Pfizer Animal Health: Branded Beef Strategy Case Study

Introduction

Pfizer, a worldwide producer of health products for people and animals, must develop a solution that allows it to maintain its brand reputation and profitability in its animal health business despite growing price pressure in the cattle market. The cattle market, where Pfizer sells premium pharmaceutical products used by ranchers, has been beset by price pressures including the influx of cheaper imported cattle from Canada and Mexico, a monopoly in the meat-packing industry, and decreased beef consumption (Cravens and Piercy, 508).

Pfizer's Animal Health Group has achieved a place of industry prominence by selling premium pharmaceuticals to veterinarians, distributors, and other resellers for eventual sale to ranchers. Pfizer primarily gets its products to market through veterinarians, distributors, and supply stores, although regional sales representatives and managers visit ranchers to learn about ranching, provide support, and receive feedback on Pfizer products (Cravens and Piercy, 514).

Situation Analysis

Pfizer's primary strengths are the consistent quality of its products, its ability to introduce innovative products such as a pour-on vaccine, its support of industry initiatives such as conferences, and its ability to offer technical support through a hotline (Cravens and Piercy, 512). Pfizer was able to develop these strengths — which clearly differentiate it from its competitors — because of the premium pricing it receives for its products.

Pfizer's main weakness is the cost of its premium products. Competitors such as American Home Products and Bayer sell cheaper, and often generic, products to the market (Cravens and Piercy, 511–513). Although competing products have had mixed records on quality control and are often not as innovative as Pfizer's, they are still less expensive, and Pfizer cannot compete on cost while continuing to invest in its core advantages, such as research and development (Cravens and Piercy, 512).

Not only do Pfizer's competitors undercut Pfizer on price, but they also provide better incentives to veterinarians and distributors to push their products (Cravens and Piercy, 514–515). Because of its superior products, Pfizer has still been able to compete well in the cattle market, but conditions are changing.

Pfizer believes its ability to sell premium products to cattle ranchers may be adversely affected by numerous problems currently impacting that market. The North American Free Trade Agreement has allowed large quantities of less expensive beef to enter the United States from Canada and Mexico, and efforts by American ranchers to stem the tide have been largely ineffective (Cravens and Piercy, 510). In addition, medical breakthroughs and better prenatal care have increased cow productivity, but demand for beef has decreased as consumers plan meals less frequently and purchase more chicken and pork products (Cravens and Piercy, 509). This supply-demand imbalance is suppressing beef prices, and a monopoly among four meatpackers exerts tremendous influence over pricing as well (Cravens and Piercy, 509). These meatpackers seek to buy beef as inexpensively as possible and sell it at high margins — a formula that benefits meatpackers but harms ranchers.

Pfizer is concerned that these price pressures on ranchers will make them less likely to invest in premium pharmaceutical products, opting for cheaper generics instead. Pfizer is not in a position to lower its prices, because compressing its margins would force cuts to the critical research and development investments that differentiate it from competitors (Cravens and Piercy, 508).

Fortunately, Pfizer has an opportunity to respond to this impending problem before sales are too negatively impacted. By taking a proactive rather than reactive strategy toward protecting its share of the cattle pharmaceuticals market, Pfizer has a good opportunity to implement changes that will safeguard, and possibly grow, sales.

Pfizer has a number of major strategic alternatives it can pursue in order to protect sales in the face of price pressure in the cattle market. As noted, Pfizer has ruled out lowering prices, as such a move would undermine its unique value in the market.

Major Strategic Alternatives

One alternative is to do nothing, as the problem has not yet fully materialized. The advantage of this approach is that it requires no major organizational changes; the disadvantage is that it may force Pfizer to react too slowly when the problem does fully manifest, thereby impairing sales.

A second alternative is to raise prices in international markets where Pfizer sells products to the cattle market, such as Canada. An advantage of this strategy is that it could drive up the cost of Canadian cattle, preventing Canadian ranchers from undercutting their American counterparts. The obvious disadvantage is that it could leave Pfizer vulnerable to cheaper competitors in those markets.

A third alternative is to use Pfizer's corporate influence to lobby for greater government intervention to protect American ranchers and beef prices. This strategy could protect beef prices and win goodwill with ranchers, but it puts control of the situation outside Pfizer's hands and could take considerable time to produce results.

Another strategic alternative would be to offer better incentives to veterinarians, distributors, and supply stores. Many ranchers rely on these intermediaries for advice, and Pfizer's competitors have been doing a better job of providing incentives to these groups (Cravens and Piercy, 514–515). The disadvantage is that any financial incentive will ultimately impact margins.

A final alternative is to help ranchers build value for their beef by de-commoditizing it through a branded beef program. Experts predict that the beef industry will engage in more marketing and more development of ready-to-eat products in the near future, and consumers may be interested in branded beef that they know is of high quality (Cravens and Piercy, 509). The advantage of this strategy is that it could ease pressure on beef prices and even encourage ranchers to use Pfizer's premium products to meet new standards. The disadvantage is the risk that consumers and meatpackers may not be interested in such a program.