McCann wins task to find Glaxo antidote

Pharmaceutical giant Glaxo Wellcome last week hired McCann-Erickson to provide an antidote to some of the infectious diseases disrupting its position in the over-the-counter (OTC) drugs market (MW January 7).

Glaxo has been hit by the growth in own-label versions of its drugs in the stagnating OTC market. Non-traditional remedies and supplements are becoming more popular, while the public is reluctant to accept self-treatment -which encourages OTC purchases – in place of the advice from a GP, who deals in prescription drugs.

Glaxo has also had to contend with restrictions on its advertising, limited access to its products in some countries and the expiry of its Zantac 75 and Zovirax patents.

Glaxo appointed McCann to its 40m full-service account for three OTC brands: Zovirax coldsore cream, Zantac 75 indigestion remedy and Beconase hayfever treatment across Western Europe and Australasia.

General manager of OTC operations Gary Lyon predicts a turbulent time ahead: “It is tough now, and it will get tougher. Our best defence is to change the price/value equation. We could decrease prices but it would be a death spiral. So a better response is to use ads to establish brand values that consumers identify with.”

One City analyst says: “Brand recognition is very important in OTC because when people choose a product they are doing it for health reasons. It’s not like choosing chocolate biscuits.”

Lyon promises “hard-hitting, aggressive” advertising in conjunction with product improvements, further product claims and extended ranges to defend Glaxo’s market position.

According to Lyon, the UK OTC market declined in 1997, compared with 1996. He blames the “disruption to traditional markets” on consumer interest in dietary supplements and non-traditional remedies.

He says the benefits non-traditional products imply through labelling and advertising “skate on the edge of health claims”, while regulations governing pharmaceutical health claims are extremely strict. Glaxo is campaigning for a “level playing field” through the Proprietary Association of Great Britain, although it does not want to see further restrictions that may threaten its advertising.

Lyon perceives a further injustice, and is calling for “a fairer environment to promote self-care”. In Europe, access to OTC products is restricted to pharmacies, but, according to Lyon, the intervention of the pharmacist contradicts the premise of self-care.

Lyon says that in the long term self-care will have to be accompanied by easier access to drugs and the relaxation of advertising regulations. In the US, advertising is restricted to prescription-only drugs.

When OTC product patents expire, own-label products can inflict heavy damage on their branded counterparts. The patents on Glaxo’s star performers Zovirax and Zantac 75 expired in 1997.

The problem is compounded by the fact that Glaxo’s most aggressive rivals are also its biggest customers – namely Tesco, Asda and Boots. “Tesco and Asda are significant players and significant customers. It is the double whammy of being a branded manufacturer,” says Lyon.

McCann deputy chairman and head of strategic planning Mark Le Pere says: “There is a huge consumer trend towards self-medication, so we might as well give them [consumers] the ammunition to be informed.”

Stagnation in the OTC market reflects the general state of the pharmaceutical industry. Mergers are being pushed through to help companies to finance the blockbuster drugs where the big profits are made.

Glaxo and SmithKline Beecham called off their merger talks in February, but stock market speculation has been rife in the past week.

On the day McCann’s appointment was announced, Glaxo’s shares rose by more than 1 – although the two issues are not connected.

Speculation that Glaxo is planning a spoiler bid for Zeneca, which is due to merge with Astra, has been dismissed by some analysts, who cite other reasons for the surge in its share price.

One analyst says: “It is a defensive sector. People are willing to pay for growth and pharmaceuticals is performing well. If the Zeneca/Astra deal goes through, the market will be underweight, so it [the Glaxo increase] could pre-empt pharmaceutical buying in general.”

Another analyst comments: “The Astra/Zeneca merger may have caused Glaxo to think again about SmithKline Beecham.”

If the merger talks are renewed, McCann may find itself vying for an even bigger slice of business.

In any case, more Glaxo business may soon be heading its way. Although Glaxo’s regionalisation policy means its operating companies in Eastern Europe, Asia-Pacific and South Africa are under no obligation to use the agency network, Lyon says he will recommend they do so. But he believes they will first want to see what McCann comes up with for the Glaxo accounts it already has.

With a merger back on the horizon and a swathe of accounts waiting to be won, both client and agency could see their businesses expand.

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