Standing Out in Crowded Markets

Volume 1 Letter 5

The International Institute for Business Development conducts courses in Marketing Strategy. This newsletter is coming to you as someone interested in strategic marketing or someone who has attended a course conducted by IIBD. The goal of each of the monthly newsletters is to review and reinforce the principles of strategic marketing in a concise way. If you wish to unsubscribe please click on reply and type unsubscribe in the subject box.

Last month I wrote saying we were setting up a charity to assist those affected by September 11th. A group of us were setting up a scholarship fund for children affected by the tragedy. Bill Clinton and Bob Dole have since also announced a scholarship fund so there was a consensus not to continue down this road.

In 1986 Zantac became the largest selling pharmaceutical drug in the world, was the first drug to sell over US $1 billion and even more remarkable, it had beaten out an almost identical product, Tagamet, that a decade earlier had won its developer the Nobel Prize for medicine. Given that Zantac had been awarded a class C or “me too” rating by the Federal Drug Administration, how did it beat out a Nobel Prize winner? The answer lies in positioning.

“Positioning is the development of a favorable product or service offering relative to the needs of the target segment and relative to the competition in order to sustain a competitive advantage.”

Before Tagamet, the ulcer patient had a choice – suffer with the ulcer or have major surgery. Many chose to suffer rather than take their chances under the knife. When Tagamet was launched ulcer sufferers could take a pill four times a day for six weeks. The third choice proved to be the most popular and many gastro surgeons were put out of business. Tagamet enjoyed a monopoly position for five years before Zantac was launched.

Developing a product or service relative to the needs of the target segment implies that different segments may have different needs. It also implies that these needs may change over time, so when Zantac arrived on the scene the customers now had a further decision to make. The choice was no longer major surgery vs. taking a pill. Now they could choose which pill. Tagamet managers failed to see the shift in decision criteria and Zantac did a superb job in making their anti-ulcer pill the preferred treatment. Zantac heavily promoted its twice a day regime as better than four Tagamet pills a day and Zantac’s no side effects were seen as better than the minor side effects associated with Tagamet. These minor differences allowed Zantac to command a 100% price premium in some countries.

Making a product the preferred product in its class is no easy feat. It requires an understanding of one’s customers’ needs and alignment of one’s product or service with those needs. In the case of Zantac there were three customers, the patient, the doctor and the payer (one could argue the sales force was a fourth customer). Each set of customers was using the same product to fulfill a different set of needs. The company’s marketing plan addressed the various customers’ needs with different messages and in some cases different sales forces and versions of the product.

Unfortunately for the owners of Tagamet they failed to see that the customers’ needs had changed over time. Replacing major surgery with taking a pill four times a day is remarkable achievement and the cost savings to our medical systems must have been staggering. But as time marched on the needs of the customers evolved.

In conclusion:

1. Understand your customers’ needs
2. Remember those needs will change over time
3. Develop marketing programs to specifically address the customers’ needs
4. Remember that different customer segments may use the same product for different reasons

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