Offense versus Defense Prof. Markus Christen INSEAD Singapore May/June 2007 Prof. Markus Christen INSEAD Singapore May/June 2007

Offense versus DefenseOffense versus Defense

Prof. Markus Christen

INSEAD SingaporeMay/June 2007



Market Driving Strategies - May/June 2007© Prof. Markus ChristenSession 3 - 2

Market Leadership

Even a smaller firm can leverage a minor product advantage into a competitive advantage and attain (and defend) a market leadership position• Attack competitor’s “blind spots”

– Product weaknesses

– Customer changes

– Bundling / unbundling

• Deploy strategy to drive market– Create the right customer perceptions

– Find underdefended markets

– Focus resources


Market Leadership

Even with patent protection, product advantages are not sustainable forever. To maintain product advantages, continuous innovation and speed are essential:• “Build a moat” before the enemy is in the city

– Understand perceived gaps between customer needs and existing products and close them faster than competitors

– Develop new market segments

– Develop new customer access points

• But: Preemption leads to higher average cost


Market Leadership

Creating the right customer perceptions• Clear and consistent positioning related to customer needs and differential

advantage– Zantac: fast, simple, specific

• Align all Ps with intended positioning– E.g., price was consistent with customers’ interpretation (quality) and economic

incentives

• Relentless marketing effort– Glaxo increased access to GPs by targeting same GP with multiple salespeople

– Use of partners for fast market penetration


Products Services

Search Qualities Experience Qualities Credence Qualities

Easy

Dia

mond

Chin

a

Cosm

eti

c Surg

ery

Auto

mobile

s

Rest

au

rant

Meals

Hair

cut

IT S

erv

ices

Cance

r Tre

atm

en

t

Busi

ness

Ed

uca

tion

Chair

Difficult

Customers: Learning Product Quality


Offensive and Defensive Strategies

Key Attributes Are … Attack Defend

Search Offer superior attribute performance

Change attribute importance

Limit ability and/or motivation to search for new products

Change attributes from ‘search’ to ‘experience’

Experience Offer lower price or better availability to induce trial and adoption

Find underserved customer segment

Change attribute to search

Limit trial of new products

Expand to block gateways

Change attributes from ‘experience’ to ‘credence’

Credence Use ‘trusted’ people to create superior reputation

Undermine reputation of incumbent firms

Change attributes to experience or search

Stress long-standing reputation

Undermine reputation of new entrant

Threaten to retaliate (denying allegations will not be sufficient)

Take extreme measures to restore reputation


Competitor Analysis: Key Elements

Past & CurrentStrategy

Objectives

Strengths andWeaknesses

People, Culture,Assumptions

Action/ReactionProfile

ReactionsLikelihood and timing of reactionStrength of reactionTarget market and/or marketing mix element used to react


Rule 6: Anticipate (Re)Actions

You need to understanda player’s

ability and motivationto anticipateits (re)action.

Appendix: ZantacAppendix: Zantac





Annual Value of £1 invested in Glaxo Holdings Stock in 1979 (uses yearly

median stock prices; adjusted for 100% stock dividendsin 1983 and 1985)

0

10

20

30

40

50

60

70

80

90

100

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

Pounds, Sterling (Indexed 1979 = 1)

What is the value today of £1400 invested in 1949?

Invested in Today’s value

Cash £ 84

Gold £ 10,200

A “typical” house (in the U.K.) £ 49,000

The Gartmore Practical Investment Fund £ 127,219 (a unit trust that invests in a range of British and international shares)

Shares in Shell £ 375,000

Comprehensive basket of British shares £ 433,900

Glaxo shares £ 6,300,000

Not bad!

Ideal Performance Tagamet Zantac

Pain Relief |-----------2------------| Immediately after several days (p. 5)no difference indicated in case

Healing Speed* |--------T---Z----------| Immediately after 6 weeks after 4 weeks

Healing Efficacy |----------------2-------| 100% 80% of patients 80% of patients

Side Effects** |----------------------2-| Nonebreast swelling in males reversible liver damage mental confusion

none known

Interactions** |----------------------2-| NoneAnti-Coagulants Valium

none known

Convenience |------T-----Z----------|Once a day or less

4/day 2/day approved

2/day

Recurrence (after healing)

|-----2------------------| None 66% within a yearsame as Tagamet (see Ex. 10)

Recurrence (during continuous treatment)

|-------------------------| None unknown in 1981 unknown in 1981

**Perception: Tagamet is very safe

Customer Needs (by order of importance)

Tagamet vs. Zantac

*actual healing is difficult to judge for patients and doctors without a test after treatment (p. 3)

Glaxo R&D Glaxo Marketing

Research objective achieved: Zantac is an improvement over Tagamet

Tagamet is the pioneer: Zantac is a me-too product

Innovations in product development in order to speed up market introduction: production investments prior to safety results simultaneous trials in over 20 countries simultaneous approval applications

Conventional launch strategy: price 10% below Tagamet Glaxo's sales force only

A big opportunity like Ventolin Modest ambitions: 10% market share 100 worldwide sales potential

Pre-Launch Attitudes Toward Zantac

SmithKline Glaxo

Corporate Sales $ 2 billion $ 1.1 billionCorporate Net Profits $ 370 million $ 122 millionCorporate Net Profit Margin 18.5% 11%Pharma Sales $ 1.2 billion $ 850 million - as % of corporate sales 60% 80%

Antiulcer products Tagamet none - Sales $ 780 million - % of corporate sales 39% - % of corporate profits 60% - % of pharma sales 65% - Share of US in Tagamet sales 40%

Marketing strategy slow global roll-out, relying on own sales forceUS-centered (biggest market)

no attempts to build barriersproduct remained the same, "how can you improve Tagamet?"focusing on other areas to reduce dependency on Tagamet sales

Competitor Analysis

Obstacles to Zantac's Success How Glaxo Overcame These Obstacles

Zantac is a me-too product price premium high price = high quality

Tagamet's pioneering advantage Positioning as superior H2-blocker: all the benefits of Tagamet, yet … faster, simpler, more specific higher promotional intensity

Tagamet's side effects are not major deterrents to prescribing

Creation of awareness of side effetcs: emphasis on Zantac's benefits PR: "…cuts out sex problems"

Tagamet already has a superior safety track record

Glaxo has a good reputation for product development and providing information for doctors

Tagamet's economies of scale price premium

Weak presence in big US market co-pormotion agreement with Roche

Poor marketing track record co-marketing and co-promotion

Obstacles and Glaxo Actions

Zantac's Price Positioning at Launch

0%

20%

40%

60%

80%

100%

120%

140%

0% 50% 100% 150% 200% 250%

Zantac's relative daily treatment cost

Zantac's relative treatment cycle cost

Tagamet

Initial UK

USA

France GermanyUK

Italy

Milk Zantac Continue to Invest in Zantac

Zantac is a mature product; its decline is inevitable

Product life cycles are not made by God but by man

Zatnac's use cannot be expanded further

Significant opportunities for total market expansion exist: NSAID co-prescription: 13-40% growth maintenance treatment non-ulcer indications

The pharmaceutical industry is driven by technology

The pharmaceutical industry is driven by perceptions: at Glaxo 12.5% of sales in R&D and 25% of sales in marketing

Zantac is an obsolete product Zantac offers the optimal benefit-risk combination to customers

Losec represents a new, more advanced product generation

Losec has significant weaknesses

Losec will take the market by storm Glaxo can slow down Losec's market penetration

Glaxo is better off concentrating on its new products

Even if successful, the new products will not allow Glaxo to continue its sales and profit growth

Zantac's Future Role at Glaxo

Strategic Gap Analysis

0

1,000

2,000

3,000

4,000

5,000

6,000

198619871988198919901991199219931994

Sales

New Products

Other CurrentProductsZantac

Losec Market Share

Total Antiulcerant Market

Non-UlcerPeptic Ulcer

AcuteTreatment

Maintenance andNSAID Prevention

Reflux

AcuteTreatment

Maintenance andNSAID Prevention

54% 16% 30%

65% 35% 65% 35%

Share ofSegment inTotal Market

35% 19% 10% 6% 30%

Losec Share- in total market- in segment

3%9%

notapproved

9%90%

notapproved

notapproved

Glaxo’s Moves 1989-1991

Strategic Objective

“There is a two- or three-year period in which the company cannot lose sight of the absolute importance of protecting and expanding market share with Zantac. Unless we keep our wits about us, we face the risk of someone taking away our lunch the way we did to Tagamet.” (Dr. Ernest Mario, CEO, Glaxo, 1989)

Market Expansion Priorities

NSAID co-prescriptionMaintenanceReflux

Protection of Market Share

Position Losec as a ‘Second-Line Treatment’, specialist productChallenge Losec’s promotionIncrease doctor awareness of potential safety risks with LosecMatch Losec’s healing performance and tie up opinion leadersBroad range of line extensionsHeavy promotional investments

Sales CAGR

1989 1990 1991 1992 1993 1994 1995 1995 89-95

Zantac 42% 41% 41% 40% 37% 35% 33% £2,774 12%

Tagamet 21% 17% 16% 14% 13% 11% 8% £664 0%

Pepcid 12% 10% 13% 13% 12% 12% 13% £1,084 19%

Losec 0.4% 3% 7% 11% 13% 17% 22% £1,862 128%

Total Market (millions)

£3,261 £8,359 £8,359 17%

Antiulcerant Market Evolution

Market Share


Zantac

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Documents

Offense versus Defense Prof. Markus Christen INSEAD Singapore May/June 2007 Prof. Markus Christen INSEAD Singapore May/June 2007