The volume of prescriptions a physician

Recognizing the Differences among Doctors

Pharmaceutical companies depend on doctors to prescribe their branded drugs over competitive or generic drugs. Rarely do end consumers make these decisions for themselves. Faced with environmental threats such as HMOs, hospital purchasing alliances, and pharmacy consortiums--all of which lowered pharmaceutical profits--a major pharmaceutical firm strove to reduce its costs and improve the efficiency of its marketing. The first step it took was to recognize through careful analysis that all doctors were not equally profitable customers. The company departed from industry practice and began to view physicians as long-term strategic assets and thereafter targeted them based on potential profitability across the company's drug portfolio (rather than on current sales within a single therapeutic category). In addition to the cross-product focus, the firm also was able to calculate with some degree of accuracy the selling costs per physician (e.g., $125 for a call from a sales representative, $25 for product samples, $5 for share of advertising materials). The key inputs to their analysis were: 

• the volume of prescriptions a particular physician generated (measured by data from a source called Walsh America, which captures physician-level prescribing data at the retail pharmacy level);

• value of a prescription (from a source called IMS Americas);

• cost of a sales call;

• cost of product samples;

• product gross margins, rebates, and discounts.

Market growth rates and share forecasts were provided by the marketing department. Two other variables perceived by salespeople were also factored in--the physician's capability of having an impact on a territory through word of mouth communication, and the physician's perceived responsiveness to sales efforts. Potential profit calculations were made for all physicians, and then these calculations were used to sort the doctors into tiers. 

The top tier consisted of the doctors most likely to give the greatest return on the company's sales investment. Contribution margins for the physicians were highest in this group and costs were low enough that profits exceeded that of the other groups. Importantly, these were physicians who were willing to see sales representatives (and thus were "sales sensitive"). Only 10% of the physicians fell into this top tier. The Gold physicians were high-profit physicians that were relatively inaccessible, either because they were unresponsive to sales efforts, at the end of their careers (hence their potential was not as high) or lived in geographically distant areas. While this group accounted for almost 35% of physicians, the company did not allocate salespeople to them because of the low payback; instead, they handled this group through marketing efforts using the telephone or mail. Because the marketing approaches were less expensive than personal selling, the profit margins were sometimes close to those of Platinum doctors although the sales volumes were lower. Doctors in the Platinum and Gold level tended to be the influencers/opinion leaders among their peers.

The Iron doctors were new physicians that were vital to the future of the company. Typically, they were evaluated as such based on judgments of their sales representatives. If the representatives thought the doctors had potential to influence others or would be responsive to sales efforts, they were classified as Iron. If not, they were classified as Lead. Sales managers reviewed the classification of the two lower groups on an annual basis to assure that salespeople were accurate in their assessments. 

The company's efforts to target physicians paid off quickly. Salespeople from territories high in Platinum doctors tended to have bonuses 10-25% higher than average, while those from territories heavy with Lead customers received bonuses 4-7% below average. Prior to the targeting, the bonus spread was significantly smaller--than 2-5% higher in Platinum and less than 1% below average in the Lead group.