By Nicolas Dumas

In today’s highly competitive over-the-counter (OTC) pharmaceutical market, fostering strong commercial relationships with customers — including pharmacy chains, independent pharmacies, buying groups, and wholesalers — is critical for success. OTC drugs, which are medications available without a prescription, play a pivotal role in healthcare by offering accessible solutions for common health issues. They are also an important driver of business for pharmacists. For OTC pharmaceutical companies, ensuring that their products are readily available, optimally positioned (e.g., prime shelf placement), and effectively sold through pharmacies is essential to staying competitive.

One key strategy for strengthening commercial ties is the implementation of well-designed commercial policies. These policies incentivize customers to source more extensively from the company, whether through larger order volumes, a broader range of purchased products, or increased order frequency. However, these initiatives often come at a high cost. Discounts, rebates, and trade and marketing operational expenditures (OPEX) significantly impact triple net performance.

Given this considerable financial investment, optimizing trade terms management becomes essential for OTC players. By refining their commercial policies, companies can strike the right balance between maintaining profitability and offering competitive incentives to their customers.

The complexity of trade terms management in the OTC market

Optimizing trade terms management is a multifaceted challenge, requiring careful consideration of numerous factors to achieve sustainable improvements in Gross-to-Net performance. Key complexities include:

Diverse customer needs: Pharmacy chains, independent pharmacies, and wholesalers each have distinct expectations, making it essential to tailor trade terms accordingly.

Regulatory constraints: OTC pharmaceutical companies operate within strict legal frameworks that may limit certain types of commercial incentives.

Competitive dynamics: Staying competitive in the OTC market while preserving profitability requires benchmarking against industry peers and continuously adapting to market changes.

Data integration and analysis: Effective trade terms management necessitates robust data analytics to monitor performance and assess the impact of different commercial strategies.

A holistic approach is required to navigate these complexities effectively. OTC players must address all dimensions of trade terms optimization, from pricing structures and rebate policies to customer segmentation and operational efficiency. Leveraging external benchmarks is particularly valuable for identifying gaps and setting actionable priorities.

Benefits of efficient trade management

Efficient trade terms management provides OTC pharmaceutical companies with multiple benefits, enhancing both financial performance and operational effectiveness:

Shift from on-invoice to off-invoice discounts: Moving towards off-invoice discounts, such as performance-based rebates, improves transparency and aligns incentives more closely with sales outcomes. This approach allows companies to reward customers based on sell-out performance rather than merely sell-in volumes.

Focus on sell-out performance: Shifting the focus from sell-in (stocking products at the pharmacy) to sell-out (ensuring products reach end-users) enhances inventory turnover and reduces the risk of overstocking, benefiting both pharmaceutical companies and their customers.

Increased investment in trade marketing: Allocating a higher share of resources to trade marketing activities, such as promotional campaigns and point-of-sale materials, boosts customer engagement and drives end-user demand, ultimately improving sell-out results.

Improved financial forecasting: Streamlined trade terms and incentive structures simplify financial planning and forecasting, allowing companies to better manage their budgets and anticipate revenue flows.

Enhanced customer relationships: By offering tailored trade terms that address the specific needs of different customer segments, companies can strengthen partnerships and build long-term loyalty.

When implemented strategically, these shifts lead to a more sustainable and profitable commercial model, allowing pharmaceutical companies to maximize the impact of their investments.

Roland Berger’s holistic approach to trade terms optimization

To support pharmaceutical companies in optimizing their trade terms management, Roland Berger has developed a comprehensive methodology.

Through projects conducted for leading pharmaceutical companies, we have demonstrated that trade terms optimization can deliver measurable financial benefits. Our clients have achieved up to a 20% increase in triple net profitability in just a few years (typically 3 years), unlocking significant financial resources for reinvestment.

Our concrete recommendations usually include a mix of quick wins, that can be implemented rapidly (for example, aligning the standard discount levels to benchmarks) and others that require several years (for example, re-negotiating multi-year contracts with key customers). The implementation of a revamped commercial policy frequently requires

Key features of our approach:

1. Comprehensive diagnosis of current performance: We begin with a detailed assessment of the client’s existing trade terms and commercial policies. This diagnosis identifies inefficiencies, uncovers opportunities for improvement, and establishes a baseline for measuring progress.
2. Industry benchmarking: Leveraging deep expertise in pharmaceutical commercial policies, we conduct thorough benchmarks against industry peers. This allows us to pinpoint gaps in clients’ trade terms and identify areas for improvement.
3. Tailored optimization roadmap: Based on our analysis, we co-design a customized trade terms optimization strategy with our clients. This roadmap encompasses all critical dimensions, from pricing models and discount structures to customer segmentation and compliance considerations.
4. Financial impact modeling: We model the anticipated financial gains from Gross-to-Net improvements, providing clients with a clear view of the potential ROI. This enables informed decision-making and ensures alignment with strategic goals.

Case study: optimizing trade terms for a global pharmaceutical client

Challenge: Identifying trade terms inefficiencies

We conducted a comprehensive diagnostic to assess the key trade terms challenges faced by our client, a global pharmaceutical company with a diverse OTC portfolio

Despite efforts to optimize its Gross-to-Net (GtN) investments — which accounted for approximately 30% of total gross sales — our client experienced a 3% decline in distributors' sell-out following a reduction in sales rebates.

Our analysis revealed that the company’s commercial policies were misaligned with market standards:

• Rebates and discounts were not performance-based (e.g., no sell-out bonuses).
• Pharmacy-focused commercial policies prioritized overall promotional value and rebates rather than driving sell-out performance.

Additionally, GtN optimization was hindered by a highly intermediated distribution structure, involving multiple layers (distributors selling to wholesalers, who then sold to pharmacies).

Solution: 7 Levers to enhance gross-to-net efficiency and drive sell-out

Gross-to-net optimization at product level:

1. Reinvestment strategy: Reallocate GtN investments from key OTC and tail products toward pharmacy-level sell-out initiatives, introducing SKU-specific sell-out bonuses.

2. Increased gross-to-net capacity: Implement strategic price increases on leading SKUs to boost gross sales, creating additional resources for reinvestment in grossto-net initiatives.

Gross-to-net optimization at distributor level:

3. Intermediaries optimization: Expand the network of direct distributors while reducing intermediary layers, thereby improving the average distributor discount.

4. Performance-based incentives: Introduce sell-out-driven KPIs and minimum order quantity requirements to encourage distributors to actively support sales growth and minimize excess inventory.

Gross-to-net optimization at pharmacy level:

5. Targeted pharmacy partnership: Segment pharmacies to identify optimal partners and tailor sales strategies accordingly. Enable clients to prioritize key pharmacy chains for targeted incentives.

6. E-commerce growth: Enhance product availability through online platforms, driving incremental sales.

Process enhancement:

7. Inventory monitoring and optimization: Improve distributor inventory tracking and deploy advanced analytical tools to gain better visibility. Strengthen the understanding of the relationship between discounts, trade activities and performance to refine commercial policies effectively.

Results

By implementing these seven levers, our client freed up approximately 20 % of its gross-to-net investments within two years. These reinvestments at the pharmacy level ultimately enhanced sell-out, driving sustainable sales growth.

Conclusion

In a landscape where commercial investments are both essential and costly, OTC pharmaceutical companies must prioritize the optimization of trade terms management. By adopting a holistic approach that incorporates industry benchmarks, tailored strategies and robust financial modeling, companies can enhance their gross-to-net performance while maintaining competitive and attractive commercial policies for their customers. With Roland Berger, the journey to improved profitability becomes not just achievable, but transformative.