Business strategies for GlaxoSmithKline

Introduction

GlaxoSmithKline is one of the largest pharmaceutical businesses in the world. Previously, Glaxo Wellcome (UK) and SmithLine Beecham (UK) merged to form GlaxoSmithKline. As explained by Johnson et al. (2011:555,53), from being a small company within the industry, GlaxoSmithKline grew to become a top player in the market. This was achieved because of Zantac, a drug for stomach ulcers, known as a ‘blockbuster’ drug in the industry.

This report looks at the GlaxoSmithKline Pharmaceutical Company and discusses future strategic directions available to the organisation as well as the problems the organisation faces. From this, a recommendation for the correct strategy will be given. As explained by Johnson and Scholes (tutur2u.net: n.d), strategy gives the direction for a business to follow and the objectives it is trying to meet. Strategy is also about understanding the business and what are its strengths and weaknesses as well as understanding the competitors’ environment.

Drivers of globalisation

Johnson et al. (2011:552) explain that research and development costs are extremely high for pharmaceutical companies but the companies that invest the most into research and development are generally the market leaders. This research can lead to the development of a ‘blockbuster’ drug; these advanced drugs can turn a small company into a top company. This was the case with GlaxoSmithKline when it introduced Zantac. This drug changed the treatment of stomach ulcers forever as it affected the tolerability of the stomach ulcer. The drug was marketed globally and annual sales exceeded $1 billion. (Johnson et al. 2011:553)

The impact of globalisation on drugs such as this will clearly lead to huge sales and international recognition, which will then make research and development more affordable. This in turn will increase the possibility for the development of further products; product development needs to be constantly done and at a high level. Globalisation will also lead to more awareness of the brand as is the case with the trusted, well-known brands such as GlaxoSmithKline’s other drug, Piriton. As explained by Johnson et al. (2011:237), diversification can be achieved by an organisation entering new markets. The organisation’s existing resources could drive value creation. Thus, when GlaxoSmithKline takes its current drugs, which are a success, and introduces them into new countries, these new markets would be a way of helping globalisation and allow the organisation to grow further.

Johnson et al. (2011:238) explain that diversification can be achieved through increasing market power and offering a wide range of products to consumers. This would prevent competitors from targeting every product in the range. As can be seen, GlaxoSmithKline’s product range (GSK.com: n.d) is diverse; it offers products across a broad spectrum such as vaccines and pharmaceutical drugs, e.g. for stomach ulcers (as mentioned earlier) and migraines, as well as toothpaste and Horlicks, a malted drink. These are all successful for the company and it has many products that in their own right are a strong brand. Diversification can be clearly understood by considering Richard Branson and his Virgin brand (2011:260); he has entered different markets including aerospace, music, and the media. Of course there have been many opportunities for learning and his ventures have not always been a success, but without diversification into these different markets, some may argue, Virgin would not be as big as it is today.

Opportunities and Threats

The threats to GlaxoSmithKline from the environment can be seen in more detail in Appendix 1; a PESTEL analysis looks at each area individually. As can be seen from the analysis, there are many environmental factors to consider when entering a new country. These include knowing the laws that need to be complied with, knowledge of the media and the prevailing image of certain brands and products. GlaxoSmithKline currently is being sued for unethical practices, as reported by Macalister (2012). This is an issue pharmaceutical companies face all the time with the media claiming that the medicines are unsafe and that the companies are being unethical. The perception is that these companies are being greedy but there is a lack of awareness of what is involved; what is not taken into consideration is the high costs involved in the research and development of these products and that these companies simply need to recoup their costs. Sadly, this attitude is adopted by a number of people in powerful positions rather than looking at the good things these drugs offer people.

Profit margins and sales in vaccines and pharmaceuticals far outweigh that of consumer healthcare but consumer healthcare is a more stable business; once there is branding in place, the product will always be recognised and not be able to be imitated by cheaper products. Also, unlike vaccines and products in the pharmaceutical business, healthcare products do not have a short shelf life or high research and development costs. In Appendix 2, a Porter’s Five Force model of GlaxoSmithKline highlights the competitiveness and the constantly changing environment that the company faces. There are few new entrants into the field as the cost of research and development is so high. However, in other areas, the number of new entrants is high with attacks on the company; once patents have run out, drugs are copied and replicated with cheaper versions. With the development of different drugs such as the new biotech drugs, research is ongoing. It is important that GlaxoSmithKline is constantly involved in the research and development of new drugs as well as new types of pharmaceuticals, such as biotechs, in order to remain competitive. (Johnson et al., 2011:547)

There are opportunities, however, because of the wide range of products offered by GlaxoSmithKline and, being a strong brand, the company is able to enter new countries where millions of people are likely to trust the product. Also, as has been reported by Veracity (2005), consumers now are more aware of what is out there and they demand the medicines they need for a healthier life. This, of course, has something to do with clever use of the media. In certain countries, such as the US, this is permitted for drugs such as anti-depressants, but the same kind of media exposure would not be as welcomed in the UK. As well as this, doctors’ buying power is hugely significant and therefore this needs to be considered as a big factor in selling. Perhaps the use of the media is a way of doing this. Johnson et al. (2011:554) noted that doctors’ time is now so limited that they are unable to see sales reps, the traditional way for companies to promote their products, so by using the media, companies can create a ‘pull’ strategy which is powerful for sales and marketing. This can also be done through the internet which is a cheaper option and, if done correctly, could be equally effective (Johnson, 2011:553).

Another opportunity open to GlaxoSmithKline is that of working with other companies to create new medicines, something that has been done in the past. When considering that it takes an average of twelve years for new drugs to eventually reach the market, that the risk of new drugs is extremely high and there can be late-stage failures, there are advantages of working together. The advantages include: concentrating on one specific area, narrowing the field of research, spreading the costs, sharing resources and reducing the risks associated with drug development. This would also reduce the length of time it takes for the research and development of new drugs. Johnson et al. (2011:548) maintain that in 80 per cent of new drugs, companies fail to recoup their research and development investment. Working with other companies reduces the cost, minimises the risk, makes use of different expertise and general resources, all of which could speed up the time taken for research and development and, hopefully, minimise late-stage failures.

Strategic choices: business and growth strategy

As can be seen from the BCG matrix in Appendix 4, the star for the organisation is Zantac (mentioned previously) which is a blockbuster drug for stomach ulcers. In the future this could become a cash cow; once it becomes a solid brand that consumers trust and then ask for by name. Another of GlaxoSmithKline’s products that could become a cash cow is Piriton. This is a strongly branded product that has been marketed successfully. While it is popular seasonally for hay fever and is mainly known as a remedy for hay fever, it can also be used for other allergies which occur year round. Questionable products are those with high growth, but low market share, as can be seen with Horlicks, which is a good seller with a small market share, or Sensodyne, which is popular and strongly branded but sales are limited to areas where people have particularly sensitive teeth. These products have the potential to become big sellers or the company can diversify into other markets. The weak product, the dog, in this section is Imitrex, a pill for the treatment of migraines. Its patent expired and, due to low sales, was no longer produced. However the company has diversified and has combined Imitrex with Naproxen, an anti-inflammatory drug, to produce a single pill called Treximet, as reported by Pettypiece (2009, Maxi-pedia.com n.d)

Considering the data in GlaxoSmithKline’s BCG model in Appendix 4 and looking at the new products which are the stars, the questionable products and the cash cows, it can be assumed that every company wishes to have many products that are cash cows. Appendix 5 presents an Ansoff matrix of GlaxoSmithKline and considers competitor levels when entering a new market and new drugs as well as the condition of the market. GlaxoSmithKline already has many branded products across the world. This has allowed doors to open for the company and within many countries it has strong brands. As well as this, its medicines are selling very well in the USA and in the rest of the world, consumer goods are strongly branded. (Ansoffmatrix.com n.d)

Because GlaxoSmithKline has recently been criticised for its ethics, as discussed earlier in the report, it is important that when the company enters markets, it ensures that all legalities are adhered to, as further on down the line it could be required to pay very large fines. More importantly, it could develop a bad reputation within the market. As reported by Lachapelle (2012), GlaxoSmithKline has already tried to work together with the company that creates biotechs, an area that is developing rapidly and where there seems to be quite a lot of money to be made. Working with this company would certainly grow GlaxoSmithKline. It would mean diversifying into a new area that is slightly outside pharmaceuticals, and requires using new expertise. It is also an area which cannot be copied.

Another new market which GlaxoSmithKline could enter is that of developing countries. The company has stated on its website that intends producing cheaper life-saving drugs in order to help people in these countries. This venture would not see a high growth as it would not be for profit; however, despite small growth, this market would enhance the company’s reputation (GSK.com n.d).

Conclusion and Recommendations

From the findings in this report, it is clear that research and development is expensive and risky is for pharmaceutical companies. For growth, working with another company through an acquisition would mean the costs and risks would be spread and the expertise shared. This would be an ideal solution for the development of biotechs that are currently the big sellers. Going into the biotech market is also a good option as consumers pay more money for these, which can be somewhat justified. In the case of justifying the price of general medicines, the high research and development costs are constantly under scrutiny. Biotechs have a longer shelf life and competitors cannot replicate them as is done in other areas of the business. Working in collaboration with a biotech company would reduce the costs for research and development as, in many cases, the products have already been developed. Future costs would also be shared. A further advantage would be that expertise in the different areas would be spread and shared. Together, then, the joint companies could enter the global markets, using the brand name of GlaxoSmithKline whose products are already familiar in many countries.

Sales and marketing to doctors needs to be invested as doctors are a big force for selling products. Doctors and consumers need to be made aware of the products and, of course, encouraged to purchase them. Now that doctors have very limited time to see reps, advertising through the media would be an option for GlaxoSmithKline. While advertising on television is a costly exercise, it can reach many different markets and people, which helps to justify those costs. Another option could be through internet advertising as this can be easily sent across the world, ensuring that the advertising suits the chosen market.

In producing medicines for developing countries, low-priced, life-saving drugs would not only help promote the image and brand of GlaxoSmithKline, but open new markets where there is a high demand for life-saving drugs. As the image of pharmaceutical companies, including that of GlaxoSmithKline, is in jeopardy it would be a positive step in helping to change the views of people who feel that these companies are greedy, while not appreciating the expense of producing these drugs that improve and save people’s lives.

Appendix 1

GlaxoSmithKline PESTLE analysis

Political

Security controls for drugs extremely high, with restrictions in place in many countries. Government may deem the drugs not to be ethical or it may not be as strict as it wishes.

Economic

General economy of the country: will this country be able to afford the drugs? General prices in the country make it difficult to do business there and make a profit through logistic prices, for example.

People becoming more aware of what is on offer and demanding better health care.

Being able to market globally directly to consumers through the media and the internet.

Social

People not being able to afford the product; buying cheaper alternatives or doing without.

Branding not suitable for the market.

Ensuring the products are safe, no bad media.

Technological

Being aware of competitors: whether they are ahead in technology; how to sell and deliver products; decreasing the price of products as it reduces overheads.

Other countries such as China and Asia now looking to become big players within the market

Environmental

Products to be more environmentally friendly. To be aware of environmental issues in terms of how the research is carried out.

Legal

Patents running out and the product being copied for less; being aware of complying with all laws.

Ensuring each stage is precise so as to not have issues later.

Certain ingredients later having negative effects on consumers.

Appendix 2

GlaxoSmithKline: Porter’s five forces

Threat of entry

Fairly low with costs of entering the market being very high

Threat of substitutes

High, with companies copying and competitors always trying to find new discoveries and developments

The power of buyers

High, with cost always being an issue; however, people will pay for a breakthrough in healthcare

Doctors are difficult to reach and, being the main buyers, costs need to be justified to them

The power of suppliers

Other costs mean less is recouped; trying to remain competitive so that people buy the product

Substitutions

High. There are always new, improved discoveries such as such as GlaxoSmithKline’s blockbuster Zantac

Competitive rivalry

Rivalry is high as everyone does research, trying to find the latest discovery

Appendix 3

GlaxoSmithKline SWOT analysis

Range of products

Market leader (known and trusted brand)

Good resources

Strong market knowledge

Weaknesses

Lots of competition

R&D expensive

Patents running out and cheaper imitations of products on the market

Opportunities

Diversification into different areas and products currently not done.

World is changing with consumers wanting medicines in order to improve life

Branding allows being able to work in different countries

New markets such as Russia, South America and Turkey looking to have significant market growth

To be able to market globally through media and the internet, as well as directly with consumers to form a ‘brand’

Threats

Products being copied for cheaper and no longer selling

Competitors gaining more market share through discovery of new drugs

Competitors entering new markets and then not being able to become established.

China and India becoming a strong competitor where it is hard to compete

Investing money in R&D for it later not to recoup the costs.

Appendix 4

GlaxoSmithKline BCG Matrix

Star High growth and high market share – Zantac.

Question mark Low market share, high growth – Horlicks, Sensodyne, Treximet

Cash cow Low growth, high market share – Piriton, Horlicks,

Dog Low growth, low market share – Migraine table Imitrex, Ribena, Aquafresh

Appendix 5

GlaxoSmithKline Ansoff matrix

Present market penetration is high; with new product development needed all the time. There are markets, such as the US, in which GlaxoSmithKline is strong and there are other areas, such as smaller countries, in which growth can be seen.

Market Development: looking at entering a new market, that of developing countries with cheaper drugs that can save lives.

New Product Development: looking at buying into the biotech business, in order to grow its product development

Product/Market diversification: diversify in the sense of consumer products and medicines; could look at working with other companies to create biologics.

References

Ansoff matrix (n.d) Ansoff Matrix. Online at: http://www.ansoffmatrix.com/ Accessed 12 July 2012

GSK (n.d) GlaxoSmithKline. Online at http://www.gsk.com/products/consumer-healthcare/trademarks-uz.htm Accessed 9 July 2012

Johnson G, Whittington R and Scholes K (2011) Exploring Strategy Text & Cases. Prentice Hall, Financial Times. UK

Lachapelle T (2012) Human Genome Most Lucrative on Record Biotech Premiums. Online at: http://www.businessweek.com/news/2012-04-23/human-genome-most-lucrative-on-record-biotech-premiums Accessed 12 July 2012

Macalister T (2012) GlaxoSmithKline: former chairman denies knowledge of $3bn US deal. Online at: http://www.guardian.co.uk/business/2012/jul/04/glaxcosmithkline-former-chair-3bn-us?newsfeed=true Accessed 10 July 2012

Maxi-pedia (n.d) BCG Matrix Model. Online at: http://www.maxi-pedia.com/BCG+matrix+model Accessed 12 July 2012

OUP.com (n.d) PESTEL Analysis of the macro environment. Online at: http://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htm

Pettypiece S (2009) Glaxo’s Migraine Pill Spurned by UnitedHealth for Generic Combo. Online at: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ajEO59q1T0jk Accessed 12 July 2012

Philips and Cohen (2012) P & Cs Glaxo whistleblower case accounts for $1.5 billion out of Glaxo’s record $3 billion settlement. Online at: http://www.phillipsandcohen.com/P-C-News/Whistleblowers-played-major-role-in-Glaxo-case-leading-to-Glaxo-s-record-settlement.shtml

Tutor2u (n.d) What is strategy? Online at: http://tutor2u.net/business/strategy/what_is_strategy.htm Accessed 10 July 2012

Veracity D (2005) The great direct-to-consumer prescription drug advertising con: how patients and doctors alike are easily influenced to demand dangerous drugs. Online at: http://www.naturalnews.com/010315.html Accessed 14 July 2012