By guest blogger Daniel Hoffman:
Many people who live in the Philly area, a huge hub of the pharmacy industry, know that the drug makers have been laying off sales reps. Lots of them. This week IMS Health, a supplier of sales and marketing data, sponsored a conference near the airport where speakers and panelists claimed the downsizing trend would continue for the foreseeable future. And those sales people that remain will soon work at vastly different jobs.
In the decade between 1996 and 2005, the so-called “golden years” for sales reps, their ranks more than doubled as many companies used “mirror” deployments with four to six different reps visiting each physician. The total cost for each rep on the street rose to over $475,000 a year at some companies.
But as the number of new product introductions declined by mid-decade, the productivity and credibility of reps also fell. Moreover, by 2007, one in five physicians refused to see any pharma reps. And today nearly one in four refuse to meet with reps.
The changing numbers and role of sales reps also reflects changes to the industry's customer base. As hospitals and healthcare systems (what some call “integrated delivery systems,” IDSs) buy more and more private medical practices, a commensurate number of physicians work as salaried employees. Today, less than half of physicians own the practices where they work.
Within hospital systems individual physicians will no longer decide the optimal treatments, including drug selection, on their own. Those decisions will be made by therapeutic committees at the various IDS headquarters, each composed of “wisemen”drawn from various specialties. Ultimately, these committees will become pharma’s influential customers.
As a result, the pharma companies will no longer need a Red Army of reps to convince individual physicians to buy product. The industry “sell” will turn into a business-to-business affair. Selling or, strictly speaking, representation of product features and benefits will be replaced by efforts to create and nurture enduring relationships/alliances with the hospital-based practice systems.
In my own work I’ve told clients that pharma companies can no longer think in terms of promoting sales transactions. They have to think about developing win-win-win relationships that benefit the patients, the practices and the companies.
In short, good business relationships will help foster better medical care while controlling costs. The role for traditional reps in this emerging setup will be far smaller than it was.
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