A "pilot" model to introduce System Dynamics
in a pharmaceutical company
Carmine Bianchi
Habib Sedehi Assistant Professor
i Cecilia Tagliaferri
HELP S.p.A. University of Palermo
Faculty of Economics - Istituto Faboratono Sistemica
di Scienze Economico
Via Antonio D'Achiardi, 31 Aziendali
Auditing Informatico
Via Pontevecchio, 16
; 40139 Bologna (ITALY)
00158 Rome (ITALY ) Viale delle Scienze
E-mail
E-mail Sedehi@help.it 90128 Palermo (ITALY) —_ gac4758@iperbole.bologna.it
E-mail Bianchi@unipa.it
ABSTRACT
The paper will discuss the nature of a prototype model developed to demonstrate the strengths of S.D. approach to
support marketing management decisions in a big pharmaceutical company.
A dynamic model is sketched and discussed in order to understand feedback loops related to the use of different
promotion media; special attention is devoted to the following aspects:
* agent-visits impact in informing doctors about company products,
* organization and involvement of doctors (free travels) in scientific and specialized congresses.
Different strategies are evaluated, through simulation runs and results are commented in order to better understand
managerial processes.
Developing such learning environments will allow to induce marketing managers to adopt S.D. modeling as a key
component of their current decision support systems, which are now mainly based on statistical approach.
PHARMACEUTICAL ENVIRONMENT
A relevant characteristic of pharmaceutical market - at least in Italy - is that itis not permitted to producers
(commercial agents) to contact directly the final consumer (patients) through promotional actions. In fact in this
environment the consumer is different from who decides (the doctor) on choosing the product. So company scientific
information and promotional effort are mainly oriented to gain doctor's "faith" and consequently stimulate him/her to
prescribe, when it is necessary, that type of medicine instead of one similar in characteristics and effects belonging
to another company. This goal is normally achieved through personal contacts with doctors, their involvement in
congresses (free travels), gadgets, advertising, etc.
FOCUS OF THE MODEL
The marketing function has to manage a given annual budget in order to achieve a target sales "level". The sales
manager handles a set of promotional levers and his/her main problem is to assess and compare their relevance
according to alternative scenarios. The goal of our "pilot" model is to show the strength of system dynamics
approach to support the management learning and decision making. In figure 1 the main causal loop diagram of
whole process is sketched.
There is a total marketing support cost
which is forwarded mainly to personnel
(budget to sales agents) and to organize
and involve (invite) doctors in congresses
(budget to congresses). The more time is
dedicated in visiting doctors the higher
both congress and visit productivity will
be, so (after a delay) higher will be sales pect
as well as cash flows. Higher cash flows
will be likely to foster a new positive loop i i
as they allow to launch (after another
delay) new products (medicines). On the
Poets
other hand launching of new products be \G=>
Budget for Meits
also implies a decreasing of product
avrage age which causes more ra
‘ i i swestments in
investments (with delay), higher product sipport: ES / tea costs:
marketing support costs and so cash flow
decreases.
Pt aferage
292
woe
es Flow
Fig. 1
The model supports decision makers to understand the above dynamic process analysis and possibly to better
manage product investments.
THE MODEL
The pharmaceutical model is mainly developed through three interconnected subsystems:
« Product (old + new medicines) management (figure 2)
« Sales agent (scientific and promotional informers) visits (figure 3)
« Congresses cost and impact management (figure 4)
Product management Sub-System
The concept of "equivalent products"
has been introduced, in the model, to
smooth new products over a time
period in order to avoid "peaks" in
product portfolio management.
Average product age drives promotion
activities: while in the initial stages of
medicine life-cycle a strong
promotional effort is needed, later in
time such an effort is reduced (also
because the knowledge by doctor on
the product increases).
Fig. 2
Desired product sales, deduced through the number of prescriptions made by doctor to his/her patients (indirectly
and approximately defined through the number of medicine sold by all pharmacies in the area of doctor's place) is
calculated as a sum of two components:
* standard sales "level" (derived from statistical sources and related to the average product age),
« additional desired sales.
A share of promotional effort is devoted to maintain standard sales "level", which also depends on word-of-mouth,
product quality and existing marketing demand.
Sales agent Sub-System
The number of doctors to be visited is
supposed to depend on product portfolio
scope. An increasing number of products
implies the entrance in new market
segments which will involve a higher Se
number of doctors in the company's
potential "medicine prescribers".
In the launch stage of medicine life-cycle
a bigger promotional effort is required: a
lower
average product age, will imply a higher number of visits required to guarantee proper pharmaceutical scientific
information. Required number of visits is also affected by "delta desired sales", i.e. extra sales over normal
achievable "level" the company desires. If the existing number of sales agents, even under pressure, is not sufficient
to visit the whole number of doctors at the needed frequency, the company hires new agents which become
productive after a training period. This reduces the gap between actual and requested visits.
Congresses Sub-System
According to the budget, the company
promotes congresses, generally to launch
new products. Congress costs consist of a
fixed share and a variable one, due to the
number of invited doctors (free travel). The
combination of these costs represents the
company's effort in congress promotion.
Fig. 4
To economically evaluate the consequence of different strategies related to the above subsystems and to foresee
company's results, a "first attempt" model to support budgeting is sketched (see figure 4).
RESULTS
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ae = || > z] ee |
Fig. 5: Model results
The model allows one to simulate product dynamics over a ten years (120 months) time horizon. The more products
are launched the lower will be average products age and higher product sales support (agents and visits to doctors)
will be needed.
In the simulation run, whose main results are summarized in fig. 5, it is supposed that three products are launched at
the beginning of each year and 60% of current income (difference between sales revenues and production,
distribution, sales agents costs) is reinvested in congress activities. In case enough budget is available for such
activities, a congress each month on average is organized. Budget for congress is allocated in two parts: a) fixed
organization costs; b) variable costs per participant. The results confirm that the higher is the number of visited
doctors (who already know the company) by sales agents and budget for congresses, the more will be doctors
invited to congresses and, consequently, higher will be congress productivity (i.e. sales). A reasonable product
support investment by sales agents will allow higher sales which, reinvested in new promotion activities, will
enhance the virtuous positive loop leading to growth.
Fig. 6: Main model's policy levers
ISDC '97 CD oe ELSI
