Magazine Article | October 2, 2014

Is Discounting Services Good For Drug Development?

Source: Life Science Leader
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By Kate Hammeke, VP of Market Research, Industry Standard Research (ISR) @ISRreports

In the past decade of working in market research, I have witnessed the consumer behaviors of business and personal spending conflate. This has happened for a variety of reasons, the big influencers being the psychology of the sale and later, the economic downturn.

Many years ago, marketers started using psychological tactics to interest consumers in products they did not need and, since then, have been honing in on new ways to manipulate buyers by playing upon their weaknesses. These methods worked so well in the consumer environment that they have crossed over to selling business-to-business products and services.

However, when the economic crisis hit, it changed the way both consumers and businesses spend, further shrinking the differences in personal and professional behaviors. The charge card — whether personal or corporate — was no longer swiped without scrutiny. Products and services needed to be evaluated for necessity, and if something was identified as a necessity, the search for the best price and provider began. Selling methods had to evolve, and along came the near-constant “sale.” This tactic has permeated commerce so thoroughly that in recent years we have been conditioned to shop at any time, but only to buy during a sale. Retail prices start at higher margins than they did a decade ago because so many consumers will not consider purchasing at full price. Business-to-business sellers have also adopted this trick. “List prices” are set at a premium because whether our shopping is personal or professional, we are equally susceptible to the allure of getting a deal based on the nature of our relationship.

"When entering a drug development partnership, buyers ... are looking for a discount from the provider for making a long-term commitment."

When entering a drug development partnership, buyers of outsourced services are looking for a discount from the provider for making a long-term commitment. In reviewing the results from this past year’s strategic partnering surveys, the data show that among one-third of respondents, price is considered very influential in partner selection, and 29 percent stated that price is influential. This belief impacts purchase behavior in the form of looking for discounted products or services — aka a “sale.” Respondents were asked what percentage of a discount they expected when partnering with a CRO/CMO, and approximately one in four expected a 10 percent discount, which is fair. What was surprising was that the remaining respondents anticipated an even greater price cut, and nearly one in 10 desired a discount greater than 20 percent.

Research shows pricing has a strong influence on partner selection, but it also reveals cost is not the most influential element when considered along with quality and reliability. Regulatory and productivity also trumped affordability in the 2014 results, which reminds buyers of the difference between value and price. Value is the combined result of a quality product/service, reliably supplied, and for a price that is in balance with quality and reliability. After all, it doesn’t make good sense to compromise quality for price — that’s the reason the phrase “buy cheap, buy twice” exists — and if your supplier does not reliably deliver the goods, you may be losing money because of the wait. When a supplier has to compete by offering the lowest price among its competitors, corners may be cut, staff may be underqualified, and the opportunity for error opens wider. These are dangerous possibilities in the drug development industry.

In the final quarter of the year, as plans, budgets, and strategies are identified for 2015, it’s important to keep value at the forefront of CRO/CMO partner selection, rather than just price. Let’s move away from expected discounts in the short term and look deeper into the future of a partnership, where greater savings can be obtained through utilizing each party’s strengths and establishing a win-win relationship.

Survey Methodology: Nice Insight Strategic Partnering Surveys are deployed on behalf of Nice Insight clients to a targeted group of outsourcing decision-makers. The surveys are comprised of ~40 questions geared toward understanding current outsourcing practices, present and future expectations from outsourcing partners, and which traits contribute to successful partnerships.

If you want to learn more about the report or how to participate, please contact Nigel Walker, managing director, or Kate Hammeke, director of marketing intelligence, at Nice Insight by sending an email to nigel@thatsnice.com or kate.h@thatsnice.com.