Product Strategy
The biggest challenge for JNJ is the ability to quickly develop and launch products across all of their business units. This is the most challenging task internally for the entire company to coordinate on, specifically in the area of pharmaceuticals where Federal Drug Administration (FDA) guidelines and the need for compliance are very high.
The costs of producing a new drug can be well over $800M according to AMR Research (2004). An analysis of each phase of the development of a new drug is shown in the following graphic from PhRMA (2005).
The most critical time of all for the development of new products is during the clinical trial period, and given the fact that Pharmaceuticals is the majority of the revenue today for JNJ, the focus on new product development in this area of the company is the most illustrate of challenges in other product divisions as well. Life Science Analytics (2007) produces monthly analyses of the JNJ pipeline of new products, and published Table 1: MedTRACK Disease Hub Classification which shows the distribution of trials JNJ has in progress as of January, 2007.
Table 1: MedTRACK Disease Hub Classification
Life Science Analytics (2007) also produces an analysis monthly of the trial phase distribution of new products. Figure 2: Trial Phase JNJ Products shows the distribution of new pharmaceutical products by phase of the trial.
Figure 2: Trial Phase JNJ Products
Why clinical trials are so critical is the fact that JNJ is lagging behind in many of the product lifecycles they are competing in. While their financial growth and market share growth globally has been impressive in the last five years, many industry experts feel they will have to work doubly hard to keep their revenue growth at the levels attained during the last five years. An analysis by Credit Suisse (2006) shows why. Figure 3 is an analysis of product launches showing the high level of risk associated with new product introductions in 2008, which is market timing expected for the majority of products now in trial.
Figure 3: New Product Contribution to Revenue Forecast
Pricing Strategies
The approach JNJ takes to pricing varies significantly by business segment, and within business segment, by product. As JNJ relies heavily on new product development, the extensive use of patents and expensive product testing trials with the FDA, the overarching pricing strategy is focusing on generating the majority of revenue early in the products' lifecycle. This is especially true in their Pharmaceuticals business, where new product introductions have failed to deliver sufficient revenue, and in 2008, there is a major risk of a revenue shortfall if the products now in development fail to launch successfully.
JNJ has literally thousands of products, and instead of pricing each on a per strategy basis. Founder's Knowledge (2005) highlights best practices in pricing, and recently two executives from JNJ spoke at the event, outlining their pricing methodology. Figure 4 provides an overview of the pricing process within JNJ.
Figure 4: Overview of Pricing Process at JNJ
Distribution Strategy
JNJ relies on several different distribution strategies across their tree business units, with a multi-tiered distribution strategy being the most commonly used for each product in the company. Figure 5 shows the structure of the JNJ distribution channels, payment, rebate and product flows.
Figure 5: JNJ Multi-tier distribution channels by product share many common attributes
The future of JNJ from a distribution standpoint is partnering with system integrators in order to deliver greater levels of value and service to clients. This can equate into transforming the company away from being purely focused on product sales, and expand into solution sales instead. Table 1: Potential System Integration Partners for JNJ, highlights the trends in these specific potential partners JNJ needs to seriously look at as potential selling partners to broaden their value proposition to clients.
Table 1: System Integration Partners for JNJ
Promotions and Marketing Communications
As with pricing, JNJ differentiates promotional and marketing communications strategies across each product area, aligning messaging, promotional and marketing efforts to the audience being targeted in the advertising. Of all product segments, the Consumer Segment receives the majority of advertising funds. The company's approach to marketing in 2007 is being defined by the highest growth opportunities.
From the perspective of senior management, the highest priority is growing the Skin Care lines of the Consumer segment which grew +11% in revenue last year. This was driven mainly from the Aveeno, Clean & Clear and ROC brands, addition of Group Vendome product line. Management...
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