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Formal segmentation research defining brand opportunity

Paragon Research & Consulting | www.paragonresearch.comNo Comments
Creating brand differentiation in a crowded, heavily regulated environment only
complicates their efforts. Market segmentation is the foundation from which
successful marketing strategies devolve and segmentation research is the method
for gaining indepth insight into the market landscape and the potential target
audiences required to segment markets. Yet, while segmentation research is
consistently utilized as a basic research tool for supporting brands in other
industries, it is not always implemented as a core strategic tool in
pharmaceutical marketing.
Segmentation research can be approached in one of two ways: informally or
formally. The differences between the two are driven by the breadth of
objectives and scope of effort. Informal segmentation research can be done as a
by-product in the course of research completed for other purposes (e.g.,
positioning, pricing, forecasting, etc.). Formal segmentation research is
specifically executed for the validation and exploration of customer segments
that can serve as the basis for differentiated marketing strategies.
Compared to formal segmentation research, informal segmentation research
involves minimal design, analysis, and reporting. Informal segmentation research
searches for significant differences across respondent subgroups, e.g., based on
respondent specialty, demographics, or practice characteristics. The analytical
methods are more rudimentary, e.g., crosstabulation or significance testing
across groups. The purpose of informal segmentation research is to determine
whether or not there are important respondent subgroups which will influence a
project’s conclusions and commercial findings. Due to the important benefits of
segmentation research, Paragon conducts informal segmentation research on each
of its projects regardless of the primary purpose or objectives of the project.
From its outset, formal segmentation research is methodically designed and
executed for the explicit purpose of identifying and evaluating market
subsegments. There is not only a significant difference in the intellectual
energy expended, there is also a reliance on advanced analytical tools, most
notably multivariate analyses.
It may be useful to briefly review the theory behind market segmentation and why
markets are segmented. Market segmentation involves subdividing the total market
for a product or service such that the buyers within each segment are
homogeneous with respect to variables such as the characteristics of products
desired, buying motivations, ability to purchase, etc. These variables in turn
affect trial, adoption, brand loyalty, and ultimately the decision to purchase
or prescribing. At the same time, the buyers from different segments should be
as heterogeneous as possible on the same variables.
The whole purpose for segmenting markets is to understand how products or
services can be positioned and promoted more effectively by linking their
features and benefits to target customers’ value drivers. Thus, segmentation
ultimately increases revenues and/or profits by more successfully tailoring the
commercial execution and marketing mix to the wants and needs of each
homogeneous segment.* If it is not possible to develop different marketing
strategies for each segment or if the segments do not respond (i.e., buy or
prescribe) differently to unique marketing strategies, then an unsegmented
strategy should be implemented. Market segmentation research will either fail to
identify the sought after segments or will derive segments without any relevance
to marketing, revenue, or profit goals.
Thus, the first step in segmentation research is to determine whether the market
can be successfully segmented at all. The only way to make this determination is
through market insight, which resides within an organization’s marketing,
research, and sales teams, within the buyers themselves, or a combination
thereof. Either the organization’s leaders have already gained sufficient
insight to satisfy themselves that there is a basis for segmentation or
qualitative research can be executed to gain the required insight.
Once it has been decided that there is potential for segmentation, it makes
sense to explore the research required. But even then, such research should be
approached with the knowledge that it may fail. For example, the research may
find that there are no homogeneous segments or the available research technology
may fail to detect the underlying bases leading to successful segmentation
strategies. Of course, more often, such research succeeds. Paragon’s approach to
formal segmentation research seeks to:
Identify potential measures relevant to the description and segmentation of
target prescribers,
Define distinct market segments and or identify potential new customer
categories,
Describe typical drivers and needs of customers within each segment,
Measure the relevant value of each segment,
Determine which segments are most commercially viable,
Identify the competitive terrain which will comprise each segment and
prioritize the relative positions of competitive products by segment,
And outline business or brand strategies that can differentiate an
asset/product that will stimulate awareness, trial and long-term brand loyalty
with customers of each segment.
There are a number of considerations underlying the approach to effective
segmentation which influence the objectives we pursue. The first step in
segmenting a market is to separate those who are qualified marketing targets
from those who are not. This is usually done with the support of secondary data
and may be based on physician specialty, types of patients treated or conditions
treated, medical coverage (drug access), products prescribed, and prescribing
volume quintiles, i.e. the types of variables typically thought of as study
screening criteria. The second step involves separating the marketing targets
into homogeneous subsegments which can be linked to unique product features and
benefits, brand positions, promotional message platforms, brand personalities,
and customer emotions for each subsegment in order to establish a durable market
strategy to maximize sales potential.
Any number of different variables can be used to segment the market but,
generally, they can be divided into reach vs value proposition variables. Some
attributes (such as demographic characteristics, prescription deciling or
category prescribing, geographic location, venue or setting (e.g. hospital,
office, clinic), customer access, practice type, board certification, clinical
investigator experience and/or media preference make it possible to identify how
to “reach” the targets prescribers. “Value proposition” attributes tend to focus
on prescribers’ purchase or product use motivations (e.g. needs, benefits
sought, psychographics, etc.) and, in so doing, help marketers decide the types
of products desired, strategy, positions, and category definitions that products
should establish, the core messages to communicate, and potential promotional
activities to execute. Unfortunately, the two variables do not directly
correlate as “reach” variables do not assist in the preparation of messages and
the value variables provide no means to deliver the messages.
Another consideration is the importance of targeting any given segment for
marketing. It must be established that it is either strategically or financially
worth the investment of developing customized strategies for each segment
targeted. Ideally, each segment’s importance would be measured by its demand
(number of prescribers multiplied by rate of use in terms of new, refill and
total prescriptions), revenue, or profit potential. Often, however, some
surrogate for demand is used to justify segment targeting. Common surrogates
include satisfaction, likelihood to recommend or prescribe products,
identification as early or late adopters, or company awareness or association.
Related to the determination of value is the need to insure that the
differential appeal of the product(s) exceeds the appeal of competitive products
within all targeted segments.
In general, segmentation research involves two stages. The first is aimed at the
creation of comprehensive sets or batteries of variables, called the bases for
segmentation, for use in gathering the data needed to segment prescribers. The
second stage involves the application of these batteries to achieve the
objectives specified above.
Creation of Potential Segmentation Bases
Any combination of prior research (primary and secondary), internal expertise
(via joint planning and/or design brainstorming meetings), and added,
custom-designed qualitative research is used to generate the potential bases of
segmentation. Examples of segmentation bases include physicians’:

1. Attitudes toward:
Current drug classes and available agents,
Patient needs;
Patient trial, persistence, and compliance issues;
Corporate equity and market positions;
Interactions with sales representatives;
Payer influences;
Employer influences;
Clinical trends;
And patient lifestyles;
2. Access to pre-launch data or participation as investigators;
3. Patient populations and subpopulations;
4. Current prescribing patterns, either from survey or audit data;
5. Willingness to prescribe specific types of agents;
6. Perceived patient acceptance of specific types of agents;
7. Definitions of patient populations and subpopulations appropriate for
different therapies;
8. And demographics, socioeconomics, psychographics, practice characteristics,
and geographic measures.
Application of Potential Segmentation Bases
The second stage of segmentation research involves the testing and application
of the batteries designed in stage one to gather the data needed to achieve
segmentation objectives.
All of the measures included in the batteries are studied to determine if they
can be used to define distinct segments. Cluster analysis is used to search for
the segments. Discriminant analysis is used to describe segment customers
members. Alternatively, latent class analysis can be used for these same
purposes. Paragon first searches for segments employing the “value” attributes.
The profiles of these segments helps develop brand strategies and related
message platforms for each segment. Then, we use the “reach” attributes to
profile the segments aid in the design of communication/media strategies. This
analysis achieves three key objectives, the identification of segmenting
attributes, derivation of the actual segment, and description of typical
prescribers within each segment.
The next three outcomes (measuring the value of each segment, prioritizing the
right segments, and measuring the appeal of the competitive terrain within each
segment), are accomplished primarily by measuring product preferences.
Respondents are provided with profiles for the products of interest (if
necessary) and asked to rate their intent to prescribe each product.
Product profiles are typically not required for existing products. Their market
histories and physicians’ experiences with them have established their brand
images and value propositions. For pre-launch products whose target product
profiles have been established or whose package inserts have been approved,
product profiles with fixed features and benefits are used. However, the
clinical profiles of many products (such as those in phases I, II, or III of
development) have yet to be definitively established. These products are
presented by sets of alternative product profiles describing the potential
ranges of their product features. Often, these scenarios take the form of
conjoint-choice designed “what if” scenarios.
The value of the segments is determined through a combination of the number of
appropriate patients treated by respondents in each segment and the likelihood
of prescribing for all products of interest. Thus, the research generates
measures of demand for each product. The right segments for any given product
are those where its potential of demand is sufficiently high to warrant
promotional efforts that will generate a measurable ROI and where a product has
a sustainable positioning advantage over its competitors.
The last objective (outlining segment strategies) is addressed by gathering
ratings of respondents’ product perceptions relative to attributes explaining
their prescribing intentions, e.g., product features and benefits,
appropriateness for different types of patients. On a segment-by-segment basis,
this data can be used to prepare perceptual maps, quadrant charts, gap analyses,
and/or analyzed by means of multivariate modeling (e.g. conjoint-choice
modeling, ad hoc regression-based models, etc.). The goal of these analyses is
to identify the key rationales justifying the communications strategies.
In the end, market segmentation research reveals who to target, what is of value
to them, how to reach and influence them, and establishes the criteria to
forecast and measure the potential value of a brand by segment or in total.
Pharmaceutical markets have never been fraught with more risk and competition.
While the costs associated with drug development have always been high, a number
of forces (managed care, government regulation, generic competition, shortened
patent lives, and so forth) have conspired to reduce the benefits of drug
development in the current market. While product innovation is still the sine
qua non of pharmaceutical marketing, even innovative products are unlikely to
achieve optimal commercial success without dynamic and winning marketing
strategies. Winning marketing strategies are creatively tailored to the unique
wants, needs, and motivations of each market segment. Segmentation research
cannot replace marketing creativity, but without it the most creative marketers
lack direction.
Robert N. Zelnio, PhD
President

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