The pharmaceuticals industry is governed almost entirely by the pursuit of profits through complex patent, regulatory, and marketing strategies. These strategies must work in tandem to secure global prominence of the brand. Pharmaceuticals are unique because market monopoly is determined by who is first to market with a patented and trademarked product. By securing legal status and compliance with regulatory standards, firms are able to achieve long-term dominance over potential competitors; in many cases, there are no competitors. Industry giant, Pfizer Inc., has long enjoyed monopoly status with its top-selling Lipitor cholesterol-lowering pill. However, on November 30, Watson Pharmaceuticals began selling a generic version of this pill, marking the long-awaited loss of U.S. market exclusitivity. The Watson generic pill will be offered at 50 percent discount to the recent price of Lipitor.
Watson’s entrance as a low-cost competitor is a major threat to Pfizer. Watson is offering essentially the same “functionality” for 50 percent of the cost. How will Pfizer maintain its position in the market? Is it even possible? To answer these questions, it must evaluate its Lipitor-specific strategy, as well as Lipitor’s positioning within its broader product portfolio. So far, Pfizer has contacted health payers contracts to make Lipitor available at or below the generic cost. The company is offering consumers incentives to stay on the branded drug, including coupons that lower monthly copays to $4, as well as mail-order services. With these actions, Pfizer is pursuing the Red Ocean strategy, detailed in our readings. Pfizer is unable to offer a differentiated product with an identical generic available to consumers, so it must compete on a low-cost basis.
The Red Ocean strategy may be successful in the short-term, but may not be sustainable. Even with the push of aggressive marketing, generic competition will seriously erode Lipitor’s sales, placing pressure on Pfizer to bring new products to market. As it originally did with Lipitor many years ago, it must create an uncontested market space. Pursuit of the Blue Ocean strategy is most viable in the long term. New products, differentiable from low-cost competitors, affordable to a larger market segment, make Pfizer less vulnerable to entrants. Whether its differentiation in products or process (to some extent, Pfizer benefits from lucrative licensing agreements with Watson in the U.S., pocketing a percentage of all Lipitor-generic sales), creating consumer demand apart from cost considerations is critical to increasing Pfizer profits.