Term Paper on "Johnson and Johnson Analyze the Marketing Mix"

Term Paper 10 pages (2971 words) Sources: 5 Style: APA

[EXCERPT] . . . .

Johnson & Johnson's Marketing Mix

Company Description

Johnson & Johnson (JNJ) is a recognized global leader and manufacturer of health care products and has over 200 subsidiaries, and has offices in nearly every nation of the world. The company is headquartered in New Brunswick, New Jersey. For 2006, the company reported Sales of $53.3 Billion.

In addition the company has a series of businesses and initiatives in health care services, which is the fastest growing part of the business today. Johnson & Johnson has gone through a variety of structural and organizational structures in the last twenty years and today is centered on a market segment-based approach which comprises their consumer, medical devices & diagnostics, and pharmaceuticals businesses. These are the three operating units of the company today.

Consumer segment's main focus and contributions are in the areas of skin and hair care, oral care, sanitary protection, wound care, baby care and non-prescription drugs. Johnson & Johnson distributes these products through wholesalers or directly to independent and chain retail outlets. The most famous brand names from this business segment include Neutrogena and Clean & Clear skin and hair care products, and the entire line of Band-Aid products.

Medical devices and diagnostics segment (MD&D) is comprised of a comprehensive product line of products used by physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics. Johnson and Johsnon sells into these markets using a direct sales force that calls on health care professionals and indirectly through surgical supply dealers and other dealers. Product lines include intravenous catheters and shunts; coronary and biliary stents, surgical implants, instruments, needles and sutures; blood glucose monitoring systems; wound closure devices; endoscopic instruments; orthopedic products for joint repair and replacement and for correcting spinal deformities; contact lenses; clinical chemistry systems; medical devices, including cardiovascular monitoring and vascular access products.

The pharmaceutical franchise division is focused on heavy use of R&D to bring new innovations to market in the area of antifungal, anti-infective, cardiovascular, and contraceptive products.

In addition to these product segments, Johnson and Johnson is also very active in the areas of pain management and psychotropic therapy. Well-known brands within the company's portfolio include Procrit for the treatment of anemia; Sporanox antifungal, Reminyl for treating Alzheimer's disease and Dispersals antipsychotic for schizophrenia.

In terms of financial performance the consumer franchise drives most of near-term revenue growth. The acquisition of Pfizer Consumer Health (PCH) is a big contributor with 7% of 11.5%-12.5% sales growth in '07 that JNJ executives are forecasting during conference calls held this month (February) with investment analysts.

The next five years for Johnson and Johnson will be very different and much more challenging than the past five years. The company delivered earnings growth in the range of 12% to 21% throughout 2001-05. It is widely anticipated that more difficult market conditions for the company's Pharmaceutical and Medical Devices & Diagnostics (MD&D) Divisions is going to occur in the next five years due to significant market competition.

JNJ's management team has told the investment community that consolidated revenue growth for 2006-11 is 4.7%, based upon 1% growth in Pharmaceuticals (44% of 2006 sales), 5.0% in MD&D (38% of 2006 sales), and 11.6% in Consumer, including the acquisition of Pfizer Consumer Health (PCH). Consolidated operating margins contract from 25.7% in 2006 to 22.6% in 2011 according to management's predictions earlier in the year.

JNJ's move into markets that require more sophistication in drug development and production is also exemplified by their move into the market for medications to treat Schizophrenia, an area of their business that made up 18% of total 2006 pharmaceutical revenues. The anemia market is another source of challenge for the company as price erosion has been necessary to stem market share losses. We assume revenue erosion in the mid-single digits over the next 3 years with continued competition from Amgen and some modest negative effects from Roche's Cera, expected to launch in May 2007. The anemia franchise (Procrit/Eprex) made up 14% of JNJ's pharmaceutical sales in 2006.

The MD&D division has enjoyed industry leadership, particularly at the company's Cordis business. This previously fast-growing business made up 20% of JNJ's MD&D sales in 2006 and a significant proportion of its profit. Noteworthy competition from Boston Scientific, Abbott, and Medtronic is likely to erode market share beginning in 2007, driving Cordis sales declines in the range of 4% to 19% in 2007-10. The Conor acquisition is expected to be successful.

The Consumer division should benefit from the recent acquisition of Pfizer's consumer line.

JNJ's expertise and strategic complement should allow this deal to be $0.03 accretive by 2009, assuming modest synergies. Management at JNJ is comfortable with a forecast 2006-11 compound annual sales growth in this division of 11.6%.

The following tables present yearly financial analysis of JNJ from 2001 through 2006.

Johnson & Johnson Financial Statement Analysis

Sales to customers

Cost of products sold

Gross profit

Selling, marketing & administrative expenses

Research expense

Purchased in-process research & development e

Interest income

Interest expense, net of portion capitalized

Other income (expense), net

Total income (expenses), net

Earnings before taxes- U.S.

Earnings before taxes- international

Earnings before provision for taxes on income

U.S. taxes-current

International taxes-current

Total current taxes

U.S. taxes (benefit)-deferred

International taxes (benefit)-deferred

Total deferred taxes (benefit)

Provision for taxes on income

Net earnings

Business Segments are aligned to Target Markets

JNJ relies first on their product segmentation criteria, then overlays geographic and distribution channel segmentation criteria in defining their segments. Each of the company's business segments are analyzed below by product area and a discussion of consumers in each of these segments are presented.

Pharmaceutical Segment

Johnson & Johnson's Pharmaceutical segment is the largest of the three and generated 44% of the company's 2005 revenues and 49% of its segment operating income. The company markets its products in several core therapeutic areas, including cardiovascular, psychiatry, anti-infectives, inflammation/auto-immune disease, and gastroenterology. The division's portfolio of products consists of several billion-dollar products including:

Risperdal -- 2005 sales of $3.6 billion, schizophrenia;

Procrit/Eprex -- 2005 sales of $3.3 billion, anemia induced by chemotherapy and renal disease;

Remicade -- 2005 sales of $2.5 billion (including supply sales to licensees), inflammatory conditions (rheumatoid arthritis, psoriasis, Crohn's disease);

amax -- 2005 sales of $1.7 billion, epilepsy and migraine headaches;

Duragesic -- 2005 sales of $1.6 billion, chronic pain;

Levaquin/Floxin -- 2005 sales of $1.5; lung, sinus, skin, and urinary tract infections;

Aciphex/Pariet -- 2005 sales of $1.2 billion, acid reflux disease.

The end consumer for this segment is predominantly baby boomers (45- to 65-year-olds) who are beginning to have health problems. The fastest growing consumer segment is obesity treating drugs and medications, which is 22% of the total market demand for this segment of products. JNJ also focuses on the needs of the elderly including anemia and schizophrenia, two market segments the company has been consistently favoring in their marketing strategies. Schizophrenia in particular, highly promoted by the company, is actually considered to be the highest potential growth area for this specific product segment.

Medical Devices & Diagnostics

The medical technology segment comprises a broad range of highly independent businesses that sell non-pharmaceutical medical products to a diverse set of hospital, clinical laboratory and consumer markets. Through this division, Johnson & Johnson competes in a variety of diagnostic, orthopedic, cardiovascular and vision care endmarkets.

The division contributed 38% of Johnson & Johnson's sales and 39% of segment operating profit in 2005. The division's primary business lines include:

Cordis -- 2005 sales of $4.0 billion, circulatory disease management products;

DePuy -- 2005 sales of $3.8 billion, orthopedic joint reconstruction and spinal care products;

Ethicon -- 2005 sales of $3.1 billion, wound care and women's health products;

Ethicon-Endo-Surgery -- 2005 sales of $3.1 billion, minimally invasive surgical products;

Lifescan -- 2005 sales of $1.9 billion, consumer blood glucose monitoring products;

Ortho-Clinical Diagnostics - 2005 sales of $1.4 billion, immunochemistry, hematology, point-of care, molecular diagnostic products;

Total Vision Care -- 2005 Sales of $1.7 billion, disposable contact lenses.

JNJ's primary customers for these products are clinics, hospitals and physicians who treat predominantly elderly patients with eye, cardiovascular and vision problems. These segments are brand loyal for their recurring treatment programs and as a result, JNJ is focusing on strengthening their distribution channel strategies to better reach the end customers who are on rcurring treatment programs.

Consumer

Johnson & Johnson's consumer segment develops and markets skin, hair, wound, infant and oral care products, as well as over-the-counter (OTC) pharmaceuticals through several independent subsidiaries. This segment accounted for 18% of the company's 2005 sales and 12% of segment operating profit.

Products from this division are typically sold directly to consumers through retail outlets or indirectly through wholesalers. Popular brand names included Band-Aid, Neutrogena, Splenda, and Tylenol. The majority of the segment's revenues are organized into four subdivisions:

Skin Care -- 2005 sales of $2.4 billion;

Baby and Kids Care -- 2005 sales of $1.6billion;

OTC & Nutritionals -- 2005 sales of $2.7 billion; and Women's Health -- 2005 sales of $1.6 billion.

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