A subject that was once so sensitive that it was spoken of only in hushed whispers in doctors’ offices has now become the focal point of one of the biggest and most public marketing battles in the pharmaceuticals industry. The launch of Pfizer’s erectile dysfunction (ED) drug Viagra in 1998 was a landmark in the industry. It was not only the biggest launch in the industry, but the little blue pill quickly became an icon. Viagra showed up everywhere from Jay Leno’s Tonight Show monologues to an entry in the Oxford English Dictionary.

All this naturally attracted the attention of rivals as well. Bayer/Glaxo SmithKline launched its own ED drug, Levitra, and Eli Lilly launched Cialis in 2003. Would these new drugs expand the market for everyone, given that only an estimated 13 percent of men thought to have ED were seeking treatment? While Pfizer publicly said competition was good for everyone, it still filed lawsuits to unsuccessfully block its rivals.

The advertising war among the three drugs escalated steadily since the last quarter of 2003. During the Super Bowl in February 2004, both Lilly and GSK paid a record $2.3 million per 30-second spot to air their ads.

New Positioning

Each of the competitors positioned its offering in a different way based on differences in how they work. Levitra emphasized that it can take effect sooner, in 15 minutes compared to an hour for Viagra, using sports figures such as Mike Ditka and a slogan of “stay in the game.” Cialis could last longer, with an effect for 36 hours compared to four hours for Viagra, emphasizing that users could “choose the moment that is right for you.” This led to the view of Levitra as a drug for men already in relationships while Cialis, dubbed “Le Weekend” pill in France, was considered a better choice for the “Sex in the City” types.

Both drugs had less food interaction than Viagra, and they also sought to differentiate themselves from one another based on quality of the erections they produced. Viagra, in response, emphasized that it is “tried and true” with the longest track record in the industry.

First-Mover Advantages?

Was it an advantage for Viagra to be first to market? With 100-percent share of the market at the outset, Viagra had nowhere to go but down. Consulting firm Decision Resources estimated that Viagra’s share of the market would fall to 56 percent by 2006. On the other hand, the arrival of its competitors did, in fact, continue to expand the market. With all three drugs on the market, the ED class of drugs was expected to grow to $5.4 billion by 2007.

“The question we consider is when you actually have first-mover advantages,” said Wharton Marketing Professor David Reibstein, who discusses the Viagra case in Wharton’s Competitive Marketing Strategy program. “Don’t assume that just because you are the first mover you are well protected.”

The advantages from being a first mover depend upon the specific situation. Sometimes a first mover can tie up distribution channels or lock in customers with high switching costs. Where the customer has made a significant investment in the pioneering firm’s products or services, such as installing equipment or a software base, the switching costs can be very high. This can make it very hard for a second mover to sweep into the market once the first mover is established.

This was not the case with Viagra. “It is not like pharmacies are not going to be carrying other drugs,” Reibstein said. “It is not like physicians won’t be willing to prescribe Levitra and Cialis. And for end users, the switching costs are very low, particularly with sampling. Customers have had experience with Viagra, so there may be some reluctance to switch, but the switching costs are very low and could be almost zero.”

This meant that Viagra’s leadership position was easily eroded. “This is an important thing to think about in moving first,” he said. “People almost always assume that there is a first-mover advantage, but it is not always there.”

There are also costs to being first that need to be considered. The first mover spends time educating and building the market, while competitors can then swoop in and ride on the pioneer’s coattails. “Some companies have an explicit strategy not to be a pioneer,” Reibstein said.

On the other hand, there may be less tangible reputational benefits to being first mover. Because Viagra established the category, “when you see an ad for Cialis, you think about Viagra,” Reibstein noted.

Raising or Lowering Switching Costs

Companies can gain market share by focusing on the customer switching costs that make a first-mover advantage more or less sticky. New entrants try to make it easier for customers to switch. For example, all the drug companies distribute free samples to physicians that they can pass on to patients. This makes it very simple and cheap for users to try the new drugs without paying for a full prescription.

Incumbents, on the other hand, may take actions to increase switching costs. When Pfizer saw competitors launching their own ED treatments to compete with Viagra, it launched a frequent-user program. After paying for six prescriptions, customers receive the seventh free. Like the frequent-flyer programs on the airlines, this encouraged repeat purchases and made it more difficult to switch to competitors. “If you are first, what you want to do is have a preemptive strategy to meet new entrants,” Reibstein said.

Expanding the Pie

In thinking about competitive dynamics, managers also have to recognize that competition can sometimes be a good thing. “When you are expanding the pie for everyone, sometimes competition is not all that bad,” Reibstein said. “Before you react to competition, you have to ask yourself if it is good or bad. Because of the low penetration of Viagra for people suffering from erectile dysfunction, destigmatizing ED can increase the entire market. ”

New product launches and first-mover advantages are just a few of the competitive dynamics considered in the Competitive Marketing Strategy program. While managers often focus on their own marketing strategies, the outcome of specific strategies is the result not only of their own initiatives but also the actions and reactions of competitors. It is important to take this broader view of competition in developing marketing programs. “Throughout the course, we are spending time considering how to anticipate what your competition is going to do and how to respond to or preempt them.”

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• Wharton/Windhover Program for Pharmaceutical and Biotech Executives
  
  
• Wharton Marketing Programs

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