Direct-to-consumer advertising may help a drug company's competitors as much as it helps the advertiser's product by expanding demand for an entire category of drugs. On the other hand, well-timed advertising directed to doctors tends to boost sales of the brand that spent the marketing dollars, according to a recent study of pharmaceutical advertising and its effects on revenue.
In the case of antihistamine drugs, pharmaceutical companies could increase revenues if they shift their advertising to spend more heavily soon after the launch of a new product and away from later periods, said Sridhar Narayanan, assistant professor of marketing at Stanford GSB, who has completed a trio of research projects on the purpose and effectiveness of pharmaceutical advertising campaigns.
The ethics of drug marketing tactics by pharmaceutical firms is rife with debate. In the case of marketing directly to physicians, the question is whether advertising is primarily informative—educating doctors on how the drug works—or is largely intended to persuade them to prescribe the drug more frequently. "Although a great deal of research has been done in this area, there hasn't been much consensus," said Narayanan.
Sending salespeople armed with free samples to doctors' offices for face-to-face meetings—called detailing—has become standard practice in pharmaceutical marketing campaigns. Drug companies say that these 15-minute sales pitches are purely educational in nature. But consumer advocates argue the opposite. After all, pharmaceutical sales reps tend not to have medical backgrounds. So how effective could they be at informing doctors, who, after all, have gone through years of scientific training?
What Narayanan's research revealed, however, is that marketing to physicians can be both informative and persuasive—and that it is possible to measure the extent of time for which the informative effect dominates. "We found that early in the lifecycle of a product, detailing plays an informative role," said Narayanan.
And not only is detailing more profitable than direct-to-consumer advertising, but timing is critical. "You can spend exactly the same amount on detailing, but in different periods it can have a different impact," said Narayanan.
In one study, Narayanan developed a model based on sales of three major antihistamine brands—Claritin, Zyrtec, and Allegra. He found that Allegra and Claritin could increase revenues by 4 percent to 14 percent if they followed the same detailing pattern as Zyrtec—which had more front loading of advertising expenditures.
Narayanan cautioned, however, that this study specifically targeted antihistamines, and that other categories of drugs could have different informative/persuasive lifecycle figures and different returns on investment.
In a second research project, Narayanan confirmed not only that detailing has a higher return for the drug company than direct-to-consumer advertising, but that marketing to physicians has the added effect of lowering prices for consumers by increasing the price sensitivity of consumers. And although consumer ads tend to increase sales for all drugs in a category—and again, Narayanan focused on antihistamines—detailing increases sales for the particular brand of drug being pushed. "Detailing has a 'share-stealing' role, in short," said Narayanan.
These issues are not just academic. Pharmaceutical firms spent $8.5 billion on marketing in the year 2000 alone. Most of this is spent on advertising to doctors. Drug companies spend a great deal of time deciding how many calls to make to each individual physician and when to make those calls. Narayanan's third research project thus went into greater depth in studying the effectiveness of these efforts.
Not surprisingly, the study found that doctors learn at different rates: There are fast learners, slow learners, and those who fall in between. But currently, drug makers tend to divvy up their detailing dollars based upon whether physicians are heavy prescribers or light prescribers—not on how quickly they understand the nuances of a particular drug. "And, if you persist in detailing information about a particular drug to a fast learner, your marketing dollars are effectively wasted," said Narayanan. On the other hand, stopping your detailing before a slower learner has absorbed everything he or she needs to know about a particular drug can end up hurting overall sales.
Pharmaceutical firms can distinguish fast learners from slow learners through statistical analyses such as how quickly a doctor prescribes a new drug based on his or her age, time since graduation from medical school, or other attributes that can be easily observed. There are consulting firms in the industry that perform these types of analyses to help drug makers target their detailing more precisely, said Narayanan.
"Advertising spending by pharmaceutical companies—and the role that plays in what doctors actually prescribe to patients—has very important implications for society as a whole," said Narayanan.