Executive Summary
In 1997, the Food and Drug Administration relaxed restrictions on drug advertising that targets patients. This policy change resulted in a considerable rise in spending on direct-to-consumer advertising (DTC) in the following years.
Even as DTC advertising for prescription drugs provides new opportunities for marketers, health care professionals and policy makers debate the value of such patient-oriented marketing efforts. For example, policy makers and insurers argue that DTC advertising expands demand for expensive, branded products and therefore inflates health care costs. Physicians suggest further that patient-oriented marketing efforts may create demand for potentially dangerous products. What are the market-expanding effects of DTC advertising as compared to those of advertising directed at physicians?
In this study, the authors analyze the effects of marketing efforts directed at patients through DTC advertising versus marketing efforts directed at physicians through detailing (personal contact by sales representatives) or professional journal advertising. They suggest a new method for measuring primary demand effects with aggregate data at the brand level and apply their model to 86 categories of the U.S. pharmaceutical market from 2001 to 2005.
Primary demand effects are rather small, which contrasts with estimated sales effects for individual brands. By using a new brand-level method for estimating primary demand effects with aggregate data, they show that the small effects are due to intense competitive interaction during the observation period but not necessarily due to generally low primary demand responsiveness. Contrary to previous studies, the authors find that detailing is more effective than direct-to-consumer advertising in driving primary demand.
From a marketing standpoint, pharmaceutical marketing managers can better understand which marketing elements potentially help expand the market. Such marketing elements are particularly attractive because they increase own sales without hurting competitors’ sales. However, the study also reveals strong substitutive effects for individual brands and marketing activities. As a consequence, managers should carefully analyze the potential counter effects of their marketing campaigns, which may provoke retaliatory actions by competitors.
From a public policy standpoint, the results show that DTC advertising has the potential to influence primary demand but competition prevents a jump in drug expenditures, despite sharply rising DTC advertising expenditures in the recent past. The good news for politicians is that competition seems to work and helps keep health care expenditures under control. In addition, expenditures may have helped secure or create jobs in the advertising industry.
Biography
Marc Fischer holds the Chair for Business Administration with a Specialization in Marketing and Services at the University of Passau. His expertise includes the measurement and management of marketing performance, brand management, and the optimization of the marketing mix. Fischer studied Business Administration at the University of Mannheim, with majors in Marketing, Operations, Controlling, and English and American studies. He obtained his PhD in Marketing from the University of Mannheim. He finished his habilitation (German academic degree that prepares for full professorship) at the Christian-Albrechts-University at Kiel in 2006. He has visited the Anderson Graduate School of Management at the University of California at Los Angeles s a visiting scholar several times. In 2001 and 2002, Fischer suspended his academic career to assume a position as an associate at McKinsey & Co. Fischer is also the director of the Center for Market Research at the Institute for Market and Economic Research in Passau and a member of the scientific advisory board of the Center for Brand Management and Marketing (ZMM) in Hamburg.
Sönke Albers is Professor of Innovation, New Media, and Marketing at Christian-Albrechts-University at Kiel, Germany. Before this position, he served on the faculties of WHU (Vallendar), Lüneburg, and was a visiting scholar and professor at Stanford University, INSEAD (France), Vienna University, the Australian Graduate School of Management, and University of Technology Sydney. He studied Business Administration at and received a PhD from the University of Hamburg. Recently, he received an honorary PhD from the University of Frankfurt. He is author of approximately 200 articles in international and German journals and books. He is editor-in-chief of Business Research and serves on the editorial board of International Journal of Research in Marketing and several other journals. He is past president of the German Academic Association of Business Research (encompassing all German-speaking business administration professors) and an elected member of the Academy of Sciences in Hamburg.
Journal of Marketing Research, Volume 47, Number 1, February 2010
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