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Defining Markets

Defining Operating and Reference Markets

Market is their, it is dynamic, changing at fast pace, the challenge lies in understanding this phenomena and matching the pace. Every marketer wants to exceed this pace, but at best we can just match the pace. During my interaction which marketing managers, several brand managers and budding product executives, I have noticed this common thread of thoughts. They ask "is this my market", "are these my competitors" and "where are my customers"? These classic questions are not thrown to superiors or research agencies, but to themselves. For simplicity let us talk about the very nature of this market, it is the pharmaceutical market, simple yet complex, lucid yet perplexed. Let me give you an example, which will help you concur with my observation:

Case 1: This Company was known globally for its gynecology product basket, later it was acquired by a US based firm. In India the company is in contraception management space, along with its product line for fertility. Needless to say, that this firm has a high equity among gynecologists. For years it has been one of the leaders in contraception management. The challenge came when they were about to launch a "novel" product in contraception. This was the first "innovator-product" the company had to launch after a gap of perhaps 5 to 7 years. I could see marketing managers, brand managers scratching heads to figure out "which doctors will prescribe the product" and on top of it "what is the target end-user segment". Price was identified as a key barrier which will impact the product adoption and usage. Off-course they had limited and little understanding of doctor behavior which had changed in past one year with the launch of emergency contraceptive pills.

So we observe a classic problem drawn from my earlier statement on how dynamic a market can be, even if you have a strong-hold, it does not guarantee that the marketer has a thorough understanding of market, knows his operating and reference market, which are supposed to be critical for market place success. Key point: market adaptation is a challenge and with the very nature of industry its adds to this.

A new product launch can change the realm of market, and again a product withdrawal can do the same. The classic example is VIOXX. The product launch defined pain market and its withdrawal re-defined the market again. The latest guidelines from Medical Council of India have the potential to re-shape the market, impacting some segments lightly and others heavily. This may result in companies re-looking into marketing mix and strategy implementation process.

While I have highlighted the challenges, the circumstances which result it those, and how sometimes the very nature of pharmaceutical industry is sometimes responsible for this, what does a marketer do best to define, operate, and defend his position in market. I think the definition of market has moved-on from what it used to be "place here buyers and sellers interact".

The scope of this article is limited to know your market, understand the operating and reference market, and select competitors. Let us know examine a key factor which can help in know our markets. From my several discussions with my peers and brand managers, I figured out components like markets, competitors, consumers and environment are closed linked. You can't define and understand your market without knowing competitors, consumers, and environment. Let us know examine an example which will help us assessing this.

Going back to Case 1: The "novel" contraceptive product (VAGIRING) is an once-a-month vaginal ring. This can be inserted and removed by the end-user herself with guidance from gynecologists for first few months. The product is doing well in US and 5EU. It has a distinctive advantage over traditional oral contraceptive pills of convenience and had a potential to improve compliance. Core to marketing is to draw a distinct emotional benefit, and transform that into a unique positioning and gain sustainable competitive advantage. But for VAGIRING, are the competitors only oral contraceptive pills, or can we select intra-uterine device as well, or are morning-after pills (emergency contraceptive pills) as well. Moving a step further Intra Uterine Device can also be seen as a competitor. Selecting the competitor also forms a starting point of market selection.

Now the classic question is how to select the market? And how to define VAGIRING'S competitors? Here it becomes imperative to know who our customers / end user are. In pharmaceutical industry customers (clinicians) are given more importance when it comes to segmentation and targeting, I am not saying end-user segmentation is not done or ignored, but in terms of relative importance clinicians score high. In VAGIRING'S case the question was which gynecologist segment will prescribe the product? The answers were sometimes straightforward like clinicians who practice in up-town hospitals or who have a premium clientele of patients (please note that VAGIRING is priced at EURO 12). Since, it was a novel product, gynecologists who spent more time counseling patients are also an important category to look for. Another key segment are clinicians who have visited international conferences and have listened to VAGIRING'S attributes, these were the key opinion leaders who have a optimism about the product, but sometimes not sure in which patient type it can be used. The key barrier off-course is vaginal administration and premium price. So, a marketer is clear on which clinician category to include in call-list and pre-launch activities.

One of the key things to note about pharmaceutical market is that segmentation of clinicians and patients are not mutually exclusive. Each of them map into one another. So the next question is where to start from should it be end-user segmentation first and then clinicians or vice-versa. The answer is "it depends on the product". In case of VAGIRING the clinicians experience is a result of end-users experience with the product. So, it becomes vital to draw end user segmentation first and map it to the clinicians segments. Market research and extensive field work have been key in drawing various end-user segments. One important thing to note was because of use of emergency contraceptive pills, its impact was seen on end-user segments as well. Two years ago, when the company started planning for launch and did a similar segmentation exercise the resultant end-user segments were very different. This discussion helps us draw a key inference that segmentation should be periodic and planned exercise, rather than random. This becomes more important before key product launches. If the company had not gone for the fresh segmentation exercise it had an eminent risk of missing the new segments.

So, understanding the end-user, segmenting them is the first step to define your market. We all know that after this targeting is very important, marketers choose the target segments which can give high profitability, have less entry barriers, and can give them a distinct advantage over competitors. In VAGIRING'S case the earlier hypothesis was that since it's a premium product and demands more awareness of body before a woman can use it, and therefore, the target segment can be corporate females, air-hostesses, and girls working in ITES enabled industry. Through hypothesis testing showed that perception towards the product is not impacted by lifestyle and job profile. Identifying the target segment is key to defining operating market, many-a-times target segment can be sum of more than one segments. It is important to map the target segment to the product life cycle planning (PLC). We all know PLC is a function of profitability and time since launch of product. Let us quote few non-pharmaceutical examples to make this discussion interesting.

Case-2: When PEPSI and COKE were launched, there target market was carbonated soft drinks, be it COKE or PEPSI, they became leaders in the carbonated drinks segment and enjoyed profitability for years. If we start drawing a PLC, the profitability worm was north-bound for many years until it began to witness a plateau phase. PEPSI and COKE had to target other segments to keep the profitability worm climbing high, there target was other soft drinks. So we see a shift in operating market definition: from carbonated drinks to soft drinks. What we see now is that they are targeting water as well. Finally we see another operating market shift from soft drinks to water. To leverage on this, both companies have there own packaged drinking water brands as well.

From the above example it is quite evident that definition of operating market and reference market is dynamic and changes with the PLC. For simplicity let us define the term "operating market", in case of VAGIRING the operating market was selected as oral contraceptive pill users who find remembering to take pill every day (and find it a challenge). As soon as a marketer selects this segment as target, he / she is competing against all oral contraceptive pills. So, while I define my operating market, I automatically select my competitors. Please note that competitors in operating market are my direct competitors. Then what is reference market? Reference market when PEPSI and COKE were launched was soft drinks and water. In case of VAGIRING, the reference market is intra-uterine device users, condom users, and couples who don't use any method at all. Reference market comprise of all indirect competitors. From here we have another key learning of understanding and defining operating markets and reference market, and mapping them on product life cycle.

Defining the operating and reference markets is a continuous exercise a marketer has to perform, only than market place success can be achieved and measured. Let's take an apt example of Dabur HONEY, for ages we have seen the TV commercials, it used to harp on general well being and immunity. Here the operating market did not move for ages, but recently, we seen advertisement where it encourages honey use over sugar. The point I wish to make is the co-relation between operating and reference market is dynamic, and how effectively a marketer uses this makes all difference.

In case of VAGIRING, when profitability from oral contraceptive pills segment has reached max, the marketer can target condom users, who don't find the whole act pleasurable because of barrier method. Again, it gives an advantage by making the women in control (please note that VAGIRING does not protect against STDs, HIV, and other allied infections). So, we see how implementation of operating and reference market can change the whole market perspective.

Disclaimer:

The case studies quoted are based on real life example, some with real name and others with pseudo-names. In no way does the author tries to manipulate the brands, company, and harm any perspective. This article should be purely treated as a discussion platform rather than drawing conclusion. The author has tried to present his perspective on operating and reference market based on his experience while analyzing brands and having discussion with brand managers.

About the author:

The author has five years on experience in market research and analytics. He has worked in real estate, consumer healthcare, and pharmaceutical projects. The author is a master in pharmacy with specialization in pharmaceutical marketing and management.

About the Author

The author has five years on experience in market research and analytics. He has worked in real estate, consumer healthcare, and pharmaceutical projects. The author is a master in pharmacy with specialization in pharmaceutical marketing and management.