Product Strategy

The biggest challenge for JNJ is the ability to quickly develop and launch products across all of their business units. This is the most challenging task internally for the entire company to coordinate on, specifically in the area of pharmaceuticals where Federal Drug Administration (FDA) guidelines and the need for compliance are very high.

The costs of producing a new drug can be well over $800M according to AMR Research (2004). An analysis of each phase of the development of a new drug is shown in the following graphic from PhRMA (2005).

The most critical time of all for the development of new products is during the clinical trial period, and given the fact that Pharmaceuticals is the majority of the revenue today for JNJ, the focus on new product development in this area of the company is the most illustrate of challenges in other product divisions as well. Life Science Analytics (2007) produces monthly analyses of the JNJ pipeline of new products, and published Table 1: MedTRACK Disease Hub Classification which shows the distribution of trials JNJ has in progress as of January, 2007.

Table 1: MedTRACK Disease Hub Classification

Life Science Analytics (2007) also produces an analysis monthly of the trial phase distribution of new products. Figure 2: Trial Phase JNJ Products shows the distribution of new pharmaceutical products by phase of the trial.

Figure 2: Trial Phase JNJ Products

Why clinical trials are so critical is the fact that JNJ is lagging behind in many of the product lifecycles they are competing in. While their financial growth and market share growth globally has been impressive in the last five years, many industry experts feel they will have to work doubly hard to keep their revenue growth at the levels attained during the last five years. An analysis by Credit Suisse (2006) shows why. Figure 3 is an analysis of product launches showing the high level of risk associated with new product introductions in 2008, which is market timing expected for the majority of products now in trial.

Figure 3: New Product Contribution to Revenue Forecast

Pricing Strategies

The approach JNJ takes to pricing varies significantly by business segment, and within business segment, by product. As JNJ relies heavily on new product development, the extensive use of patents and expensive product testing trials with the FDA, the overarching pricing strategy is focusing on generating the majority of revenue early in the products' lifecycle. This is especially true in their Pharmaceuticals business, where new product introductions have failed to deliver sufficient revenue, and in 2008, there is a major risk of a revenue shortfall if the products now in development fail to launch successfully.

JNJ has literally thousands of products, and instead of pricing each on a per strategy basis. Founder's Knowledge (2005) highlights best practices in pricing, and recently two executives from JNJ spoke at the event, outlining their pricing methodology. Figure 4 provides an overview of the pricing process within JNJ.

Figure 4: Overview of Pricing Process at JNJ

Distribution Strategy

JNJ relies on several different distribution strategies across their tree business units, with a multi-tiered distribution strategy being the most commonly used for each product in the company. Figure 5 shows the structure of the JNJ distribution channels, payment, rebate and product flows.

Figure 5: JNJ Multi-tier distribution channels by product share many common attributes

The future of JNJ from a distribution standpoint is partnering with system integrators in order to deliver greater levels of value and service to clients. This can equate into transforming the company away from being purely focused on product sales, and expand into solution sales instead. Table 1: Potential System Integration Partners for JNJ, highlights the trends in these specific potential partners JNJ needs to seriously look at as potential selling partners to broaden their value proposition to clients.

Table 1: System Integration Partners for JNJ

Promotions and Marketing Communications

As with pricing, JNJ differentiates promotional and marketing communications strategies across each product area, aligning messaging, promotional and marketing efforts to the audience being targeted in the advertising. Of all product segments, the Consumer Segment receives the majority of advertising funds. The company's approach to marketing in 2007 is being defined by the highest growth opportunities.

From the perspective of senior management, the highest priority is growing the Skin Care lines of the Consumer segment which grew +11% in revenue last year. This was driven mainly from the Aveeno, Clean & Clear and ROC brands, addition of Group Vendome product line. Management...

The company's focus according to their latest conference call is in continually growing the lotions and creams businesses including Soothing Naturals line of products. In addition the company intends to re-launch McNeil Consumer upper respiratory products with phenylephrine and continue to support the positioning of Splenda OUS. Examples of the company's advertising specifically on Consumer products are shown here:
Target: Retail Consumers (Parents)

Concept: From the time you are born, you are the center of your universe. Then you have a baby. And the center of your universe moves from you to your baby. Things that were important to you are only important as they relate to your baby. J&J understands this and helps you make the most of the time spent with your baby. J&J helps to keep your baby happy and healthy.

Tone: Real and honest. The people are real. The situation is real.

Anticipated Outcome: To convince parents that J&J understands their life has changed and are there to enhance the bond between them and their baby.

Target: Commercial Consumers (Doctors, Nurses, Patients)

Concept: To address the nursing shortage, J&J has developed a nationwide campaign in support of the nursing profession. J&J publicly salute America's nurses and honor their contributions, in the effort to energize interest in the profession and provide information to prospects

Ad campaign

Web site: http://www.jnj.com/exit_warning.jsp?url=http%3A%2F%2F www.discovernursing.com

Scholarship Grants

Tone: Real and honest.

Anticipated Outcome: Recruit new people into the nursing profession to increase demand for J&J products.

By far the biggest challenge for the company however is battling the counterfeiting of all their products, including the pharmaceuticals. Figure 6 shows the parallel distribution channels of both legitimate and illegitimate channels of distribution of counterfeit products.

Figure 6: Comparing legitimate and illegitimate channels

The concerted efforts of marketing, product management, and the JNJ legal team are being synchronized to fight counterfeiting of their most popular products, including their pharmaceutical drugs. This is the biggest risk to the company, as many of the counterfeiters have no quality control, or for that matter, ethics, if the end products they produce induce harm on the unsuspecting consumers. Getting consumers aware of the risks of purchasing counterfeit drugs and the implications for the complete lack of quality assurance is a major objective for JNJ marketing and promotion today as well.

Conclusion

JNJ is a fascinating company to study, and the depth of their expertise in pharmaceuticals has been achieved very quickly. The company's major risks are in the areas of new product introduction, navigating the clinical trials for their new drugs, the pipeline of how new drugs come to mark, and the need for synchronizing across business units is critical. While the supply chain is not part of this analysis of JNJ, I found its influence on marketing to be very significant, and critical to alleviating the high risk present in their 2008 revenue plans. The role of pricing methodologies and presentations from JNJ executives also was fascinating, as the strategies for gaining market share vary between pricing execution, pricing enforcement, and pricing optimization, an area that JNJ is experimenting with today. The growth of their Consumer segment sales and the primary focus of their promotional strategies also is having carry-over effects on the messaging around their entire brand. JNJ is a very impressive company; one that is quite deep in expertise in markets served, and a fascinating one to watch execute strategies in the pharmaceutical markets specifically.