MARKET FOCUS: Healthcare: A prescription for reputation

A corporate PR focus is helping remedy pharma's image woes.

A corporate PR focus is helping remedy pharma's image woes.

Patent protection, drug importation laws, manufacturing and regulatory crackdowns, dwindling pipelines, and increasing M&A activity - all are reasons why pharmaceutical companies make concerted efforts to strengthen their corporate reputations. While many drug corporations have been spending dollars and time on such programs and philosophies for years, it is more important now than ever to communicate such non-brand-centered messages across all constituencies.

"Fifteen years ago, pharmaceutical companies were only concerned about brand marketing, but now we are in the most severe public affairs situation ever," says Marilyn Castaldi, former chair of Fleishman-Hillard's healthcare practice, and now head of Hill & Knowlton's New York office. "These companies need to show that they are doing something to give back, completely separate from what they are doing with their individual drugs."

This may be more of an uphill battle for pharmaceutical companies than it is for, say, the auto industry. Because of the sensitive nature of the work healthcare companies do, they often find themselves under a microscope and much criticized by emotionally charged consumers or media outlets. With so many people affected by the industry in such a personal way, pharmaceutical companies have a high sense of responsibility when it comes to communicating their good intentions.

"In an industry where products can be potentially life-saving," explains David Catlett, partner/global director of global healthcare for Ketchum, "the public and other constituencies tend to view it differently than they would a car. It is a very difficult business in which to come out looking like the good guy."

Pharmas are doing more

In the face of adversity, several pharmaceutical organizations are working to build equity in their company names. Merck, for example, has dedicated a section of its website to its corporate responsibility efforts. Immediately upon clicking on the link, a brief survey about the company's social, financial, and environmental responsibility efforts appears. The site outlines all of Merck's actions in the areas of societal issues, employment practices, community relations, safety, environment, and health in developing nations.

Pfizer is currently funding the Florida Health Literacy Study. The project is testing whether teaching health literacy classes to people who can't read well, aren't fluent in English, or have impairments due to aging will help decrease the number of hospitalizations caused by improperly taken medications.

The company also has Pfizer Forum, a website designed to gain wider attention for public-policy issues in healthcare. The program was launched by The Economist in 1994 to provide a space in which Pfizer could sponsor articles by leading experts on healthcare, pharmaceuticals, and other public-policy issues, none of which are intentionally focused on Pfizer or any of its products.

"If you are going to invest in these types of programs, you need to be very focused in what you choose to do," says Catlett. "Showing return on investment can be difficult otherwise."

Nancy Turett, president and global director of Edelman's healthcare practice, agrees. "Often, the good work companies are doing is not relevant to the business they are in, which causes them to go unnoticed," she says.

In search of a method for quantifying a company's efforts in these areas, Rating Research (RRC) released corporate-reputation reports on the retail, pharmaceutical, and electric power industries earlier this year. Designed to measure and analyze companies' intangible assets, each industry report caters to its sector by focusing on eight specific dimensions. The 16 companies measured in the pharmaceutical report were judged on competitiveness, marketing effectiveness, ethics, workforce/ processes, financial stability, social responsibility, strategic alliances, and charitable support.

"We took the approach of looking at companies, rather than just their brands," explains Dory Gasorek, principal and chair of RRC's rating committee, "because it is hard to aggregate perceptions of a brand up to how people feel about a company as a whole."

Reputation Strength Ratings (RSRs) were determined through interviews with senior execs (respondents weren't permitted to comment on their own companies) and financial analysts in the industry.

Johnson & Johnson (J&J) and Merck came out on top, both receiving "AAA" ratings. According to RRC's rating definitions, this means the two companies are able to use their reputation as a means to achieve strategic diversification, competitive positioning, and overall business expansion. With an "AAA," J&J and Merck will also receive excellent support in times of crisis, according to RRC's interpretation.

Bayer, Eli Lilly, GlaxoSmithKline, and Pfizer all fell into the "AA" category. This allows the organizations to use their reputational strength in business-expansion efforts, but the marketplace will not take their accomplishments for granted. RRC's definition says that "AA" companies will also receive support in times of controversy, but not to the same degree as J&J and Merck.

Weaknesses in certain dimensions or within certain constituencies may exist for AstraZeneca, Aventis, Bristol-Myers Squibb, Genentech, and Novartis, all of which received an "A" rating. This, according to RRC, indicates that any business-expansion efforts by these companies will arouse interest among markets, but success will not be assumed. Similarly, they will receive some support in times of controversy, but only based on the visibility of their efforts to remedy the situation.

The lowest score received by any participating pharma companies was a "BBB" - still "a very good rating," says Gasorek. Abbott Laboratories, Pharmacia, Roche, Schering-Plough, and Wyeth may not be able to use their overall reputation as a competitive tool, but may still be able to differentiate themselves along one or two dimensions, according to the research group's analysis. Support in times of crisis will be determined by highly publicized corporate actions by these companies.

The report indicates that all of the top pharmaceutical companies have been placing at least some emphasis on improving their corporate reputations. They all, however, have "not connected the dots when it comes to communicating what they actually do to the right constituencies," according to Turett.

Pfizer's performance in the category of social responsibility in the RRC report serves as evidence of this claim. Relative to the company's above-average performance overall and its status as the largest corporate donor in the US, it scored poorly in social responsibility, coming in 10th. Merck, on the other hand, came in third.

"Merck has done a lot, but not half as much as Pfizer," reflects Gasorek. "There is a much different PR story going on within those two companies. One is getting the message across to the key constituencies, and one isn't."

Looking at the future

Acknowledging that consumers are critical, Michael Durand, partner/director of global healthcare for Porter Novelli, notes that they comprise just one component of reputation building. "Shareholders, for example, want to know that a company can manage its future," says Durand. Citing inevitable patent expiration, Durand explains, "Staking your child's college tuition on Pfizer solely because of Viagra is shortsighted. Shareholders look at the long-term prospects of a company, and much of that involves corporate reputation."

Further, Turett says, "The industry is morphing from a business-to-business, to a business-to-business-to-consumer industry. Historically, pharmaceutical companies have built very strong relationships with the physicians, but now they need to do it with consumers."

Increased direct-to-consumer advertising, combined with a great deal of media attention paid to the issue of drug pricing in an election year, has created a higher sense of awareness of several pharma companies' brand names. Durand points to an analogy with the music industry. "Just as you don't enter a record store and ask for a Columbia or Sony record, you don't go to a pharmacy and ask for a Pfizer or Roche drug. You ask for Viagra or Zenecal."

Castaldi maintains, however, that consumers do place value on corporate reputations. "J&J's integrity is well recognized, and not just because of how they handled the Tylenol crisis. They have done a lot to indicate that they generally care about their role as healthcare professionals. It can't look like it's all about the hype."

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Reputation Strength Rating

Rating Research, which conducts corporate reputation reports on various industries, measured the following 16 pharma companies earlier this year.

The eight criteria were competitiveness, marketing effectiveness, ethics, workforce/processes, financial stability, social responsibility, strategic alliances, and charitable support. Ratings ranged from "AAA," which is the highest available, to "BBB," still considered a very good rating.

Firm RSR

Johnson & Johnson (JNJ) AAA

Merck (MRK) AAA

Bayer (BAY) AA

Eli Lilly (LLY) AA

GlaxoSmithKline (GSK) AA

Pfizer (PFE) AA

AstraZeneca (AZN) A

Aventis (AVE) A

Bristol-Myers Squibb (BMY) A

Genentech (DNA) A

Novartis (NVS) A

Abbott Laboratories (ABT) BBB

Pharmacia (PHA) BBB

Roche (ROCZ.S) BBB

Schering-Plough (SGP) BBB

Wyeth (WYE) BBB

Source: Rating Research LLC

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