Since the rules for patient-oriented marketing of prescription drugs have been relaxed in the US in 1997, direct-to-consumer (DTC) expenditures have more than tripled. Nevertheless physician oriented marketing (personal selling by sales reps (the so-called detailing), advertisements in journals, other marketing activities such as seminars,…) still accounts for the largest part in the pharmaceutical marketing budgets. Both pharmaceutical companies and health care policy makers are interested in the impact of this pharmaceutical marketing on the growth this can have on the total market size of a particular category of drug. Will DTC expenditures increase the market size? What is the best marketing strategy for a brand manager?
Many studies have therefore focused on the effect of pharmaceutical marketing on the size of the market for a particular category of drugs. In most cases the growth of the market size for a particular category of drugs is compared to the total marketing expenditure in that category over all brands (the so-called category sales models). On average these types of analysis find that patient oriented marketing has a greater impact on the market size than the physician oriented marketing which is found to be small.
In [1] a different approach is taken. Instead of aggregating expenditures and sales over the different brands, a brand level model is developed taking into account the competitive dynamics between brands. With a simple example it is shown that an increase of 50% in total marketing expenditure in a category with only two brands can lead to different impacts on the market size depending on the competitive dynamics between the two brands. Some brands will be able to increase their sales figures without draining sales from their competitor (thereby increasing the market size) while others simply drain sales from their competitor without increasing the total market size. On average this can lead to a situation in which total marketing expenditure has no effect on the total (over all brands) sales figures. In [1] it is shown that the previously found low responsiveness of sales on marketing expenditure at the category level is in sharp contrast to the estimated sales effects for individual brands. Using the brand level model it is found that sales show the highest responsiveness for detailing, followed by professional journal advertising and DTC advertising. The reason that the impact of DTC seems to be less at the category level is that the substitutive effect of detailing has dominated in the past (ie draining sales from the competitor). The study also shows that the sharp rise in DTC expenditures did not lead to a jump in drug expenditures due to the competitive dynamics.
[1] M. Fischer, S. Albers, “Patient- or Physician-Oriented Marketing: what drives primary demand for prescription drugs ?”, Journal of Marketing Research, Vol XLVII, pp103-121, February 2010.