Introduction
Health Care System is complex sector, influenced by a number of internal and external forces. One of the distinguishing characteristics of the companies, operating in the industry is the strong dependence on the local and international regulatory base and the regulations with regards to the licensing and composition of their products. In this document, I will focus on Johnson and Johnson (J&J) operations and will look at the competition, customer profiles, marketing mix and pricing strategies, relevant for the company. As it was outlined in the previous work, J&J works with a complete line of products, including baby, skin and hair care, topicals and wound care as well as the basic over the counter medicines.
Key Characteristics of the Users
Organizational strategy is a long-term planning, which should be able to embrace the opportunities and threats, existing and relevant for the company in the current environment as well as ensure the organizational flexibility with regards to evolving customer needs and expectations as well as make it responsive to changes, coming from political, social, environmental and technological elements of its external environment. To be able to build a successful and sustainable strategy, the company should conduct accurate analysis and ensure segmentation of the customer base, according to their needs and purchasing behavior. For better segmentation, it is important to look at customer profile and characteristics in three distinct segments: consumer products, pharmaceutical products, and medical devices (Aday, 2004).
In the consumer segment,J&J works with decentralized distribution network delivering its products to the customer through large retail chains and drugstores. Current strategy is focused on consumers with the following major characteristics:
Price and quality balance;
Accessible products for monthly and trimester repositioning;
Convenient packaging and size of the pack;
Convenience shopping;
Regularity and routine shopping experience;
All age ranges
The above allows drawing the profile of a typical consumer, who is a man or women, making monthly shopping for the family with middle-class income. The customer does not like impulse shopping experience and demonstrates brand loyalty, based on price, availability and quality reputation of the J&J brand.
The second segment is the client, making the purchase of pharmaceutical products. The profile of the customer is similar to the consumer segment with several major distinguishing characteristics;
High price sensitivity;
Strong focus on quality, where the client is ready to pay little premium;
Strong need for accessibility and ease of use;
Higher awareness of the use and benefits of the product;
Not willingness to test new products.
This customer profile tends to demonstrate lower switching costs and higher sensitivity to changes in prices. In order to ensure customer loyalty in the segment, J&J has to focus on brand reputation and competitive pricing strategy.
Finally, medical and diagnostic devices are the specific segment with very different customer characteristics:
Low frequency of purchase;
No impulse shopping;
Age category between 28 and 55 years old;
Specialists in medical sector or patients with specific diseases, such as diabetes;
Lower sensibility to retail locations;
Stronger brand loyalty.
People looking for the product for personal or professional use are ready to spend more time, searching for available price options and often can prefer distant and less convenient shopping experience, once it can bring financial benefits and meet their exact expectations. In this segment, additional services, such as extended insurance and maintenance can build on loyalty and higher sales.
Competitive Environment
The competitive environment is a multifaceted force that can be analyzed within various frameworks. One of the interesting ways fo looking at competition is the Porter[s Five Forces Analysis, outlining competition, based on the environment, supplier and buyer purchasing power, a threat of substitutes and the threat of new entrants.
Competitive Environment
J&J is a large international organization, competing in a global business arena with various small, middle companies as well as large multinational corporations. Among the major competitors of the company, such international giants, as Pfizer, Merk, and Co., Novartis and GlaxoSmithKline with Pfizer representing over 7% of the total health care sector sales. Additionally, competition is enhanced by a number of smaller competitors, who differentiate themselves, by offering products with unique composition, "green products" and differentiated packaging, pricing or use of the products.
Bargaining Power of Suppliers
Suppliers represent a medium power for J&J. On one side, the company's supply chain is internationalized with various suppliers and component providers across geographic locations. The size and the scope of J&J operations, at the same time, limit the flexibility of the suppliers with regards to price and conditions of sales. This leverages the risks and allows the organization better position in choosing their providers.
Bargaining Power of Buyers
The market in which J&J operates is extremely competitive environment; where clients are sensitive to all three elements: price, quality, and availability of the product. Product differentiation in all the three segments, described above is significantly low and companies should be able to build their strategy through marketing mix. With that in mind, the bargaining power of buyers is a major force, influencing the activities of the company. Innovation is the best way to differentiate and finalize the customers.
Threat of Substitutes
International market regulations and the costs to develop, license and launch the products are reasonably high in the sector. This is determined by high competition and strong regulation of the products in the vast majority of the countries. Baby products, hair care, and medicines, however, are difficult to be substituted for a completely different product. One of the major competitions comes from organic products, own retail brands, and choice that customer makes between such elements as the form of the product (liquid as opposed to bar soap). This places the threat of substitutes on the level of moderate threat.
Threat of New Entrants
When looking at the market entry and openness, it is important to recognize the differences between locations, in which the company operates. Overall, the market is determined by an open competition with a large number of small and medium competitors, representing the strong competitive force to large international players. Initial investment and marketing costs, at the same time, demand companies significant financial inflow, which in a way, limits the number of annual entrants to the market. With the above in mind, the threat is considered moderate.
Recommendation
The above analysis outlines that J&J operates in the increasingly competitive environment, where marketing strategy and innovation are the keys to sustainable profitable growth and operations. Given the threats, coming from small and medium size competition, the potential impact of political and economic factors, it is essential that the company focuses on reducing its upstream costs to remain competitive on the market with regards to the price. Additionally, the society is increasing concern with "green attributes" of the product. By focusing on Corporate Social Responsibility (CSR) practices and introducing “green products” to the consumer and pharmaceutical line, J&J will be able to strengthen its competitive position in a long term (Kotler et al, 2011).
Marketing Mix
The marketing mix is presented by the 4P's, including price, place, promotion and product. As it was previously discussed in the first work, marketing strategy, and product positioning are the core strategic elements for the company. While organization should be able to offer adequate price for its product to compete in mass segment, product differentiation and distribution channels are the key to profitability, based on the customer profile and their expectations.
It was defined, that J&J customers are looking for regular and convenient shopping experience. This means that the company should ensure to make its distribution strategy focused on the availability of the product. Currently, the company distributes the products through large retailers and drugstores, which "eats" part of the profit, but offers the higher volume of sales, visibility and, to some extent, offers an opportunity to build on quality recognition as the large retail nd drug chains carefully choose their partners. Further focus on distribution and high availability will ensure more effective and efficient marketing mix strategy.
Secondly, it is evident that customers possess strong bargaining power, which demands the company continue investing in innovation. While major competitors offer mostly complete line of products in consumer and pharmaceutical segments, it critical that J&J focuses on innovation packaging and product presentation as well as differentiates itself through the aggressive market penetration in "green product" segment. This will allow not only increasing current profits but building on the additional element in consumer loyalty.
The above recommendations do not exclude the fact that J&J should continue developing all the elements of the Marketing Mix, it outlines, however, that stronger attention and higher investment should be made in an enhancement of distribution and product innovation to build on sustainable competitive advantage.
Pricing Strategy
J&J is a company that built its product around the mass production and middle-class customer segment. With that in mind, it is essential that the company focuses on continuous improvement of its cost-effectiveness to remain price competitive. As it was determined that clients are very price sensitive and the switching costs for a different brand are reasonably low in the industry, J&J should ensure to offer basic as well as premium and differentiated and personalized product to its regular customers. Looking at baby shampoo and soap as an example, it is recommended that J&J focuses on looking for the balance between customer access and competitive dynamics, maintaining its price and adjustments in accordance with the relative Consumer Price Index (CPI). The current strategy to ensure that lower income and underprivileged consumers have access to quality products should continue outlining the J&J market position and its pricing strategy.With the above in mind, the company should choose to compete on economy pricing aligned with psychological pricing strategy, where the company offers average market price, using marketing perception strategy, differentiating by little premium in packaging, higher personalization, and promotions (Sadler, 2003).
Given the competitiveness and short product lifecycle of the market, the above pricing strategy will offer an optimal balance between the volume of sales and profit margin of the products, ensuring that J&J is able to reinvest in product innovation and marketing strategy, maintaining its currently strong market position.
Conclusion
J&J is one of the major players in the sector for many decades. The company has developed its own vision and experience, demonstrating its strong position and defined strategy with regards to all major segments, in which it operates. An analysis of the internal and external environments allows arguing that the company is well-positioned on the market and adopted the adequate strategy for sustainable growth. There is an opportunity for market expansion and penetration, however, in emerging segment of "green customers", which can offer additional differentiation and unique brand identity to J&J. With that in mind, it is recommended that the organization continue developing its current strategy and devotes more financial and physical resources to environmentally-friendly products.
References
Sadler Ph (2003). Strategic Management. 2nd Edition. London: Kogan Page Limited
Aday, L. A. (Ed.). (2004). Evaluating the healthcare system: effectiveness, efficiency, and equity. Health administration press.
Kotler, P., Shalowitz, J., & Stevens, R. J. (2011). Strategic marketing for health care organizations: building a customer-driven health system. John Wiley & Sons
