Innovation in the Pharmaceutical Industry: The Process of Drug Discovery and Development - Innovation and Marketing in the Pharmaceutical Industry - page 67

2.3.6.3 First or Late Movers' Advantage?

In the neck-breaking race to market, late entrants are generally believed to be placed
at a disadvantage. They miss out on a period of uncontested market monopoly and
have to fi ght their way into an existing competitive market. Oftentimes, late entrants
need to disrupt established loyalties and displace prescription regimens, which can
be rather diffi cult.
Notably, being a late entrant can have its advantages, too. First, late entrants can
gain by monitoring the marketing strategy of the pioneer brand as they learn from
its defi ciencies. Second, they can benefi t from the extra time to improve or differen-
tiate their formulation. Distinguishing between innovative and non-innovative late
entrants, Shankar et al. ( 1998 , 1999 ) set out to examine if innovative late movers
may have a competitive advantage. For conceptual consistency and to align the
terminology in these studies with the exposition in Sect. 2.2.5 , hereafter we equate
follow-on drugs and me-too drugs to innovative late movers and non-innovative late
movers, respectively.
Being the fi rst of its kind, the pioneer drug is faced with the task of creating
awareness for the entire therapeutic class. In contrast, follow-on brands enter an
established market. They face a different hurdle: to build brand awareness and dif-
ferentiate themselves, which might not be too diffi cult if their superiority is appar-
ent. Me-too drugs' lack of a clear advantage though, places them in the least-favorable
position regarding market potential and marketing effectiveness.
Using longitudinal data from 13 brands in two categories of ethical drugs for
chronic conditions, Shankar et al. ( 1998 ) fi nd that follow-on drugs, typically offer-
ing an improvement over the pioneer drug, enjoy an advantage over both the pioneer
and the me-too brands. Presumably, follow-on drugs offer suffi cient extra value—
i.e., they are either superior in quality (e.g., offer greater regimen convenience,
higher effi cacy, or reduced side effects), or can sustain a lower price point. These
distinctions let them expand the market further, while riding on the coattails of the
pioneer brand's awareness.
Due to their competitive strengths in positioning, follow-on brands are more
effective than the pioneer at converting trials into repeat purchases—a transition
that is particularly relevant for the analysis of chronic condition treatments, as in
Shankar et al. ( 1998 ). More repeat purchases translate into higher sales growth for
the follow-on brands. Consequently, they can eventually outsell and overtake the
pioneer by slowing its diffusion, while remaining relatively unaffected by other
competitors' diffusion and marketing efforts. In contrast, me-too drugs, lacking a
clear point of differentiation from the pioneer, are less effective with their marketing
spending and attain lower repeat purchase rates compared to the pioneer and the
follow-on brands.
Favorable market conditions for innovative follow-on brands will depend on the
timing of their late entry relative to the stages of the product life cycle (PLC). If the
follow-on brands enter in the growth stage of the PLC, they can benefi t from a
strong market response. In contrast, market entry in the maturity stage will face an
established competitive market. Even superior late entrants may end up with limited