Friday, February 24, 2006

Innovating Products to Sell ... the P&G Way

Marketing is among other things about innovation to differentiate.

And the king of marketing innovation has to belong to Procter & Gamble.

And they don't do innovate the way everyone else does.

Most pharmaceutical companies innovate by hiring leagues of scientists who invent new drugs. P&G has been among those that were innovating by this traditional means. But now, they are turning the cart upside down and introducing an innovative marketing model that seems to eliminate many scientific jobs at the company's pharma research facility in Mason, OH.

Procter & Gamble announced that it would "get out of early stage pharmaceutical discovery research and instead acquire all of its new drugs from outside sources." In other words, P&G would now do a lot less R&D and product innovation and rely much more on acquisitions and product licensing to fulfill its innovative product needs. The Cincinnati Post reports that P&G is leading a new trend in the pharmaceutical industry from a discovery model to a licensing and acquisition mode this is not a cost-cutting move rather than a strategic move."

The Cincinnati Enquirer story on this same "strategic move" added further insights. According to the Enquirer, "The new model calls for two to three new licensing or acquisition projects a year, each with a 10 percent to 30 percent probability of commercial success, [Mark] Collar said. We need to drive more projects through development into the marketplace than our current innovation model was able to deliver, he said. There are a lot of projects that are attractive out there, and we're going to go after our share of those. He said it was a move to reallocate funds, and that the savings from the job eliminations was not just to create more corporate profits. Collar said there are about 4,400 biotechnology companies globally, with about 600 licensing deals a year. In such a deal, a marketer such as P&G would pay the company to bring the product to market, then pay a portion of the sales back to that company."

The essence of their new strategy which P&G says is a "new trend in the pharmaceutical industry" is this: innovative R&D is not only very expensive, time-consuming and risky, but it also delimits innovation to a company's already existing imaginative and innovative capabilities. Ironically, by looking externally to innovations done by others, an organization cannot only greatly expand its imaginative vistas, but it can also accelerate its own rate of advance of innovation through acquisition or licensing or already existing new technologies.

So when it comes to marketing innovation, you might just reconsider the way you innovate.


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