Case Study 26

Merck & Co.

Muhammad Mahad
FA16-BAF-030
Merck & Co.

Merck is the oldest pharmaceutical and chemical company in the world. Its roots date back to the year
1668; Merck & Co. traces its origins to Jacob Friedrich Merck, who purchased a drug store in Darmstadt,
Germany, in 1668, and also to Emanuel Merck, who took over the store several generations later in
1816. Emanuel and his successors gradually built up a chemical-pharmaceutical factory that produced
raw materials for pharmaceutical and other preparations. In 1891, George Merck emigrated to the
United States and set up Merck & Co. in New York as the US arm of the family partnership, E. Merck
(named for Emanuel Merck), which is now Merck KGaA. In keeping with a national wartime policy,
Merck & Co. was confiscated in 1917 and re-established as an independent American company. Until
the end of World War II, the company was led by George W. Merck. Merck & Co. hold the rights to the
name in North America, while its former parent company retains the rights in the rest of the world.

Merck & Co., Inc. (Merck), incorporated in 1970, as a global health care company that delivers health
solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer
care products, which it markets directly and through its joint ventures. The Company consists of four
operating segments, which are the Pharmaceutical, Animal Health, Consumer Care and Alliances
segments, and one reportable segment, which is the Pharmaceutical segment.

The Pharmaceutical Company has been really on its peak of success from its beginning in the late 80’s up
to the 21st century. A proof of this was being ranked in 6th place in 2013 with a Net Capital of $141.922
billion.

Current Vision:

To make a difference in the lives of people globally through our innovative medicines, vaccines, and
animal health products. We are committed to being the premier, research-intensive biopharmaceutical
company and are dedicated to providing leading innovations and solutions for today and the future.

Mission Statement:

To discover, develop and provide innovative products and services that save and improve lives around
the world.

Objective:
We want to advance technologies for a better life. Based on scientific research and in collaboration with
partners, we are focusing on specialty products in healthcare, life science and performance materials.

Strategies?
Developed Vision
Our vision is to be the catalyst for change by creating unbeatable solution for better tomorrow and be
number one acclaimed pharmaceutical company.

Developed Mission Statement

Overcome our company's weaknesses and continue to support company's strengths, Help inspire and
motivate mankind that there is no incurable disease and that there is hope if we never stop ourselves to
innovate.

Opportunities & Threats?

Opportunities:

1. Increasing elderly population worldwide

2. Focus on R&D for chronic diseases vs. acute disease

3. Driving out competitors with lower prices

4. Potential higher drug revenues after a competitor’s patent expired

5. Diversification into biologics, diabetes & infectious market segments

6. Constant growth of pharmaceutical & health care industry by 10%

7. Educate staff to promote loyalty through relationships from distribution channels

8. Product diversification (Scholl’s & Coppertone)

Threats:

1. Risk of expensive class action lawsuit.

2. Loss of patent protection

3. Increased global competition

4. Price of prescription drugs increase which is reducing Medicaid drug benefits

5. Failure to identify risks due to lack of time & study of long-term effects

6. Compete with smaller generic company along with other larger firms

7. Expensive Research & Development costs

8. Industry marked by rapid advances

External Factor Evaluation

The external factor evaluation matrix analyzes the external opportunities and threats of a firm. The EFE
matrix shows the weight that the opportunities and threats have on Merck Co. and then is rated to
obtain each factor’s weighted score. Each weighted score is then added together to obtain a total
weighted score, in which Merck & Co. scored 3.32, it means that Merck Co is able to sustain its external
factors effectively.
Strengths & Weaknesses
Strengths
1. Brand Image and Awareness

2. Highest Profit Margin in the industry

3. High volume of product approval by FDA

4. Diversified Product Portfolio

5. Sophisticated Online Search Tool (mercksource.com)

6. Expansion to developing countries (Access)

Weaknesses
1. High Layoffs (Response to loss of revenues)

2. Vioxx  Product Liability ($750 million)

3. Highest R&D with historically increasing expenses

4. Low innovation in response to weak economy

5. High salary of skilled pharmaceutical representatives

6. Revenue drop at $347 million

7. Weak core portfolio (Overly dependent on joint venture)

8. Growth rate unstable (Hard to forecast future revenues)

Internal Factor Evaluation

The internal factors evaluation matrix analyzes the internal strengths and weaknesses of a firm. In the
table above, the IFE matrix shows how much Merck Co. strengths and weaknesses affect the firm. Each
strength and weakness are rated to calculate the weighted score and then added together to obtain the
total weighted score.
Merck Co. total weighted score came out to be 2.32, which is good as it is above average, and it is the
extent to which Merck Co responds to their internal factors.
 Five Forces Model.
Threats of New Entrants

New entrants in Drug Manufacturers - Major brings innovation, new ways of doing things and put
pressure on Merck & Co., Inc. through lower pricing strategy, reducing costs, and providing new value
propositions to the customers. Merck & Co., Inc. has to manage all these challenges and build effective
barriers to safeguard its competitive edge.

How Merck & Co., Inc. can tackle the Threats of New Entrants

 By innovating new products and services. New products not only bring new customers to the
fold but also give old customer a reason to buy Merck & Co., Inc. ‘s products.
 By building economies of scale so that it can lower the fixed cost per unit. 
Building capacities and spending money on research and development. New entrants are less likely to
enter a dynamic industry where the established players such as Merck & Co., Inc. keep defining the
standards regularly. It significantly reduces the window of extraordinary profits for the new firms thus
discourage new players in the industry

Bargaining Power of Suppliers

All most all the companies in the Drug Manufacturers - Major industry buy their raw material from
numerous suppliers. Suppliers in dominant position can decrease the margins Merck & Co., Inc. can earn
in the market. Powerful suppliers in Healthcare sector use their negotiating power to extract higher
prices from the firms in Drug Manufacturers - Major field. The overall impact of higher supplier
bargaining power is that it lowers the overall profitability of Drug Manufacturers - Major.

How Merck & Co., Inc. can tackle Bargaining Power of the Suppliers

 By building efficient supply chain with multiple suppliers.

 By experimenting with product designs using different materials so that if the prices go up of
one raw material then company can shift to another.
 Developing dedicated suppliers whose business depends upon the firm. One of the lessons
Merck & Co., Inc. can learn from Wal-Mart and Nike is how these companies developed third party
manufacturers whose business solely depends on them thus creating a scenario where these third party
manufacturers have significantly less bargaining power compare to Wal-Mart and Nike.

Bargaining Power of Buyers

Buyers are often a demanding lot. They want to buy the best offerings available by paying the minimum
price as possible. This put pressure on Merck & Co., Inc. profitability in the long run. The smaller and
more powerful the customer base is of Merck & Co., Inc. the higher the bargaining power of the
customers and higher their ability to seek increasing discounts and offers.
 How Merck & Co., Inc. can tackle the Bargaining Power of Buyers

 By building a large base of customers. This will be helpful in two ways. It will reduce the
bargaining power of the buyers plus it will provide an opportunity to the firm to streamline its sales and
production process.
 By rapidly innovating new products. Customers often seek discounts and offerings on
established products so if Merck & Co., Inc. keep on coming up with new products then it can limit the
bargaining power of buyers.
 New products will also reduce the defection of existing customers of Merck & Co., Inc. to its
competitors.

Threats of Substitute Products or Services

When a new product or service meets a similar customer needs in different ways, industry profitability
suffers. For example, services like Dropbox and Google Drive are substitute to storage hardware drives.
The threat of a substitute product or service is high if it offers a value proposition that is uniquely
different from present offerings of the industry.

How Merck & Co., Inc. can tackle the Treat of Substitute Products / Services

 By being service oriented rather than just product oriented.

 By understanding the core need of the customer rather than what the customer is buying.
 By increasing the switching cost for the customers.

Rivalry among the Existing Competitors

If the rivalry among the existing players in an industry is intense then it will drive down prices and
decrease the overall profitability of the industry. Merck & Co., Inc. operates in a very competitive Drug
Manufacturers - Major industry. This competition does take toll on the overall long-term profitability of
the organization.

How Merck & Co., Inc. can tackle Intense Rivalry among the Existing Competitors in Drug
Manufacturers - Major industry

 By building a sustainable differentiation

 By building scale so that it can compete better
Collaborating with competitors to increase the market size rather than just competing for small market.
Competitive Profile Matrix

The Competitive Profile Matrix (CPM) uses the major internal strengths and weaknesses and compares
them to the major competitors in the industry, As mentioned in the case study, we have identified
some major competitors as Pfizer Inc and Abbot. The weighted score for Merck Co. came out to be
3.27 compared to its competitors scores of 3.05 for Abbot and 3.07 for Pfizer Inc. According to this
matrix the Merck Co. enjoys an edge over its competitors.
Space Matrix

Aggressive

(1.67,0.69)

The SPACE Matrix has four quadrants that determine what strategy a corporation should take. The four
different quadrants are aggressive, conservative, defensive, and competitive. As shown in the table and
drawn in the graph above, Merck Co. has a X-Axis score of 1.67 and a Y-Axis score of 0.69, that puts
them in the aggressive quadrant which would tell them to use Market Penetration, Market and Product
Development, and Diversification in order to continue to increase their market share in the industry.
QSPM Matrix

The Quantitative Strategic Planning (QSPM) Matrix uses a firm’s internal strengths and weaknesses and
external opportunities and threats and gives them each a weight according to market and product
development to calculate their attractiveness scores.
The attractiveness scores are then added up to determine which aspect a company should focus on. In
the table above, Merck Co. is seen with an attractiveness score of 5.3 in Capturing Emerging Markets
and 5.18 in Diversifying their product lineup and 4.275 in investing in generic products meaning that
Merck Co should focus more on furthering themselves in the market rather than trying to make new
products.
BCG Matrix

Conclusion