SAVE | EMAIL | PRINT | MOST POPULAR |  RSS | | REPRINT
|
Novel Incentive Compensation Plans for New Rx Launches
March 09, 2009
By Chris Colapietro and Mark Griffin
Launching a new pharmaceutical product is a major undertaking. As pharmaceutical companies struggle with continually increasing R&D costs and growing competition with generic drugs, there is little room for error when launching new drugs. You only have one chance, and it must be done right.
One of the most critical factors impacting the success or failure of a new product launch is the effectiveness of the sales team. If they are not properly motivated, the success of the launch can be compromised significantly. Therefore, the design of the sales team's incentive compensation (IC) plan needs to be a key focus in the strategic planning process.
Pharmaceutical companies, as well as those in other industries, tend to use incentive plans that have worked for other products. They have a standard playbook to target and determine size and structure for a new product launch. This process typically consists of assessing the size of the market, identifying the highest volume prescribers, scaling their proposed field force size or universe of targets to fit varying goals and then reviewing and identifying organizations with which to contract. This approach mostly uses a top down methodology and is not necessarily a one-size-fits-all solution.
Customizing IC Plans
This standard playbook is a good start, but each product launch has its own unique factors, such as competition, regulations, territories, pricing or market education, all of which may have a significant impact on the IC plan. It is critical to analyze and assess the dynamics specific to your market in order to effectively design a plan for your revenue and cost targets.
To break it down, there are five key questions that should be asked when designing an IC plan that aligns with the sales strategy for a new product launch.
1. What are the major strategic and financial objectives for the product in its first 12 months? A product's success during the first six months of a launch has a significant impact on sales over the entire product life cycle. Therefore, it is critical to know the budget in order to determine how much the sales team can be compensated for attaining certain goals.
2. What is the primary purpose of the product’s IC plan? Is the purpose to drive competition among the sales team to increase total prescriptions sold or is it to foster a team environment and grow the company's market share. With new products there is often a market education component as well that can hinder the uptake of the new drug and negatively impact the sales team’s compensation. Answering this question will lay the foundation for your plan.
3. What is the sales promotion strategy for the product and how is the effectiveness of the strategy measured? By identifying the sales promotion strategy, you will be able to align your plan with the short-term incentives used to encourage prescription sales. If you are going to run a special in the first three months of the launch, then your sales team should be given some type of incentive to push that particular promotion (i.e. discounts, rebates, samples), such as rewarding the reps with a specific dollar amount for each prescription filled. If it is only being offered in a particular region, than that also needs to be considered when devising a national IC plan.
In order to measure the actual effectiveness of the strategy, you must first define success. Is it based on the number of samples distributed, coupons used or total prescriptions sold? The strategy needs to incorporate different scenarios. By using effective ways to model and forecast launch product performance you can optimize the compensation plans and predict compensation expenses.
4. What are the major market factors that are out of the sales representatives' control? Your sales reps will not be able to change government regulations or control the competition's marketing campaigns. If a certain state has more strict regulations for selling prescriptions, then the uptake in that state will be slower and should be factored in. Likewise, if a competitor offers a significant discount in one region of the country, the plan should have enough flexibility to accommodate the variances and offer multiple payout scenarios.
5. Take a step back and look at how IC plans have been aligned to sales and marketing goals in the past and ask how the product's IC plan could be structured conventionally? There is no reason to re-invent the wheel. Using traditional IC strategies that have been successful in the past should definitely be considered. The key is to make sure you consider all the new product's unique factors and not just go by the standard playbook. If your historical performance data shows that reps typically achieved the desired results when they were offered bonuses based on team results then that should be a consideration with this IC plan.
Taking All Factors Into Consideration
A successful IC plan must offer the right balance of motivation for the sales team and realistic product uptake, while remaining within the product’s budget. Individual sales quotas must be set for each sales territory and must be adapted as the variables change. To find this right balance, sales executives need to be aware of all the factors that will affect the sales of the product and formulate an IC plan that takes the various issues into consideration.
If you are in a declining market, the best bet is to use a relative rank approach for your IC plan, ranking salespeople relative to their peers to determine incentive payout. If the new product is part of a line extension then designing a plan using sales quotas is the better way to go. Or, if the product is being launched into a new and/or growing market, than a commission-based compensation plan would be the most appropriate method.
No matter which type of strategy you use, the best IC plans are those designed as a win-win for both the company and its sales reps. By asking the five questions above, you will be well-positioned to successfully launch your new drug into the already crowded marketplace.
Chris Colapietro is VP of strategy and Mark Griffin is principle consultant at HighPoint Solutions.
|
SAVE | EMAIL | PRINT | MOST POPULAR | RSS |
|
|
| Back to Incentive Index |
|
|
