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Narrative

Global Market Entry for Diabetes Nutritional Products

Diabetes Market Entry Strategy for


Lifeceuticals
Context
th

As the last rays of golden sunlight flood his office on the 4 floor, Hugo Escarti reflects on his long career with
Global Foods Inc. Looking across the Rhine River in Dsseldorf on this late summer evening, he thinks of past
challenges and successes, and what the future might bring.
Four years ago he became CEO of Lifeceuticals, a fully-owned subsidiary of Global Foods Inc.; one of the
Worlds largest food companies with double-digit bn turnover. Then he knew the role would be challenging,
but with recent developments he suspects the final years of his executive career will be the most demanding of
all.
Less than one hour ago, he sat in a meeting with the Global Foods Board members to discuss the future of
Lifeceuticals. Although the company has grown solidly in recent years, the board is not satisfied with progress,
and he was reminded of his 7/20 target: 7% of annual growth and 20% of EBIT margin.
He knows bold action is required to get his business back on track and has several initiatives lined up to boost
growth. The one he has most confidence in is the global market entry initiative for diabetes nutritional products.
The early signs are encouraging. Some years ago Lifeceuticals launched a number of diabetes nutrition
products in European and US markets. Sales were robust but they did not capitalize on these early wins, and
he believes there is still significant untapped potential.
He asks himself: are their current products targeting the right spaces on the disease pathway?
For instance, the GlucoGel and GlucoTab products target diabetics on medication. This is a very competitive
space. The products are selling well, but they cant compete against diabetes drugs which have stronger
1
clinical benefit claims.
And Nutrisnack, the other product on the market, is really just a snack with slowly digested carbohydrates to
help manage glucose levels. As such it is not possible to make a strong health claim, so it competes with all the
other similar snack bars in the market.
He thinks Lifeceuticals must be able to do better...

Strong clinical benefit claims require successful clinical trials of robust design. The requirements are defined by country regulators and
vary from region to region.
Note: Any similarity between the circumstances, characters and information in this case and actual people and/or companies is purely coincidental. While
some general industry trends and data presented in the case are accurate, industry data, as well as all data and character descriptions for Lifeceuticals, and all
other companies and organizations mentioned, provided herein, are purely fictitious and are intended for use as an educational tool in the A. T. Kearney Global
Prize MBA Case Competition. Exhibits were drawn from a variety of sources to model a true consulting engagement, and many have been modified to facilitate
student case analysis.
A.T. Kearney; Global Prize 2014 Narrative

Time for Action


Hugo picks up his phone and calls Erika Sendat and Vincent Kennedy, two trusted members of his senior
leadership team. He asks them to drop by in his office to discuss strategies how to live up to the Boards
challenge.
Both Erika and Vincent just recently became part of the team. Vincent, Head of Marketing and Sales, spent a
good part of his career with Global Foods and joined Lifeceuticals leadership team some months ago. In his
last position, Vincent was Head of Sales for one of Global Foods regions and he used to exceed his targets
regularly. He has a reputation of getting things done quickly, and Hugo particularly appreciates his pragmatic,
hands-on approach.
Erika started her still young career at one of the major pharmaceutical companies, and after several further
positions at different pharmaceutical companies, recently joined Lifeceuticals as a Head of Strategy. With the
move to Lifeceuticals, she has taken on more responsibility in an organization that has less bureaucracy and is
more entrepreneurial an ideal environment to foster and develop her ideas on the future of medical and
functional foods.
Erika and Vincent enter Hugos office at the same time. Erika is a little surprised to see Vincent as she
considers him too focused on quarterly results to be involved in a strategic project such as this.
Very happy to see you both, says Hugo. Please take a seat; we have to talk through a couple of things.
Hugo looks out of the window; the sun has just disappeared and the countryside is bathed in a hazy bluish
light.
Lets get to the point, he says. The business has grown solidly for several years, but for the folks at the
Global Foods Board and for myself it is not enough. I made you part of the leadership team because I
believe that together we can hit and exceed the expectations. Last year we missed our growth and margins
targets and we need to get this company back on track.
We defined a number of initiatives to increase growth and margins, Hugo goes on, but we all know that the
one that really counts is the global market entry initiative for diabetes nutritional products. The Global Foods
Board wants me to present an outline strategy at their next meeting, which is only two months away. I need to
address two questions: what markets should Lifeceuticals focus on and how are we going to win in these
markets? I will need your help in developing the outline strategy, and I chose you two for the team because I
know that we can be successful together although you two have different opinions about a few things.
He smiles when he says the last few words. He knows that Erika and Vincent dont get along very well, but he
is convinced that he needs both their points of view to get this job done.
As both Erika and Vincent seem hesitant to speak, Hugo continues. With our three main diabetes products, we
made 70 mn last year 41.2 mn in Europe and 28.8 mn in the US and we hold roughly 10% of the diabetes
nutrition market in Europe and 4% in the US. I do believe that the market potential is far higher Let us just
look at the United States: Currently, about 750 mn of revenue are generated with diabetes nutrition. There are
close to 24 mn people with diabetes. Then lets take some rough, conservative estimates, say, 50% are
diagnosed and 50% of the diagnosed population has access to care. This leaves us with 6 mn people. We
know that a typical diabetic spends 10-15 per day on diabetes management that gives us an annual
healthcare spend of 20-30 bn for this group alone. Now, if each of those people took nutritional products that
are effective at preventing some serious and costly events related to their disease at a daily cost of 1 per day,
then we end up with a market potential of more than 2 bn in the US alone. This is more than 2.5 times of the
Note: Any similarity between the circumstances, characters and information in this case and actual people and/or companies is purely coincidental. While
some general industry trends and data presented in the case are accurate, industry data, as well as all data and character descriptions for Lifeceuticals, and all
other companies and organizations mentioned, provided herein, are purely fictitious and are intended for use as an educational tool in the A. T. Kearney Global
Prize MBA Case Competition. Exhibits were drawn from a variety of sources to model a true consulting engagement, and many have been modified to facilitate
student case analysis.
A.T. Kearney; Global Prize 2014 Narrative

current market size. And it would save a lot of money for the health system. I would say that there is a lot of
potential
After a moment of silence, Erika speaks up. Hugo, I agree with you diabetes is a market with great potential
and Im very happy to be part of the team to develop our diabetes strategy. I have done some preliminary work
on the topic, and think we should have a closer look at the disease pathway to discover the white spaces
where we should play. The products we have on the market are fine, but we are in a super-competitive space
selling to healthcare organizations where physicians have a strong preference for diabetes drugs rather than
medical food. Why arent we focusing on the spaces that are not crowded by the pharma companies?
Pausing for breath, she continues, I believe that we need to think outside of our comfort zone to come up with
some really innovative products that might be focused on prevention and lifestyle rather than hospital care.
Also, I am a strong believer that we must go beyond the medical food and move into a space where services
and / or technologies support our core food offering. Fundamentally, we must understand the unmet health
needs and then build our proposition around it.
Vincent sighs silently. I really appreciate your enthusiasm, Erika, and I agree that we have to take a long-term
view. But the Global Foods Board is not very patient. They wont be very happy to hear that we have some
great ideas that may, or may not, pan out in 10 years time. We must get the low-hanging fruits first and
improve our top line; this will buy us the time we need to implement a longer-term strategy.
He goes on, we shouldnt make things more complicated than they are. I see some fairly quick fixes to the
situation. For example, we can launch Nutrisnack, GlucoGel and GlucoTab in new markets quickly. We should
identify the most promising markets and then go for it. Then, we have a number of good products in our R&D
pipeline, and my sales guys are waiting impatiently for them to be ready to launch. But the R&D folks always
want to do yet another clinical trial to improve the health claims. This costs money and time we should launch
products quicker. We can always launch an improved product once we get better health claims from a new
clinical trial, but we really shouldnt wait for it.
Erika looks at Vincent. I really like your pragmatism, and I definitely agree that we should do something for the
shorter and the longer term. But arent we constrained on our sales force in terms of entering new markets?
Vincent smiles. You got me there Erika. We have significant sales teams in Europe and the US and we
continue to make them more specialized selling to physicians isnt easy you need both high levels of
competence and product knowledge. We will have to invest more to reach healthcare professionals,
pharmacies and hospitals in Brazil, Russia, India, China, South Africa and Japan where I understand there are
huge opportunities. However, I dont think we can make that level of investment in all markets at the same time
we will need to prioritize.
But what if we were to target different customers? Erika asks.
My thinking says Vincent is that if we want to sell medical foods in these countries, we would do well to
concentrate our efforts on the most promising products. If we wanted to sell functional foods to mass markets I
would suggest we tap into the Global Foods sales teams.
Hugo takes picks up at this point. There are three reasons why I believe the prescription medical food
segment is preferable to the functional foods mass market: first, medical foods are our core business if its
about mass market products, Global Foods is just better in developing and selling them and one could ask why
they need us to do the things that they do better. Second, we are a science-driven company and aim to
develop products that have strong clinical evidence. And third, think of the margins
Note: Any similarity between the circumstances, characters and information in this case and actual people and/or companies is purely coincidental. While
some general industry trends and data presented in the case are accurate, industry data, as well as all data and character descriptions for Lifeceuticals, and all
other companies and organizations mentioned, provided herein, are purely fictitious and are intended for use as an educational tool in the A. T. Kearney Global
Prize MBA Case Competition. Exhibits were drawn from a variety of sources to model a true consulting engagement, and many have been modified to facilitate
student case analysis.
A.T. Kearney; Global Prize 2014 Narrative

I agree with the margins, Vincent says. Nutrisnack only generates 22% gross margin, while we get 36% from
GlucoGel and even 42% from GlucoTab. And we have products in the pipeline of which we expect more than
60%. But let us not forget that we have very ambitious growth targets. I really dont see us hitting the numbers
without new products on the mass market and we should roll them out globally, there are so many emerging
markets where living standards are improving and people now have enough money to spend on functional
foods.
Erika cant help smirking at this point. I see, Vincent, you did your homework too. Yes, we should have a
closer look at some emerging markets and the opportunities they offer. And I agree we should identify the quick
fixes which will help us to get some breathing space to implement our longer term strategy. However, we must
think about the longer term now we need to position ourselves in the market soon. If not, Im afraid we would
become a good candidate for divestment.
Hugo says, This is exactly the type of conversation we need right now. Im more than happy to let you guys
lead on this task, and, as we discussed last week, we should get some outside management consultancy
support.
When Erika and Vincent leave Hugos office, they are both excited to have the opportunity to shape the
strategy of their company. At the same time, they feel that it will be a complex and challenging task and they
are relieved that a team of consultants will support them.
Hugo picks up the phone to call Vivian Chow, an A. T. Kearney partner in the Zurich office. Vivians team did a
great piece of work integrating the Careum business and developing the strategy for tube feed products (a
means of feeding patients in hospitals). Hugo and Vivian became close friends since then, and Hugo considers
Vivian his trusted advisor. Vivian, how are you? Do you think you can pull together a team to help us develop
an outline market entry strategy for diabetes? Specifically we need to determine our conquer areas and our
victory strategy. Can you start Monday morning?

Lifeceuticals A Company Overview


Lifeceuticals is a fully-owned subsidiary of Global Foods Inc., a large global food company with double-digit
bn annual turnover.
Lifeceuticals develops nutritional products with health benefits, such as medical foods (foods for dietary
management of a disease), functional foods (modified foods and foods with added or concentrated ingredients
for the purpose of health or performance), and nutritional supplements.
Lifeceuticals was established in the late 1990s in Dsseldorf, Germany, as a spin-off of a European
pharmaceutical company, specializing in nutrition needs for elderly people and children. The company
operated in Europe only and soon became a market leader in specialized nutrition. It was bought by Global
Foods Inc. in 2004 with the aim to build a global business in the expanding medical foods market where
margins are significantly higher than in the traditional food sector. Substantial investments were made to build
a broader portfolio of products, targeting additional disease areas such as metabolic health, gastrointestinal
health and critical care.

Note: Any similarity between the circumstances, characters and information in this case and actual people and/or companies is purely coincidental. While
some general industry trends and data presented in the case are accurate, industry data, as well as all data and character descriptions for Lifeceuticals, and all
other companies and organizations mentioned, provided herein, are purely fictitious and are intended for use as an educational tool in the A. T. Kearney Global
Prize MBA Case Competition. Exhibits were drawn from a variety of sources to model a true consulting engagement, and many have been modified to facilitate
student case analysis.
A.T. Kearney; Global Prize 2014 Narrative

Historically, Lifeceuticals has had a strong sales force in Europe with very good access to the market but since
its acquisition by Global Foods Inc. the company has been struggling to expand in new geographies. This is
mainly due to the specificity of the sales channels although the parent company has extensive sales
organizations in all continents, these are set up to sell food in a mass market. However, to successfully sell
medical foods, access to healthcare professionals is indispensable.
In 2009, Lifeceuticals acquired Careum Inc., a US market leader in tube feed. This resulted in both access to a
range of well-established and clinically recognized tube feed products and access to a sales force with
extensive reach to US healthcare professionals, particularly in hospitals.
There is only limited sales footprint in Asia and Latin America. Lifeceuticals has small sales forces in these
markets, but they need to rely mostly on a shared service agreement with their parent company Global Foods
to have access to more resources.
Today, Lifeceuticals is organized around 5 Product Departments:

Paediatric Medical Foods (PMF)


Medical Foods for an Ageing Population (MFA)
Tube Feed and Critical Care (TFC)
Diabetes and Metabolic Health (DMH)
Gastro-Intestinal Medical Foods (GMF)

Figure 1. Lifeceuticals organizational chart

2013 sales revenue was 1.23 bn, 2013 EBIT was 197 mn and the number of employees worldwide was
2,923.
Lifeceuticals operates five production plants, one in the US (for tube feed products) and four in Europe
(Germany: MFA and DMH products; Poland: PMF products; UK: MFA products; Czech Republic: GMF
products). Plants are not fully utilized and some of them have sufficient space for additional production lines.

Note: Any similarity between the circumstances, characters and information in this case and actual people and/or companies is purely coincidental. While
some general industry trends and data presented in the case are accurate, industry data, as well as all data and character descriptions for Lifeceuticals, and all
other companies and organizations mentioned, provided herein, are purely fictitious and are intended for use as an educational tool in the A. T. Kearney Global
Prize MBA Case Competition. Exhibits were drawn from a variety of sources to model a true consulting engagement, and many have been modified to facilitate
student case analysis.
A.T. Kearney; Global Prize 2014 Narrative

The parent company, Global Foods, is one of the major players in the food industry. It has a global presence,
with a very strong footprint in Europe and the US; but like most global food companies, growth in emerging
countries has been consistently stronger over the past decade. The company is based in Munich, Germany,
and has more than 100,000 employees worldwide. Of particular interest to Lifeceuticals is Global Foods strong
sales force and effective supply chain in emerging markets. This gives Lifeceuticals good access to markets,
though restricted to classical food distribution channels (i.e. retailers).
Generally, margins are comparably low in the foods industry and growth is limited. Global Foods acquired
Lifeceuticals with the aim to accelerate its growth, to generate higher margins, and to position itself as a
consumer (existing operations), nutrition and health (Lifeceuticals) company.

Supporting Information
Diabetes
Type 1 Diabetes
Type 1 diabetes, which represents roughly 10% of all diabetes cases, is a genetic autoimmune condition with
an unknown cause. It develops most often in young people. In type 1 diabetes, the pancreas no longer
produces enough insulin because the bodys immune system, which normally protects from infection by getting
rid of bacteria, viruses, and other harmful substances, has attacked and destroyed the cells that make insulin. If
not treated with daily injections of insulin, people with type 1 diabetes accumulate dangerous chemical
substances in their blood from the burning of fat. This is potentially life-threatening.
Patients with type 1 diabetes must take up to four insulin injections daily. The disease can be further managed
by maintaining a healthy lifestyle (including healthy food choices and physical activity) and regular blood
glucose testing.
Type 2 Diabetes
Type 2 diabetes, can affect people at any age, even children. However, type 2 diabetes develops most often in
middle-aged and older people. People who are overweight and inactive are also more likely to develop type 2
diabetes.
Type 2 diabetes usually begins with insulin resistance a condition that occurs when fat, muscle, and liver
cells do not use insulin to carry glucose into the bodys cells to use for energy. As a result, the body needs
more insulin to help glucose enter cells. At first, the pancreas keeps up with the added demand by making
more insulin. Over time, the pancreas doesnt make enough insulin when blood sugar levels increase, such as
after meals. At this stage, a patient will need to be treated for type 2 diabetes.
In the early stages of diabetes, it may be possible to control the symptoms by making lifestyle changes, such
as eating healthily and exercising regularly. However, in later stages of this progressive disease, or if it has not
been managed properly, a patient may need tablets or even insulin injections.

Note: Any similarity between the circumstances, characters and information in this case and actual people and/or companies is purely coincidental. While
some general industry trends and data presented in the case are accurate, industry data, as well as all data and character descriptions for Lifeceuticals, and all
other companies and organizations mentioned, provided herein, are purely fictitious and are intended for use as an educational tool in the A. T. Kearney Global
Prize MBA Case Competition. Exhibits were drawn from a variety of sources to model a true consulting engagement, and many have been modified to facilitate
student case analysis.
A.T. Kearney; Global Prize 2014 Narrative

Results from latest research on diabetes (relevant for the case)


1. Studies have shown that type 2 diabetes is not inevitably progressive and life-long. It was demonstrated that
in people who have had type 2 diabetes for four years or less, major weight loss returns insulin secretion to
normal, i.e., type 2 diabetes is reversed. There is reason to believe that type 2 diabetes can be reversed
even in patients who have had it for more than four years.
2. Prevention studies in US, Finland, and China have shown that behavior interventions are highly effective in
reducing weight and sustaining weight loss. With this, the behavior interventions are highly effective in
reducing/ reversing the onset of type 2 diabetes among pre-diabetics. Behavior interventions can include
measures such as individualized counseling focused on achieving and maintaining healthy body weight,
reducing fat intake, increasing fiber intake and increasing physical activity.

Nutraceuticals Nutrition at the border to pharmaceuticals


Products that play in the continuum between food and pharmaceuticals are often called nutraceuticals. No
broadly accepted legal classification for nutraceuticals exists. At one end of the spectrum, there are functional
foods and beverages, as well as dietary supplements, aimed primarily at maintaining health. At the other, more
medical end of the spectrum are products aimed at people with special nutritional needs. In the middle, there is
an emerging grey area of products that have a physiological effect to reduce known risk factors, such as high
cholesterol, or appear to slow or prevent the progression of common diseases.
Functional foods are essentially consumer products that cannot claim any particular, or distinctive, health
benefit. Therefore, they do not require clinical trials. On the other hand, medical foods are products which have
stronger health benefits claims based on scientific trials and research. There are products with varying
strengths of claims between these extremes.

Reimbursement by Health Systems


Many governments fund healthcare care delivery and medicines. In some instances all costs are covered, in
others, patients need to contribute through insurances or from their own pocket.
Some medical foods are reimbursed by governments. In these cases the products have very robust health
benefit claims, significant and influential professional approval and political / policy alignment.
Functional foods are typically not reimbursed by governments and consumers need to pay for them
themselves.

Distribution and Marketing


Functional foods are distributed through regular consumer channels, e.g, supermarkets and the internet.
Marketing call points include television, internet, radio, and in-store promotions.
Medical foods require medical supervision (not necessarily from a doctor), and therefore main distribution
channels include retail and mail order pharmacies, doctors offices, internet, hospitals, home care services and
specialized disease clinics. Marketing channels include primary care physicians, specialist MDs and
prescribing nurses, registered dieticians, mail order pharmacies, long-term care, hospitals and home care
services.

Note: Any similarity between the circumstances, characters and information in this case and actual people and/or companies is purely coincidental. While
some general industry trends and data presented in the case are accurate, industry data, as well as all data and character descriptions for Lifeceuticals, and all
other companies and organizations mentioned, provided herein, are purely fictitious and are intended for use as an educational tool in the A. T. Kearney Global
Prize MBA Case Competition. Exhibits were drawn from a variety of sources to model a true consulting engagement, and many have been modified to facilitate
student case analysis.
A.T. Kearney; Global Prize 2014 Narrative

Consulting Engagement Requirements


Your team has been staffed on this project. The client has asked you to help them develop a market entry
strategy for diabetes.
Specifically, the client wants your team to partner with the Lifeceuticals executive team to produce the
following output:
1. An assessment of Lifeceuticals current position, including: current objectives; financials; competitive
positioning; key challenges; key strengths.
2. What markets to conquer:
a. A high-level analysis of the attractiveness of all 10 focus markets with recommendation for top 2-3
markets that Lifeceuticals should focus on.
b. A recommendation of Lifeceuticals future product portfolio: What part of the diabetes disease pathway
should they focus on? Should they provide products, services or both? What products/services should
they focus on and why?
c. A recommendation of which segments and channels Lifeceuticals should focus on: Should they take a
regulatory (i.e. prescribed medical foods) or consumer approach (i.e. mass market), or a combination
of both? What channels should they use to reach their customers?
3. Victory strategy: A prioritized set of actions that will enable Lifeceuticals to grow in line with their ambition;
covering the medium term (3 years) and long term (>5 years).
Your final deliverable is a 10-page PowerPoint presentation, including all attachments (not counting cover page
and section dividers)

Key Case Assumption


Students should not pursue additional data sources. Since many industry and company figures have been
manipulated for the purposes of the case, outside data will not be compatible with case data. Additionally, the
objective of the case is to improve each team members interviewing, analytic, and strategy development skills,
rather than his or her research abilities.

Note: Any similarity between the circumstances, characters and information in this case and actual people and/or companies is purely coincidental. While
some general industry trends and data presented in the case are accurate, industry data, as well as all data and character descriptions for Lifeceuticals, and all
other companies and organizations mentioned, provided herein, are purely fictitious and are intended for use as an educational tool in the A. T. Kearney Global
Prize MBA Case Competition. Exhibits were drawn from a variety of sources to model a true consulting engagement, and many have been modified to facilitate
student case analysis.
A.T. Kearney; Global Prize 2014 Narrative

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A.T. Kearney; Global Prize 2014 Narrative

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