Market Entry Stategies for Pharmaceutical Drugs

In a study published in the International Journal of Pharmaceutical and Healthcare Marketing, G.K. Kalyanaram has found that there is a significant order of entry effect on market share in both prescription and over-the-counter pharmaceutical drugs categories. This effect is higher in magnitude in the OTC category than in the Rx category. The effects of price, and Direct-to-Physicians and Direct-to-Consumers advertising are also significant. The differential effects of DTP and DTC advertising in the prescription and over-the-counter categories are intuitive -- the effect of advertising to physicians is greater in the prescription drugs category than in the over-the-counter drugs category, and the effect of consumer advertising is greater in the over-the-counter drugs category.

Pharmaceutical firms aiming at developing pioneering brands should be encouraged by the availability of a long run market share reward for their innovation. Although the pioneer’s share does decrease as each new firm enters, the pioneer retains a substantial share differential. However, creative product innovation and position remain central to continued long-term market success.

The size of this reward depends upon the presence and strategies of later entrants. The empirical results show the innovator’s market share in the prescriptions category (OTC category) dropping from 100 percent to about 58 (61) percent after the second brand enters, to 43 (47) percent after the third entrant, to 35 (39) percent after the fourth brand enters, and to 30 (34) percent after the fifth brand enters. Consistently, the market shares for the first entrant are higher by 3-5 points in the over-the-counter drugs category than in the prescription (Rx) drugs category.

As shown in theoretical and empirical studies, a preferred strategy for a later entrant may be to develop a superior product with either unique benefit features and/or a lower price (i.e., better positioning). When such a product is backed by aggressive marketing efforts, a higher share can be achieved. However, the pioneer should consider strategies to preempt this. The pioneer can minimize the later entrant’s threat by occupying the consumers’ preferred positioning space. However, if the pioneer does not carefully design its product, and an improved product is subsequently introduced and aggressively promoted by a competitor, the market share reward for innovation may be lost. The pioneer also should consider aggressively defending its brand with advertising and thereby preventing competition from gaining an advertising dominance.