Why is pharma paying so much for CRM?

 

 

By Sam Barclay, executive VP and managing director, North America and APAC, StayinFront.

 

 

For many companies, sales and marketing expenses can constitute a significant part of the budget. Millions of these dollars are spent on Customer Relationship Management systems. Though the cost of CRM systems varies widely, life sciences companies in particular pay a high price for SaaS software subscription fees – often double or more than what other industries pay.

This is problematic because there are no obvious technical, regulatory, or commercial reasons why this should be the case. Given this, it’s baffling that the pharmaceutical industry pays so much more for mobile SaaS sales applications than other industries – especially when you consider that the exact same applications are being sold in developing markets for much less.

There are several arguments that are often used to explain these high costs.

The first is that life sciences’ CRM systems are complex. But the fact is, they are no more complex than CRM systems in other industries. My experience in both the consumer goods and life sciences industries shows me that while sales force and customer relationship applications have slight differences, they are essentially the same tool that serves the same purpose: they allow sales reps to analyze their data, go out into the field, make calls throughout the day, sell and educate and record what’s happening in the field. The processes, configurability and integration are generally similar.

While it’s true that pharma companies are dealing with large amounts of data, such as prescription information, other industries are usually dealing with much larger amounts of data (let’s face it: what industry isn’t these days?). In consumer goods, for example, sales reps write complex orders that involve complicated discounting algorithms, and collect many more data points per call than life sciences. In the financial industry, the amount of data is larger again, including large financial records and millions of transactions. Pharma CRM solutions are relatively light in terms of data size.

The second argument for the high cost of life sciences CRM solutions is that because the pharmaceutical industry is highly regulated, more money is needed to cover those regulatory processes. But regulatory rules are now quite stable and have been built into all the systems available in the market, so they are much less complex than they used to be. Moreover, other industries are also heavily regulated – think of financial industry regulations. Regardless, even if one were to buy the argument that the regulations in the pharmaceutical industry require additional costs, that cost should be a small additional one, not the huge differential we see.

Some also attribute the high cost of pharmaceutical CRM to the high level of service that these organizations expect. While it is true that in earlier, more profitable times, that pharma companies did expect to pay premium dollars for premium services, my observation is that those times are long gone, and that life sciences companies are just as interested in cost control as other industries I have worked with. In addition, I would note that other industries also demand high service levels, but do not expect to pay premium fees for good quality technical support. There is a cost differential between support services provided ‘on shore’ versus ‘off shore’, and it may be the case that pharmaceutical companies are demanding service that is U.S.-based because they are worried about quality. But my experience has shown that offshore services can be provided that are both high quality and low cost.

Finally, there seems to be a large differential between the cost of a life sciences CRM solution in a developed market, and the same solution in a developing market. This suggests that some SaaS CRM providers are willing to discount their solutions in new markets, but are maintaining high margins in developed markets.

But the real reason the costs are much higher for pharmaceutical companies may actually be much simpler. The market for pharmaceutical CRM solutions is currently dominated by one or two providers, which leads inevitably to higher prices. This stems in part from the industry being risk averse in technology selection, and often choosing the biggest provider is an attempt to limit perceived risks. However, that risk aversion has a real cost in terms of the price of the solution – leading to prices that are in many cases twice what other industries pay for similar kinds of solutions.

Life sciences companies spend large amounts of money on sales and marketing, with a significant portion of that budget going to technology. I think that these companies may prefer to spend that budget on increasing marketing and sales resources, rather than technology, and that there is an opportunity to look closely at the technology budget to ensure it is being used effectively.  medadnews