new trend in the market. Competitors such as Bausch & Lomb, Alpharma, and Lemmon and Company will be entering the market selling similar products. Overall $75 million will initially be spent on advertising in the over the counter market. There are also plans to increase the amount of minoxidil from 2-percent to 5-percent in order to increase product effectiveness. In comparison as a prescription drug it was estimated that Rogaine spent between $40 million and $50 million on marketing annually up until 1991. In the past Rogaine was protected by a patent blocking competitors from using their formula. A key success factor for Rogaine in the over the counter market will be differentiation. Rogaine will have to differentiate itself from competition who may be offering lower priced products. Customer Analysis. As of now Rogaine has two defined segments. Men between the ages of 25 and 49 make up the largest customer segment for Rogaine. Research indicates that 9. 9 percent of men who experience hair loss actually seek treatment. At the time of the case it was estimated that there were around 40 million balding men in the US. This means around 3,960,000 men will actually seek treatment for hair loss. The second submarket for the hair product is women between the ages of 18 and 49. It is estimated that around 20 million women have thinning hair and an estimated 13. 3 percent will actually seek treatment for their hair loss. Customers who purchase Rogaine are motivated by cosmetic reasons. Although hair loss is most commonly caused by the medical condition alopecia, it is not something that requires one to seek treatment. Most insurance plans do not even cover doctor’s visits or prescriptions for hair loss products such as Rogaine. Unmet Need. Although Rogaine is considered a success there are many who have not benefited from the use of the product. Research indicates that only 26 percent of male users reported moderate to dense growth and 33 percent reported minimal growth while using Rogaine. Out of women within this same age range only 19 percent reported moderate hair growth and 40 percent reported minimal growth. This means that there is still a large majority of the market that needs a solution to their hair loss problems. Performance Analysis. With the denial of the request for three year marketing exclusivity, this has affected the way Rogaine will compete against other hair loss treatment companies. Rogaine has assured its client based that their product is the â€Å"the only product medically proven to regrow hair. † Rogaine has been able to dominate the market with sales over $600 million during the years of 1988-1995. Sales are projected over the course of the next five years to increase at an average rate of 20% each year, with a total of net profit before taxes of $759,438, 823 at the end of 2000. Determinants of Strategic Options. Rogaine has chosen to spend $75 million on a marketing program to create awareness and a trial of the product. The $75 million will be distributed between one 30-second commercial spot for both men and women, information and displays would be sent to an estimated 40,000 physicians, and 20,000 pharmacists would receive the Rogaine Pharmacy Kit. Rogaine was also offering consumers a way to join the direct marketing program by signing up or calling the toll free number to join. Rogaine is also partnering with Progaine, (a shampoo) by offering coupons for Progaine inserted inside the Rogaine packages. Rogaine is currently facing the implications of having the 3 year market exclusivity request denied. This denial is allowing Rogaine’s competitors the ability to flood the market with their brand of hair re-growth products. This flooding of the market will likely decrease the growth rate of 20% in sales.