Pharmacy Benefit Managers (PBM) had a large market reach as they assisted in a various number of ways in the pharmacy market. Two channels of distribution existed: wholesaler to retailer and mail service pharmacy. Other competitors also engaged in acquisitions of PBMs but did not meet the success of the Merck-Medco acquisition.
The Merck-Medco integration can be deemed as a textbook example for its competitors as Merck Pharmaceuticals successfully introduced a channel intermediary that changed the landscape of the pharmaceutical industry. As a $6.6 billion bet, the acquisition of Medco came with many risks. However, as Vagelos (CEO of Merck) states, the power lies within the information flow, which Medco can only provide. By acquiring Medco, …show more content…
(2006), we learn that the decision of how deeply to penetrate a market area for the manufacturer is critical as it has a huge influence on how well the manufacturer can implement its channel plans. This is because the intensity of coverage drives how much reward power the manufacturer has over downstream channel members and how much it depends on its downstream counterparts. This suggests the more coverage is better. However, this is not always true. It is important to maintain a balance in multiple channel systems. Attracting the right channel partners such as Medco, motivating them highly, and gaining their cooperation with the manufacturer’s initiatives can achieve this rather than a wide …show more content…
This option provided a strategic fit for both parties involved. As shown through Merck’s objective of wanting to deliver the value of drugs, the PBM acquisition is the most effective method to do so. For a company like Merck to develop its own pharmacy benefit competencies would take more resources and more time, of which the company did not have. As the pharmaceutical industry is rapidly growing and changing, Merck is unable to invest in this avenue. By eliminating the intermediary between drug manufacturer and the customers, Merck was able to realize increased profits and would make the two channel distribution aforementioned more effective. The major benefit to acquiring PBMs was the access to information, which could prevent inappropriate drug interactions. Thus, additional cost savings in the long run. Moreover, PBMs could provide drugs at a lower cost.
Although an acquisition was vital, Merck and Medco should remain as separate organizations with different cultures as Merck’s strengths lie within the medical field while Medco’s strengths lie within its strong ties with its clients. By acquiring Medco, Merck is able to diversify and enhance their chances of survival in the changing market and move away from being a product central company to a service central
The Merck-Medco integration can be deemed as a textbook example for its competitors as Merck Pharmaceuticals successfully introduced a channel intermediary that changed the landscape of the pharmaceutical industry. As a $6.6 billion bet, the acquisition of Medco came with many risks. However, as Vagelos (CEO of Merck) states, the power lies within the information flow, which Medco can only provide. By acquiring Medco, …show more content…
(2006), we learn that the decision of how deeply to penetrate a market area for the manufacturer is critical as it has a huge influence on how well the manufacturer can implement its channel plans. This is because the intensity of coverage drives how much reward power the manufacturer has over downstream channel members and how much it depends on its downstream counterparts. This suggests the more coverage is better. However, this is not always true. It is important to maintain a balance in multiple channel systems. Attracting the right channel partners such as Medco, motivating them highly, and gaining their cooperation with the manufacturer’s initiatives can achieve this rather than a wide …show more content…
This option provided a strategic fit for both parties involved. As shown through Merck’s objective of wanting to deliver the value of drugs, the PBM acquisition is the most effective method to do so. For a company like Merck to develop its own pharmacy benefit competencies would take more resources and more time, of which the company did not have. As the pharmaceutical industry is rapidly growing and changing, Merck is unable to invest in this avenue. By eliminating the intermediary between drug manufacturer and the customers, Merck was able to realize increased profits and would make the two channel distribution aforementioned more effective. The major benefit to acquiring PBMs was the access to information, which could prevent inappropriate drug interactions. Thus, additional cost savings in the long run. Moreover, PBMs could provide drugs at a lower cost.
Although an acquisition was vital, Merck and Medco should remain as separate organizations with different cultures as Merck’s strengths lie within the medical field while Medco’s strengths lie within its strong ties with its clients. By acquiring Medco, Merck is able to diversify and enhance their chances of survival in the changing market and move away from being a product central company to a service central