Businessmodel of Merck

Customer Segments

Merck’s customer segments are specific to each business segment.

• Pharmaceutical – The Pharmaceutical segment is divided into human health pharmaceutical products, and vaccines. The former are generally made available to the general public only by prescription, and are thus sold to wholesalers, retailers, hospitals, government agencies, health maintenance organisations, and other institutions. Vaccines are sold directly to physicians and their supplier-distributors, to wholesalers, and to government entities.
• Animal Health – Merck also produces medicines and vaccines, similar in scope but not in scale to its Pharmaceuticals segment, for animals. These products are sold to veterinarians, distributors, animal breeders and producers, and farms.
• Healthcare Services – The Healthcare Services segments focuses on the delivery of healthcare to patients. These services are generally provided to hospitals, other healthcare organisations, and government entities. ### Value Proposition

Merck’s value proposition is as a long-time, trusted brand that is known to make effective products. It also owns the intellectual property rights to produce and market its key drugs – these drugs are thus available only from Merck, ensuring that there will always be a steady demand for them.

Channels

Depending on the type of product, Merck may sell primarily to distributors and institutions, or directly to physicians and veterinarians. It reaches the former through marketing efforts, and serves the latter group through professional representatives.

It maintains market exclusivity for its drugs through patents.

Merck also markets heavily outside of the US, and sales from non-US markets made up 56% of sales in 2015.

Customer Relationships

Merck creates customer relationships through the use of marketing, either directly (through campaigns and personal professional representatives) or through joint ventures and licenses. One example of the latter is its 1994 partnership with Pasteur Mérieux Connaught (now Sanofi Pasteur) to market human vaccines in Europe. This joint venture led to the creation of Sanofi Pasteur MSD, still in operation all over Europe and the UK.

Merck has professional representatives who communicate directly with healthcare professionals, veterinarians, and other end users of its products. Aside from this, it also has a professional sales team to deal with its institutional clients.

Key Activities

Merck is involved in the research, development, production, distribution, and sale of medical products and vaccines, and the provision of healthcare services consulting.

Key Partners

Merck’s key partnerships lie in marketing and distribution. Key partnerships include:

AstraZeneca LP – to develop and market AstraZeneca’s products under a license. Merck’s share in the joint venture company, KBI, was bought out by AstraZeneca in 2014 for USD419 million.

Sanofi Pasteur MSD – to market vaccines in Europe and to collaborate in the development of combination vaccines. The joint venture contributed USD923 million in sales in 2015.

Key Resources

Merck’s key resources are its Property, Plant and Equipment, its Goodwill, and its intellectual properties (i.e. patents for drugs and other pharmaceuticals) and other intangible goods.

Cost Structure

Merck’s key costs are in: Materials and production, marketing and administration, and research and development.

Revenue Streams

Merck’s key revenue stream is from the sale of its human health pharmaceuticals and vaccines. While it has other business segments, it does not report the specific proportion of income from these other segments as they are not sufficiently material.

Source of Revenue/Cost Revenue (FY 2015, million USD) % of Total Revenue Revenues 39,498 100% Pharmaceuticals

34,782 88% Animal Health and others*

4,716 12% Costs and Expenses (34,097) -86% Materials and production

(14,934) -38% Marketing and administrative

(10,313) -26% Research and development

(6,704) -17% Others

(2,146) -5% Operating Profit 5,401 14% *Animal Health, Alliance, and Healthcare Services are not material for separate reporting. Animal Health contributed USD3.3 billion in sales in 2015.