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  • Writer's pictureKarsten Schmidt

How to strike optimal resource allocation between innovative and established portfolio

Updated: Jun 5, 2020

Pharmaceutical companies are often faced with the challenge of deciding on resource allocation for established versus innovative brands. The established brands have already gone through their strong growth phase and are now in the mature or declining phase. They are prescribed by a large number of Healthcare professionals and promotional investments tend to decrease for these brands which make them the cash generators for pharmaceutical companies. On the other hand there are the innovative brands that are in their launch or strong growth phase where field force and non-field force investments need to be significant.

Finding the right level of promotional investment for both innovative and established portfolio is of high strategic value. For sure it is important that the innovative portfolio receives adequate resource allocation to build share of voice in the market and a strong momentum for a prolonged growth phase. But this does not mean that promotional investments for the established portfolio should be reduced excessively.

Resource allocation should be decided by taking promotion response modelling into account as it establishes how the promotional efforts of today will impact the incremental sales in the future. In this context it is important to understand the dynamics of carryover values. In the beginning of the product life cycle not only growth rates tend to be high but also carryover values whilst during the maturity and decline phase carryover values decrease significantly.

Illustration of a sales forecast for an established brand

In this example the product will have its peak sales in 2021 after which a slow decline will start. The long-term impactable sales for a given year are the ones of one same colour scheme (one year of incremental sales plus its carryover into the future).

There are also incremental sales for well established brands as shown in the illustration above and only if investments were cut to zero then the established brand would generate purely carryover sales into the future (represented in dark blue). Illustration of a sales forecast for an innovative brand

As can be observed in this example the carryover values can be significantly above 100% when the growth of the brand is strong (represented in light blue bars).

Taking into account other parameters like competitive pressure, type of therapy (acute versus chronic), Cost of Goods Sold (COGS), field force and non-field force expenditure allows to model promotion response and to determine the promotional Return on Investment for all promoted brands. So even for established brands pharma companies should aim at maintaining certain levels of investments to maximise profits. It is dangerous to think that innovative brands should get all resources because then there is also the risk of over-investing into them which again means that profits are not maximised. So at the end of the day it is important to understand for all promoted products the sales response dynamics which vary a lot depending on which lifecycle phase they are in. This will allow to come up with the right investment levels for both innovative and established brands.

How to decide on #optimalresourceallocation for established versus innovative brands. #Promotionresponsemodelling #SFE


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