Pharmasim Case Summary Essay

Executive Summary

As the brand manager for Allround cold medicine, there were many decisions regarding product formulation, strategy, line extensions and product launches over the company’s last 10 periods. The brand was focused on remaining a profitable, mature product family within the cold medicine category, but also maintaining a premium brand image.

ALAN’S INITIAL STRATEGY. Please add, it should only be around 1 paragraph.

After a period of declining sales for Allround, we increased the advertising budget to be consistent with our competitor’s budget.

We decided to be very consistent with our strategy over the ten periods; however, in hindsight we should have implemented a more dynamic strategy that factored in the changing preferences of our target segments, cannibalization from Allround, and channel relationships. After the ten periods, we had a lower stock price than most competitors, an average cumulative net income, and average cumulative manufacturing sales. The high net income is attributable to the fact of Allright’s high margins, accounting for a growing part of our sales.

We often saved part of our budget that could have been used more effectively to boost sales and therefore the stock price. Looking forward, we will change our product mix and pricing to better target specific cold relief usage to alleviate the cannibalization from Allround and to provide a complete cold relief product portfolio. This will be accomplished by reformulating Allround to be used for nighttime cold relief with Allright becoming the daily cold relief medicine. Additionally, Allround+ will continue to focus on children’s cold relief. A new allergy relief product will be released in order for AllStar to venture into this market.

General Strategy

Our general strategy was based on our desire to increase: sales, stock price, and net income. This was achieved by realizing that AllStar was the premium brand on the market, and our pricing, promotions, products and place should reflect that. We created a strategy whereby AllStar’s products could specifically target different segments so that each product matched the benefits sought be each target segment. This was done by pricing Allround and Allround+ as a premium product because our target markets were the least price sensitive. Allright was then priced at a lower cost to reflect the price sensitivity of its target market. As a whole, we wanted the AllStar brand to be viewed as providing the highest promotional support as well premium advertising for its products. This was accomplished by providing a large sales force for each channel, and, where effective, a high co-op and point of sales budget.

Product

The Allround product is the leader in the over-the-counter cold remedy market. It is a 4-Hr liquid cold medicine that focuses on treating the five basic symptoms of a cold. These include: aches and fever, nasal congestion, chest congestion, runny nose, and coughs. While Allround is an all-in-one product that can treat most cold and allergy symptoms, however, our customers base typically purchase Allround for cold relief and is typically taken at night due to the strength of the medication and because the alcohol and antihistamine help the patient rest.

We decided to drop the alcohol from Allround because drowsiness due to antihistamines or alcohol was the most often mentioned negative side effect, especially when used during the day. We believed that dropping the alcohol would increase consumption during working hours, and thus, would increase sales of our product. By dropping alcohol, parents felt more comfortable giving Allround to their kids. This decision was successful, as sales increased in both of our target segments (young families and mature families).

We decided to not reformulate Allround, as we believed the product composition suited our target audience. Also, as we focused Allround as a cough suppressant, adding expectorant would not have matched the desired image of our product.

In period four, we introduced the line extension Allround+; a children’s 4-Hr cold liquid. We decided this extension would be successful, as it would cannibalize of Allround sales the least. Even though the alcohol was dropped from Allround, doctors and pharmacists recommended expectorant in the children’s version over the cough suppressant in Allround. As a result, our product choice was successful.

In period five, we introduced the line extension Allright; a 12-Hr muli-symptom relief capsule. We decided this extension would be successful, as the allergy market is very small and had an entrenched competitor. Therefore, while we were aware of potential cannibalization, we believed that the targeted market (retirees, empty nesters, and young singles) would have sufficient demand for our product. We also reasoned that this target was far enough removed from Allround’s to gain additional market share without taking any from Allround. However, this was not the case, as cannibalization was a pressing issue. Market share was gained at the expense of Allround.

Price

The AllStar brand was viewed as the premium brand on the market, this was reflected by the pricing schemes of Allround and Allround+. However, Allright was launched to be a flanker brand to capture market share from price-sensitive consumers without hurting Allround’s brand image. Allround and Allround+ were priced as high as possible within the bounds of the price-effectiveness trade-offs. This trade-off was also the basis for Allright pricing decisions, however, we could never increase the price fast enough to align with the product’s effectiveness to the targeted segment. The general pricing strategy was influenced by the fact that Allround was the market leader, and thus we demanded a premium price for the product at all times. The group decided not to let the price of other products affect our pricing; as the market leader we must lead the market.

As such, our price increases were based partly on inflation, but more importantly, on the perception of the various products’ price compared to its effectiveness. As such, from period 4 onward, we consistently increased the MSRP of Allround. We followed a similar tactic with Allround+, as we wanted to ensure a consistent image for AllStar. Our group was initially hesitant to increase Allround+’s price, out of fear of reduced sales, however, we eventually decided to follow the same strategy as Allround. We decided against charging the highest price, compared to our competitors, as it was not viewed as being effective enough.

Originally, the Allright pricing scheme was set lower than Allround’s as the target demographics were more price sensitive. Allround would be positioned as the premium priced product, while Allright would be priced lower to match its lower-perceived effectiveness. It was launched as a flanker brand to protect Allround’s premium brand perception, whilst gaining additional market share in the cold medicine market. However, we were not able to match a high enough price for Allright’s effectiveness to our target segments. The target segments were not as price sensitive as we perceived, as they bought Allround anyways due to its high effectiveness.

The group created a discount strategy to promote larger sales orders. This was achieved by giving the ‘<250’ the smallest discount, with a significant discount increase for orders <2500, providing a reasonable incentive for customers to place larger orders. This tactic was effective, as sales increased within the ‘<2500’ category at the expense of the ‘<250’ category. However, the ‘<250’ customers eventually complained that their discount was not high enough.

Place

Initially, AllStar’s sales force was relatively small in comparison to other brands. The group decided to increase sales force each period to ensure that the AllStar brand was well represented. Our strategy in allocation of sales force was to distribute staff according to the channel’s comparative sales. As such, initially, the sales force was distributed inequitably, resulting in higher staff for chain drugstores, mass merchandisers, wholesaler support, merchandisers, and detailers. After this reallocation of resources, sales force was allocated depending on relative sales within the channel. This resulted in sales force increasing from 127 in period 0 to 390 in period 10. While this increase my look drastic, AllStar was initially underrepresented, and company growth was consistent with the increase. As such, AllStar went from having one of the smallest sales force to the second largest. As a result, all AllStar brands were viewed as having excellent sales force support.

The group’s goal was to maximize sales. Thus, we focused on the demands of each channel in order to ensure each sold as much of AllStar’s products as possible. For example, grocery stores and chain drug stores were the most responsive to discounts, thus their discount rate was the highest. However, this strategy of meeting the needs of the channel was not followed for convenience stores. Convenience stores demanded far too high sales force support for the amount of sales it generated. For the chain drugstores, grocery stores, and mass merchandisers we focused on providing co-op advertising and point of purchase support. This decision was influenced by the fact that these three channels focused on turnover allowances.

Promotion

The promotion strategy was by far the most complex. However, from the onset, the group decided that for a premium product, we needed the best advertising agency. Thus, we decided that throughout the whole simulation, we would use Brewer, Maxwell, & Wheeler, even though they are the most costly.

Our co-op advertising strategy for the three brands was to spend the most among our competitors in order to increase the incentive for each channel to feature our own brands in their advertising. We wanted to continue to be known as the brands that have the most promotional support on the market. For our point of purchase, we focused on having the highest amount, compared to competitors, due to the intense competition within the cold market. For new product introductions, a larger budget was spent to increase visibility of the product.

For each new product formulations, or new product introductions, our group decided to promote the product through trial samples for one period only. The tactic was to introduce the customer to the new product or formulation, thereby increasing awareness and conversion.

For Allround, we originally focused on mature families, as they were the least price sensitive. However, the group decided that the demographics best suited to value Allround’s benefits would be the ‘young families’ and ‘mature families’ as the effectiveness was a more important purchase criteria. This was also consistent with our high pricing strategy. As such, we wanted to create a consistent image for Allround, therefore, we only selected these two targets. Allround was sold based solely on its cold curing abilities, even though it is an ‘all around’ medicine. As such, ‘cold’ was the only symptom targeted, as we wanted to sell Allround based on its valued attributes, as well as the fact that increasing the number of symptoms reduces the overall effectiveness of the advertising message.

Initially our message decision was split 5% primary, 55% benefits, 0% comparison, and 40% reminder. However, at the 5th period this changed to 60% benefits, and 40% reminder. The low values for primary were a result of the high brand awareness and purchase intention of our product. The low value for comparison was a tactic employed due to the fact that as the market leader, any comparisons would harm Allround’s premium brand image. We focused on reminder to strengthen the retention rate, which was very low considering Allround’s high market share.

For Allround+, the group decided to target young families, as Allround+ is a 4hr liquid for kids. As a similar product to Allround, ‘cold’ was also the only symptom targeted. This presented a potential for cannibalization, however, as Allround+ was targeted as a children’s medicine, we believed the two products were differentiated enough to reduce this risk.

Due to the high effectiveness of Allround and Allround+, we believed that the introduction of this product would allow us to target the parents of the children as well as the children themselves. The overall message decision was effectively split 30% for ‘primary’ and 70% for ‘benefits’. The primary and benefits message were set high to induce sales for this new product. The primary message was not set higher as we believed that the overall awareness of the AllStar brand would promote the Allround+ brand. Allround+ had the highest retention rate amongst our target demographic, resulting in our group not focusing on a reminder message.

For Allright, the group decided that young singles, retirees, and empty nesters would be the most effective target for the Allright product, as they would see the most benefit from a 12-hour capsule and were not currently being targeted by any other AllStar product. This decision was highlighted by the fact that targeting these demographics would reduce the effects of cannibalization. However, our targeted segments continued to purchase Allround for their cold relief medicine despite our advertising campaign.

The overall message decision was similar to Allround+: promote primary and benefits. However, the overall tactic was dynamic, at one point promoting a reminder message, and another promoting a comparison with Besthelp. This inconsistency resulted in fairly low overall sales for the product. Initially, Allright was given a high advertising budget in order to promote the new product and then later to increase lack-luster sales. This was not very effective as we spent far too much on advertising considering the market share we were able to achieve.

Proposed Continuation Strategy

Moving forward, we would look to reformulate Allround and lauch a new allergy relief medicine. We would like all of our customers to buy AllStar products for their every cold medicine need. Thus we would like to reformulate Allround by adding alcohol and antihistamine to provide more nighttime relief. This would allow Allround to be nighttime cold relief medicine. Allright would then become the 12-Hr daily cold relief medicine. This would further differentiate the product lines, reducing cannibalization, and gaining market share as a whole. While our customers initially complained about Allround causing drowsiness, focusing Allround’s effectiveness as a nighttime relief, thus, drowsiness will change from being a side effect to a benefit via the change in product use.

This might also create brand confusion, as Allround has been a well-known cold relief medicine for daily use. However, with an effective advertising campaign, AllStar can leverage its premium brand image to demonstrate Allround’s new product usage. Allright will become AllStar’s daily cold relief medicine. While Allright may not be viewed as effective as Allround, it is still a young product and sales have been growing exponentially. For Allright, we will also need to target young and mature families and increase the price to give it a premium brand image. We hope to leverage the image of Allround in our advertising of Allright to increase its brand perception. By increasing the price of Allright and leveraging Allround’s brand image, we hope to create a brand portfolio composed of premium cold relief products. For Allround+ we will continue to focus on young families as well as a premium pricing strategy.

Our advertising will continue to have the highest budget, as we need to create a new brand image for Allround and Allright products. Allround+ will continue to also have a high budget to promote its premium brand image. We will continue to have a large sales force, following our strategy to distribute the force according to sales. This will ensure our channels have continued excellent product support. Promotional efforts will remain largely the same, with an increased budget for trials during our new product launches.

Finally, we will eventually create a non-drowsy allergy pill to enter the allergy market. While this market is small, it is a chance to introduce a premium allergy product in a market with few competitors, and no non-drowsy allergy products. This will further allow AllStar to have a premium portfolio of cold-relief products for all of our customers cold medicine needs.