Identification of Strategic Groups within the global pharmaceutical

industry
An analysis of strategic groups will help us to understand whether they have good
strategic position or not within the industry. These analyses can be used to discover
the performance implications from the membership of strategic group. This analysis
will have a vital effect on the profitability, challenging (IO) industrial organization
economics speculations that the industries member differ only in terms of market
share.
Industry of global pharmaceutical is very dominant with high and tough competition
in the property rights and research & development (Johnson, Scholes and
Whittington, 2014). The top competitors and having strategic group factors within
the industry with three bullet strategies are as follows1. Revenue
2. Market spending
3. The ratio spent on Research and Development

(Dezzani, 2016).

(Dezzani, 2016).

The first bullet point is strategic group by revenue

As per the above chart, Roche, Pfizer, Novartis, and Bayer are all fall into one group
of competitive strategy. Merck, Glaxosmithline, Sanofi, Gilead Sciences would fall
into another category and the last but not least Astrazeneca.
As per the year 2016, Johnson & Johnson (USA Pharma) has taken the rank 1
position in terms of total revenue. The Roche and Novartis have taken 2 nd and 3rd
position respectively. These three contributes nearly 45% share of pharmaceutical
companies across the globe (Statista, 2015).

The second bullet strategy is on Market Spending:

(Swanson, 2015)

We can clearly notice the J&J is the leader when it comes to market spending which
is nearly 17.5 US billion. There is close spending among Sanofi, Merck, GSK, and
Roche.
The nearer of strategic groups in the chart, rivalry will be stronger among the group
as per Porter and Heppemann (Porter and Heppelmann, 2014). The J&J and Novartis
take the competitive advantage among all. Pfizer could increase the market
spending down the line in future.

The third bullet strategy point is the percentage spent on R&D

Research and Development plays a crucial role in any pharmaceutical industry, the
growth of R&D flattens between 2008 and 2015 and its Spending on R&D growth
was recorded as 1.7%.

The current R&D growth flattens due to current uncertainties in the pharma
industries becasue of Brexit and USA election (pharmaceuticalcommerce, 2016).
As per the market research of Evaluate Pharma in its world preview annual report,
forecasts that the growth rate for pharmaceutical industries of 6.3% CAGR through
in the 2022, which is up 5% from last year predication (2014-2020).
The valuations of pharma and biotech during 2011 to 2015 which was considered as
the BULL RUN for investors could come to an end due to uncertainties over USA
election and Brexit, in these circumstances the rising concerns over the value of
pharmaceutical products at ever escalating prices
The current and forecasted spending figure from 2016 to 2022 would be 2.8%
Top ten spenders on current and future are as follows (EvaluatePharma, 2016).

From the above chart, in the year 2015 we can see the Roche and Novartis spent
$8.5 billion respectively taking the top position, Pfizer, J&J, and Merck spent $7.7
billion, $6.8 billion, and $6.6 billion respectively. Sanofi and AstraZeneca spent $5.6
billion each.
As per the market projection, in the year 2022, J&J would overtake Pfizer and the
Sanofi would overtake Merck.

As per the strategic group analysis it can be drawn that in pharmaceuticals, Roche,
Novartis, Merck, and AstraZeneca are the close competitors and when it comes to
revenue, J&J is high but not in R&D.

Overall investing heavily in R&D is the close strategic group: Roche and Novartis.
Merck and AstraZeneca have a gap.

Global pharmaceutical industries have the strict rules and regulations, tough
competitive, amendment in government policies, right of intellectual properties,
capital, continuous in R&D, from the strategic group analysis companies can still
identify the gaps within their atmosphere to adopt.

Business to Business (B2B) strategic customer and the their evolution:

Strategic customers (B2B):

The government agencies, hospitals, healthcare, wholesalers, and pharmacies are
the strategic customers for pharmaceutical industries. They basically user medical
sales reps by inviting doctors or health care professionals for the usages of their
drugs, pros and cons and suggestions too they also disclose the composition of the
drugs, new methods/studies, clinical data, permission from the authorities.
Promoting is subject to the industry regulation (Johnson, G.2014,P.555).
The below hierarchy chart will give you a rough idea.
The communication channel of Pharmaceutical Industry

WCHGP hu o h tsav o t pre lo m ire t a m c e u t i c

mstna a lt ea l I sbe rcn sori d e s d u i s e t s r y
s
Pharmaceutical industry communications strategy or pricing strategy differs
from country to country. For instance in the country like USA, US government
has no control on prices, obviously people must pay more for few drugs when
compared to other countries (RxChange Co.,2015) and the developing countries
like India, the main strategic customer for pharmaceutical industry is
government, Indian government controls the prices of drug (RxChange
Co.,2015).

Business to Consumer (B2C):

Pharmaceutical companies are now directly selling their products to the
consumers which are known as Business to customer (B2C). The USA is large
market for prescriptions pharma sales (Mackey T, Liang B., 2015). The online
sales for pharmaceuticals companies is forecasted to grow up 20% of their total
sales by 2020, which is the highest penetration when compared to all industries
(Kaplan, 2015)
Evolvement of strategic customer:
PAST
The pharmaceutical industry decisions in past were controlled by Health care
professionals because of government or insurance companies role was limited at

the same time medical practitioners were not sensitive to the pricing part but
subject to the efforts of medical representatives.
CURRENT
Now, the total scenario has changed to a larger extent because the globalization
and technology have deep effect and the government is taking the key role in
maintaining the standards and control over the pharmaceuticals industry. The
current growth of Healthcare across the world is attributed to the current trend in
which wholesalers are playing the major control and key role of strategic customer.
FUTURE
The government and wholesalers would continue to key role as the strategic leaders
in the pharmaceutical industry but consumers will also bring their gradual control in
B2C market which can be still seen in limited markets only.

References

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