How to best market a drug's switch to OTC? Ask Joanne

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Meet Joanne.

She's married and a stay-at-home mother of four.

No, wait. She's a single mother of two children who works two jobs.

She drives an SUV.

Or is it a minivan?

She listens to talk radio.

And an oldies station. And the alternative rock station when her kids are in the car.

If it sounds like Joanne is an everywoman, well, she is. Joanne was the name given to the make-believe, yet all-too-real, consumer whom Procter & Gamble Co. literally placed in the room while conceiving the marketing strategy for Prilosec OTC.

"By having the presence of the consumer in the room, the consumer was boss," said Joe Arcuri, P&G's general manager for its gastrointestinal business. "Joanne helped us solve issues as we encountered them. The physical presence of this consumer, in a cardboard cutout, was the constant reminder."

And that, in a nutshell, explains how P&G's drug business-once a division that Chairman-CEO A.G. Lafley considered selling-has helped the company's growth over the last three years. By finding the numerous touch points of the consumer, as P&G does with its package goods, the marketer masterminded the switch of the heartburn medication Prilosec from a prescription product (via AstraZeneca) to an over-the-counter medicine.

Now P&G's pharmaceutical division is one of its most successful. For the fiscal quarter ended Dec. 31, P&G's healthcare operation, which includes brands such as Prilosec and Actonel, posted a 22% increase in net sales to $1.9 billion and a 32% increase in net earnings to $333 million vs. a year earlier. That outpaced P&G as a whole, with net sales up 20% and net earnings rising 22%.

But it was a bumpy road in getting to that prosperous point.

When Mr. Lafley succeeded Durk Jager as CEO in 2000, he took a hard look at P&G's prescription-drug business. Or lack thereof. Mr. Jager had tried to address that by engineering the acquisition of Warner-Lambert Co. and American Home Products Corp. When the news leaked, P&G's stock fell and the company was drained of capital for the deal. P&G eventually backed out.

small and focused

When Mr. Lafley took over, he commissioned an independent analysis of the drug operation and concluded that a small, focused pharmaceutical business combined with an OTC business that specialized in switchovers from Rx could succeed.

So far, the strategy seems to be working. The prescription medication Actonel, for osteoporosis, was launched with Aventis in 2001 and could hit global sales of $1 billion this year. P&G's female sexual dysfunction drug Intrinsa is another potential blockbuster that could reach the market by early 2005. And P&G is succeeding with the Prilosec switch, which is powered by ads from Publicis Groupe's Publicis Worldwide, New York.

"We never approached this as `Hey, Prilosec is now available over the counter so come and get it,' " Mr. Arcuri said. "You're dealing with a different shopper. The health-care purchase decision is much more complicated. You have a lot of influencers, and you have to be able to influence the consumer in a variety of ways."

P&G's success with Prilosec-and its previous success with Aleve's switch to OTC-could be the true driver of its growth in the pharmaceutical division.

"They are the masters of drugstore and grocery store marketing," said one analyst, "and that could really help push more business in their pharmaceutical sector."

Said one major pharmaceutical company executive who asked not to be identified: "There is a lot of talk in this industry right now that Procter & Gamble will be the `go-to' partner for OTC switches."

Mr. Arcuri doesn't disagree.

"We aim to become the premier company for Rx-to-OTC switches," he said. "Our unique ... approach really sets us up well. Looking ahead, we're exploring most therapeutic areas."

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