Finding an optimal mix

Editor’s note: Michael Latta is executive director of YTMBA, a Wilmington, Del.-based research and consulting firm.

Pharmaceutical marketing strategists such as Kolassa, Perkins, Siecker, and Smith (2002) tell us that pharmaceutical business success is related to the characteristics of the product and to the promotional leverage managers can generate. However, early as well as recent research has tended to take a single-variable approach to increasing sales of pharmaceuticals. Some have examined samples (Groves, Sketris, and Tett, 2003), others examined the ROI of detailing (Neslin, 2001), and more recently several researchers including most recently Wosinska (2005) have examined the economics of advertising directly to consumers (DTC). All of these efforts are narrowly focused and do not include the rich variety of promotional variables that may contribute to increases in pharmaceutical sales.

Furthermore, previous research on promotional mix variables that affect pharmaceutical sales has not taken the nature of the product into account such as whether it is primarily for acute or chronic conditions. Every pharmaceutical product manager can benefit from knowing which promotional mix variables will drive sales in order to optimize expenditures. Integrated promotional strategy combined with effective allocation of budget resources, given the nature of the product, may help to efficiently increase sales.

This study was undertaken to show the relative contribution to pharmaceutical sales from five promotional mix variables: sample dollars, DTC advertising dollars, hospital detailing dollars, and journal advertising dollars. It is an attempt to use a rich variety of promotional variables to see which contribute most to increases in pharmaceutical sales for chronic and acute drugs.

Hypotheses

Product characteristics

Drug development and marketing strategy are directed at having products in the company portfolio which have characteristics encouraging adoption, trial, use and long-term sales. For example, chronic drugs such as statins to lower cholesterol may sell more than acute drugs in the absence of large promotional dollars because of loyal consumers and regular and life-long administration to avoid serious illness. On the other hand, acute drugs that treat specific symptoms such as allergy medications may require higher promotional dollars to increase sales because they are only needed sporadically.

Promotional leverage

Promotional leverage has been studied more in pharmaceutical sales than many of the other marketing variables. For example, the first promotional study done in pharmaceutical marketing was done in 1954 looking at the effects of medical journal ads, detailing by sales representatives, providing physicians with peer-reviewed journal articles and sampling. A complete description of this study can be found in Rogers (2003).

In this study, an investigation of the contribution to sales dollars made by five types of promotional expenditures will be conducted. For example, it will look at the amount of money expended on hospital and physician office detailing. Office detailing is expected to have a positive impact on sales of both chronic and acute drugs because it can not only promote the doctors’ understanding of the drugs but also enhance their friendship with the reps and their trust of the brands and the companies. Likewise, hospital detailing can increase drug sales for acute drugs because hospital detailing increases the doctors’ understanding of acute drugs such as antibiotics and enhances exposure to soon-to-be-practicing physicians completing their internships. Developing relationships with physicians during their internship may lead to a lifetime of use of a specific brand. However, to the degree that chronic drugs are not the province of hospital-based physicians, promotional leverage may not be present for chronic drugs utilizing hospital detailing. In addition to detailing, samples can increase drug sales. Samples increase drug sales because samples give physicians and patients no-cost experience with drugs and encourage trial and adoption. Because chronic drugs are an ongoing expense for patients, the use of samples may provide stronger leverage than for acute drugs. More recently, direct-to-consumer advertising has been found to increase drug sales. DTC many times raises public awareness of new drugs and prompts patients to ask for them by name in a physician office visit. In addition, DTC can foster a positive brand image within the public and can remind the doctors to write a prescription and help prevent substitution of a generic or other product at the pharmacy. Because of the ability to raise awareness, the leverage of DTC may be stronger for acute drugs than for chronic drugs. Finally, medical journal advertising may have a positive impact on sales because it reaches the physician regularly, helps them understand when to use an acute product and reminds them to write prescriptions for chronic drugs.

H1: Sales of acute drugs will be influenced by office detailing, hospital detailing, DTC advertising and medical journal advertising.

H2: Sales of chronic drugs will be influenced by office detailing, samples   and medical journal advertising.

Method

Both secondary and primary data were collected for analysis. Data were collected for 103 top products from 2001. Secondary data were provided by IMS Health (2004). Variables used included sales (in dollars ranging from $3.3 million to $4.7 billion), and promotional expenses in dollars including:

  • dollars of samples ($1,000-$328.5 million)
  • dollars of hospital detailing ($30,000-$32.5 million)
  • dollars of office detailing ($40,000-$131.6 million)
  • DTC advertising dollars ($12,000-$160.8 million)
  • journal advertising dollars ($7,000-$14.9 million).

Primary data were also collected from five clinical pharmacists. These pharmacists were asked to classify each drug into two categories: chronic or acute. The pharmacists’ classifications were collected in a Delphi approach and resulted in consensus assignments of each drug to either the chronic or acute category. The data were coded, entered into SPSS and checked for errors.

The general analytical framework was to utilize stepwise multiple regression to determine the promotional mix variables which uniquely influence sales dollars in the 47 acute drugs and 56 chronic drugs.

Results

The means and standard deviations for the dependent measure sales and the five predictor variables used in the multiple regressions appear in Table 1. As might be expected, chronic drugs generate higher sales and have larger promotional expenditures on average in every category compared to acute drugs.

Analysis of variance (ANOVA) done on sales dollars and the promotional mix variables showed significant differences in these measures for only sales dollars [F (1, 101) = 7.94, p < .006], samples [F (1, 101) = 5.36, p < .023], and marginal significance for journal ads [F (1, 101) = 3.61, p .060].

As can be seen in Table 2, with the exception of journal ads, the correlations among sales dollars and the promotional mix variables are significant across the board for acute drugs.

Unlike the acute drugs above, all of the correlations in Table 3 of sales with the promotional mix variables are significant for chronic drugs.

Stepwise multiple regression was utilized to test the hypotheses as well as to determine the unique contribution of each of the five promotional mix variables to the dependent variable sales dollars.

Acute drugs

The final solution for the 47 acute drugs [F(2, 44) = 36.19, p < .0001] found office detailing (standardized b = +.488) and DTC advertising (standardized b= +.392) uniquely contributed to sales dollars. Thus, office detailing and DTC advertising accounted for over half of the variance in sales (R2 = .567).

Chronic drugs

A different final solution was found for the 56 chronic drugs [F(1, 54) = 90.86, p< .0001] found only samples (standardized b= .792) uniquely contributed to sales dollars accounting for almost two-thirds of the variance in sales (R2 = .627).

Model summary

The final model for acute drugs can be expressed as:

Sales Dollars = Constant + (.488 * Office Detailing Dollars) + (.392 * DTC Advertising Dollars) + Error

On the other hand, the final model for chronic drugs can be expressed as:

Sales Dollars = Constant + (.792 * Sample Dollars) + Error

Discussion

Hypothesis 1

Hypothesis 1 stated that office detailing, hospital detailing, DTC advertising and medical journal advertising will have a positive impact on sales for acute drugs. This hypothesis was not fully supported and the analysis suggests product managers of acute drugs could cut back on promotional spending for hospital detailing, samples and medical journal advertising and reallocate those budget dollars to office detailing and DTC advertising.

Hypothesis 2

Hypothesis 2 stated that office detailing, samples and medical journal advertising will have a positive impact on sales for chronic drugs. This hypothesis was also not fully supported by the results and the analysis suggests product managers of acute drugs can cut back on the other four promotional expenditures in favor of samples.

Drug diffusion study

A mentioned earlier, research on pharmaceutical promotion began in 1954 with the Columbia University drug diffusion study of tetracycline. This field study sponsored by Pfizer was done among 125 general practitioners, internists and pediatricians in Bloomington, Galesburg, Peoria and Quincy, Ill. An additional 128 physicians who were colleagues of these physicians were included as members of the social system. The results indicated that medical journal ads, detailing by sales representatives, providing physicians with peer-reviewed journal articles and sampling created awareness and knowledge of product attributes and benefits among members of the medical community, but were insufficient to persuade the average physician to adopt tetracycline.

The results here suggest that a parsimonious use of promotional mix resources can be made for both acute and chronic drugs. The current results suggest there is considerable leverage in having the right promotional mix. Future research in this area could include such variables as distribution, pricing, brand image/equity, presence of generic competition and packaging. Although these variables are deemed important, little research has been done to understand their effects on sales in context with the classes of variables studied here. Furthermore, no interaction terms were utilized in this analysis. There may be synergistic effects of two or more promotional mix variables that suggest both must be present for effects on sales to be realized. Future research may uncover some of these combined effects of promotion variables. 


References

Groves, K., Sketris, I., & Tett, S. (2003). “Prescription Drug Samples – Does this Marketing Strategy Counteract Policies for Quality Use of Medicines?” Journal of Clinical Pharmacy and Therapeutics, 28 (4), 259-271.

IMS Health (2004a), Leading 10 Therapeutic Categories by U.S. Sales Volume. http://imshealth.com.

Kolassa, E., Perkins, G., Siecker, B., and Smith, M. (2002). Pharmaceutical Marketing: Principles Environment and Practice, Bingham, NY: The Haworth Press, Inc.

Rogers, E. (2003) 5th Ed. Diffusion of Innovation. New York: The Free Press.

Wosinska, M. (2005, August). “Direct-to-Consumer Advertising and Drug Therapy Compliance.” Journal of Marketing Research, XLII, 323-332.