Biomedical Engineering Reference
In-Depth Information
Lastly, Table
18.4
panel B indicates the optimal detailing to sales percentage for
late stage products in the USA is about 7.3 % based on their mean bias-corrected
detailing elasticity of 0.101 from our meta-analysis, and the assumed price elasticity
of about −1.39 derived from Trombetta's (
2011
) audit of the top 23 publicly traded
companies. Now suppose the average price elasticity magnitude were actually
higher, say 1.67 instead of 1.4 across all companies. This implies a gross margin of
about 60 % which is quite common (e.g., Scherer
2007
) and a likely scenario for a
majority of “me-too” products in an era of greater insurer pressure on prices. Then,
the optimal detailing spending to sales ratio for late stage products in the USA
would be as low as 6 %. Notably, the observed industry-wide detailing to sales per-
centage of 6.3 % in the Campbell (
2009
) report falls within this range of plausible
optimal detailing to sales ratios for late stage products derived from their mean
detailing elasticity provided by our meta-analysis. We conclude that reported cut-
backs in US pharma companies' detailing spending are very consistent with the goal
of optimizing detailing spend in the face of aging product portfolios.
Next, we illustrate the implications of our detailing meta-analysis results for
pharma promotion mix spending allocations—specifi cally allocations between detail-
ing, journal and other direct-to-physician (DTP) advertising, and DTC advertising.
Optimal detailing
vs.
journal and DTC advertising
: The D-S (
1954
) theorem for
marketing-mix optimization states that allocations of a given budget
B
to different
promotion vehicles should be made proportionate to their elasticities. Considering,
e.g., three vehicles, namely, detailing, journal advertising, and DTC advertising, the
D-S theorem implies
DDDACB
S
=
(/(
+
+
)
;
AADACB
=
(/(
+
+
)
;
E
E
E
E
S
E
E
E
E
CBDA
S
=− ( )
where
D
S
,
A
S
, and
C
S
denote detailing, journal advertising, and
DTC advertising expenditures respectively, and
D
E
,
A
E
,
and C
E
are the respective
elasticities. In a recent meta-analysis of pharma promotion elasticities, Kremer et al.
(
2008
, p. 243) report an average DTP (journal advertising) elasticity of 0.123 (which
is consistent with the fi nding of a mean short-term advertising elasticity of 0.12 for
all products categories by Sethuraman et al.
2011
). Kremer et al. (
2008
, p. 243) also
report a mean DTC advertising elasticity of 0.073. Taking then
A
E
= 0.
123
;
C
E
= 0.073, and our estimate of pharma detailing elasticity
D
E
= 0.178, the optimal
allocations of a given budget to detailing, journal advertising, and DTC advertising
should be in the ratio of 0.47:0.33:0.2, i.e., detailing spending should be about 2.35
times total spending on DTC advertising; and about 1.42 times other DTP (journal)
advertising. According to Campbell (
2009
), detailing spending was in fact about 2.5
times as much as DTC advertising spending in 2008 so the industry in the USA was
close to the optimal detailing to DTC advertising ratio that year. However, the
industry has never spent as much on journal advertising as the optimal ratio of
detailing to journal advertising expenditures suggests. Indeed journal advertising
spending in the US context has been less than $0.5B over the last few years. This
may, however, change as new technology-enabled forms of DTP advertising emerge
even as traditional detailing effectiveness declines. Investigating the effectiveness of
DTP advertising via new media and the implications for pharma promotion mix
allocations is undoubtedly a rich and important arena for future research. We specu-
late that these studies will point to a much more balanced allocation between
S
S
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