Product differentiation strategies have long been employed within pharma organisations to sustain market competitiveness. But more is now required.
Product differentiation is a core business strategy for the big pharma organisations as much as it is for the smaller players, often giving those smaller pharma organisations a chance against larger rivals and their products that might already be established.
Such pharma product differentiation strategies might include new dosage forms, indications and fixed drug combinations. Let's go back to the start and look at what product differentiation entails and how these differentiation strategies can form.
What is product differentiation?
Product differentiation is the process of identifying distinctive features or introducing unique features to a product to ensure that the product has a unique selling proposition within its market. To distinguish the product from another product by a competitor or by the same organisation.
During a customer’s purchasing decision-making process (or buyer’s journey), the customer will evaluate available products and will make assumptions by comparing those available products.
A product’s differentiation strategy, therefore, looks to set a product apart from others and show its uniqueness and offer customers “something they value that competitors don’t have.” (HBR)
Why is product differentiation important?
Product differentiation is important for a number of market-competitive reasons:
- Value creation
- Non-price competition
- Brand loyalty
- No perceived substitutes
- Quality differentiation
- Combat key challenges in pharma.
Common product differentiation types
In competitive markets, where similar products compete, business economics dictates that there are three types of product differentiation:
Vertical differentiation concerns distinguishing a product based on a single characteristic where the customer is clear on its quality. Quality hierarchies exist within product markets, where each competing product is ranked from low to high in terms of its perceived quality.
A vertical differentiation strategy will seek to create more demand for products by demonstrating product quality with the view of increasing the perceived quality of the product against others in a number of ways. Price can be used to differentiate in this respect due to the association made with higher price and quality. But if two price points are similar, the superior product (in terms of demonstrable quality from its features and production method, for example) will be preferred.
So in pharma, the dosage, use, effects and side effects, risks and safety and strength of Generic Drug A and Brand-Name Drug A may be exactly the same, but a brand-name drug may have a perceived quality benefit for being the first to market, and therefore, a reputable product.
Horizontal differentiation is also usually concerned with distinguishing a product based on a single characteristic, but this time that characteristic is not quality. Consumers are not certain about the quality of the products that they are comparing.
This entails distinctions in products that cannot be accurately evaluated and ranked in terms of quality. Quality may not even be a consideration within the customer decision-making process - this said, it is unlikely that this is the case within the pharma industry. The product’s differentiating factors may, therefore, be about the packaging, delivery method and product shape/colour.
Taking the drug example once again, Generic Drug A and Brand-Name Drug may be exactly the same, and the consumer knows this, so there is no benefit on product quality, but a generic drug may have a perceived value due to its friendly and enticing outer packaging.
Simple differentiation or mixed differentiation is usually based on a number of characteristics: a combination of both vertical and horizontal differentiation factors. There is no real pattern, and in most cases, no recognisable USP
Although this form of differentiation does not consist of a set characteristics, it is quite common within complex markets such as pharma where a variety of products, consumers and competing organisations exist.
Sources of product (and brand) differentiation
Differentiation is due to buyers perceiving a difference. So, sources of differentiation may be functional aspects of the product, how it is distributed and marketed. The physical product need not change, but it may also change should it need to.
In short, the differentiation options are vast.
Who buys the product can also dictate the source of differentiation for a product, where ignorance of buyers regarding the characteristics and quality of the product can play in a key role in how marketers can position the product. But this is not likely to be the case in B2B pharma, but might be more so in B2C pharma marketplaces.
Key sources of product differentiation are as follows (which are also adapted from the 7Ps of classic marketing thinking):
Closely associated with quality, differences in price often signal to consumers that a product with a higher price point is trustworthy and reliable. The USP may flip the other way on quality, however, and the product may be positioned as the cheaper alternative. On the other hand, a lower price can trigger the demand for products where quality is also not affected, this is common with a range of OTC drugs.
The people within the organisation, or the people a product is associated with, such as strategic partners, can also provide a differentiating source for the product. Individual skills, knowledge and experience within the manufacturing organisation, or with sales, support and customer-facing teams, can also often provide the product with a platform to stand out and sell more. How often do we see it in pharma where people buy off known and trusted contacts?
Differences in functional features and benefits can be used as a source of differentiation, where additional features are a signal of added value. A product might contain a range of additional product features, perhaps to combat established products or to distinguish from lower-priced products or to stay current and with innovative solutions.
The design of the product or any visual elements concerned with the product can be used as a source of differentiation. Minor design enhancements in the packaging or internal/external appearance can often lead to positive reactions. It may be the case that, a drug’s galenic form (liquid stick packs or pre-filled syringes, for example), based on consumer preferences, will offer a source of product differentiation.
The promotional activities of the organisation, including its sales efforts, can also be a source of differentiation. Direct and interruptive sales approaches may signal a poorer quality product over a passive inbound marketing approach, that is becoming increasingly more common in pharma. Tweaks in how an organisation conducts its marketing, which subsequently promotes and positions the product within the market, as you will already be aware, has the ability to greatly influence customer perception of the product.
Differences in timing and availability of the product offering can also offer organisations an opportunity for product uniqueness and differentiation. CMOs with manufacturing capabilities on multiple continents may gain an advantage over a competitor located on a single continent. Similarly, a CMO with a delivery time 3-months shorter than a competitor and might gain a distinct advantage. Products are often considered as the driving force in its success within its market, where organisations fail to consider the factors surrounding the product (and the consumer's needs) in the decision-making process.
The production process of the organisation may also dictate the differentiation elements of the product. Eco-friendly products have emerged as popular in recent years, just as biopharmaceutical solutions have also increased in popularity. Scale may also be a differentiating factor where economies of scale can emerge as a benefit, just as smaller production process – for short production runs – may be a source for differentiation. If organisations can enhance its production processes and methods, including the raw materials it uses, it can certainly attract more customers as a source of product differentiation.
The factors listed above can be used as a guide when determining sources for your product differentiation strategy. This said, ethical considerations should be taken into account when assessing each of the potential product differentiation source.
Finding the appropriate differentiation elements
The differentiation process may be a review process that takes place annually or every 3 or 5 years with the established products and brands. It can vary within each organisation and market.
To discover new sources of differentiation, upon a review of external factors, it is necessary to look internally – specifically at the customer’s experience or touchpoints with your organisation and its products – to identify how best to differentiate your product offering.
You, as the marketer of the pharma organisation, first need to map out this journey by asking yourself: How do people become aware of their need for the product? How do consumers find the product and the brand offering? How do consumers make decisions? What is the customer really using your product for? Look at the interactions with your organisation.
You are generally looking to find out who, what, where, why and when. The objective is to see the wider picture: How the user comes into contact with the product, how he or she makes a purchase decision around the product, how that product is used as well as other brand touchpoints after the purchase.
Approach: Differentiate your products and your marketing
Pharma organisations have used product differentiation strategies to gain competitive positions for decades, which has proved to be a successful product launch approach. (This does largely depend the the marketing orientation approach for your organisation.) But in competitive and innovative markets, new entrants can gain market share – by differentiating through price, people, features, design, marketing, availability and processes – and challenge on quality at any time.
A successful product differentiation approach and strategy will move a product from competing based primarily on quality/price to competing on additional non-price factors. Approaching a successful product differentiation strategy concerns differentiating other elements that concern the product, such as its marketing, that builds on traditional product differentiation and offers a differentiated product via a differentiated message.
Therefore, as well as the benefits of differentiating a pharma product, such as the economic benefits, higher price point and brand loyalty, differentiating a marketing message alongside can establish a lasting competitive position, yield a greater ROI on marketing spend and boost market share.