Marketing Principles

Marketing
Science & art of getting, keeping & growing customers by creating, delivering, & communicating value to satisfy the needs of a target market
Key priorities: identify new opportunities, promote new products, attract customers, retain customers/build loyalty, fulfill orders

Negative Demand for Healthcare people dont want to buy healthcare-related goods/services because they don't like it
Demand > Need for drugs of abuse, ED meds
Demand < Need for flu shots

Kotlers 6 Competing Concepts:

1) Production
2) Product quality
3) Selling, sales, promotions
4) Marketing focus on needs of buyer
5) Consumer
6) Societal (aka going green)

The 4 Primary Ps of Marketing:

Product good, service, ideas to meet customer/pts needs
o Business/product definition problems: market myopia (too narrow of a definition), single product line
Price
o Based on:
Cost to produce, distribute, sell
Includes a reasonable return for effort & risk
Check competitors prices
Evaluate product demand
Evaluate target markets perception of product benefits
o Loss Leader product offered at loss to help increase revenue in other areas
o Strategies: cost-plus, value-based, competitive, closeout, discount, membership, loss-leader, psychological, bundling & quantity discount
Place making product available in most accessible way, including physical/virtual location
o Examples: pharmacies in medical office buildings, 24-hr pharmacies, drive-thru, med. delivery, drug dispensing machines
Promotion advertising, sales promotion, public relations/publicity, direct marketing, person selling

Others:
Positioning creates image, logo, or brand of company
Participation actively engaging customer base via dialogue
People type of people you employ, how they perform/behave
Process method of how you make, produce, deliver service
Productivity efficiency of transforming service inputs into outputs
Quality
Physical evidence appearance of environment where service is delivered

Other Marketing Concepts:

Expectations internal standards used by customers when evaluating good/service
o Desired, adequate, or predicted service level
o Zone of tolerance
Satisfaction feeling of pleasure resulting from comparing perceived performance vs expectations
o Negative disconfirmation = performance worse than expected
o Confirmation = performance is same as expected
o Positive disconfirmation = performance better than expected
Quality
o Objective measureable & verifiable superiority based on a predetermined standard (ex: consumer reports)
o Perceived assessment made by a consumer based on more than products attributes (ex: customers perceptions)
Value perceived benefits vs. perceived costs
Loyalty comes from high satisfaction, loyalty cards
Relationships
o Identify & respond to market segments, personalized marketing, retaining pts, take a long-term view
o Make realistic promises, enable employees, keep promises

Disease Mongering
Selling Sickness = Medicalization
Creating latent needs
Lifestyle drugs
 Financial Statements
Background
Used by external groups = governments, regulatory agencies, stockholders, creditors
Accounting periods: months, quarters & a year
Publicly traded companies prepare reports quarterly & annually
Fiscal year = 1 year period. Usually Jan Dec, but in retail fiscal year is dependent on sales & inventories

Important Financial Statements:

Income sales, expenses, profits, losses over a time period
o COGS = cost of goods sold
o Administrative Expenses
o Gross Margin = amount of money available to pay for all expenses & taxes & yield a profit
Total Sales COGS
Balance sheet current assets, liabilities, debt, owners equity, accounts payable, net receivables (express scripts, credit cards, insurance cards)
o Summary of info that reflects solvency of business
o What is owned? What is owed?
o Net balance belonging to owners/shareholders
Cash flow where cash has come from & where it was spent
o Cash Balance = difference between inflows & outflows

What happened to CVS in 2016?

1. Took over all Target pharmacies [acquired debt, assets, income]
2. No longer manages U.S Defense Department beneficiaries [dropped net receivables]

Basic Accounting:
Assets what a company owns & uses to produce revenues. Liabilities + Owners Equity
o Asset sources = equities
o Liabilities debts that a company owns
o Owners equity money owners have invested in company, profits & losses generated from business
o Current Assets: converted quickly to cash (cash, CDs, stocks, accounts receivable, inventories)
o Long-term Assets: cannot be quickly converted to cash (building, fixtures, equipment)
o Others Assets: prepaid expenses. Insurance, etc.
Liabilities
o Current Liabilities: due to be paid during next accounting cycle (debt to wholesalers, employee wages, mortgage)
o Long-Term Liabilities: due to be paid in later than 1 year (mortgage, notes payable)
o Failure to pay decreases credit ratings

Financial Ratios
Used to check profitability, liquidity, & turnover & make comparisons among different organizations or organization vs industry.

Gross profit margin = (Sales COGS) / Total Sales

o Ability to generate profit
Net Profit Margin = Net Income After Taxes / Total Sales
o How well operating expenses are managed
o Makes comparisons between organizations
Return on Investment = net income for x years/ investment for x years
Return on Assets = Net Income / Average Total Assets
o High return = effective use of assets
Current Ratio = Current Assets / Current Liabilities
o High (5) = too conservative, Low (2) = too risky
Quick Ratio = (Current Assets Inventories Prepaid Expenses) / Current Liabilities
o Measures liquidity
Cash Ratio = (Current Assets Inventories Prepaid Expenses Accounts Receivables) / Current Liabilities
o Cash Ratio of 1: cash = liabilities
Inventory Turnover Ratio = COGS / Average Inventory
o Higher rates desirable
Receivables Turnover Ratio = Credit Sales / Average Accounts Receivable
o How quickly receivables are turned into cash
 Purchasing Management
Top customer complaints in drug stores: Out of stock
Others: slow service, Rx not ready for pickup when promised

Costs Associated w/ Inventory:

1. Acquisition
a. 5 rights of purchasing: right products, right quantity, right time, right price, & right vendor
i. Product: past & current usage, pharmacy goals/image/niche, formulary, industry data & representatives, consumer info,
reliable supply source
ii. Quantity: have just enough to cover demand at any given time. Too much inventory ties up money, while too little can result in
current & future lost sales & unhappy customers. Anticipate demand fluctuations, monitor drug shortages.
iii. Time: JIT replacement stock will be received w/in a short period of time after sales have depleted almost all inventory on
hand. Perpetual inventory systems are possible with automation and point of sales technologies.
iv. Price discounts (reduction in price), dating (period of time allowed for taking discounts & date when invoice is due/payable
1. Quantity discount financial incentive for buying a large quality. Can lead to an increased inventory & therefore
increased carrying costs & risks of unsalable merchandise
2. Cash discount discount offered for prompt payment (ex: 1/10 EOM, net 30)
3. Serial discount application of multiple discounts
v. Vendor: select a vendor based on product availability, pricing/discounts/financing/credit options, filling accuracy, fill rate,
delivery schedule, on-time delivery as promised, returned goods policies, produce placement & merchandising advice, value-
added services, inventory mgmt., software, shelf stickers, reps, track & trace capability
2. Procurement
3. Carrying
4. Stock out/Shortage

3 Types of Stock:
Cycle regular inventory needed to fill orders
Safety/Buffer additional inventory for current demand fluctuations or current supply fluctuations
Speculative/Anticipatory additional inventory for expected future demand, upcoming price increase, or anticipated drug shortage

Par Level Quantity Formula:

Reorder Point = [(Review Time + Lead Time) x Average Demand] + Safety Stock
Safety Stock = (Maximum Daily Usage Average Daily Usage) x Lead Time

Ordering Method
Scan Inventory visually or electronically know how much is currently on hand
Establish Minimum Par Level = set point at which to reorder
Determining Order Quantity how much to order to get to max par level or higher depending on demand & lead time

Economic Order Quantity:

Quantity = Square Root [(2 x procurement cost per order x demand for the product in $) / (inventory carrying costs x unit cost of the item)]

Types of Pharmaceutical Suppliers:

Manufacturer direct buying
Primary wholesale distributor indirect buying through prime vendor wholesaler, full range of products, JIT delivery, discounts
Secondary wholesale distributor
Compounding pharmacy
Gray Market

Drug Quality and Security Act (DQSA)

Enhance the FDAs ability to help protect U.S. consumers by improving detection and removal of potentially dangerous products from the drug
supply chain

Goal: electronic, interoperable track and trace system by 2023
Replaces drug pedigree requirements of the Prescription Drug Marketing Act (PDMA)
 Inventory Management

Evaluating Inventory Management:

ITOR (inventory turnover rate) = COGS / Average Inventory

Measures how quickly inventory is purchased, sold, and replaced
Advantages of Increasing ITOR = reducing investment in inventory frees money, increases ROI
Disadvantages of Increasing ITOR = out of stock, excessive staff time spent on inventory management
COGS = Beginning Inventory + Purchases for the Period - Ending Inventory
Average inventory = (Beginning Inventory + Ending Inventory) / 2

Number of Days of Inventory on Hand (DOH):

DOH = 365 / ITOR
o Lower ratio = more effective inventory mgmt.
o Leap years have 366 days!

Paretos 80/20 Rules

Top 20% of drugs that make up 80% of your drug costs
Focus your resources on those 20% of high value/high use items

Methods to Manage Inventory: generic product selection, reduce inventory sizes, returned goods policies, manage unclaimed Rx, monitoring shrink, use of
formularies & therapeutic interchange, other factors, keep tabs on meds loaned to other providers
Visual method visually look at the number of units you have
Periodic method stock counts at regular intervals
Perpetual method monitor inventory through use of technology
o Extensive reports, hand-held order entry devices, POS registers, ADCs, E-procurement w/ immediate allocation & order confirmation,
DEA CSOS for CSs
Physical inventory at least annually, count all meds in all locations that havent been charged to pts