Modeling the Effects of Promotional Efforts on Aggregate Pharmaceutical Demand: What We Know and Challenges for the Future - Innovation and Marketing in the Pharmaceutical Industry - page 581

20.1 Introduction

The pharmaceutical industry is an important sector in a global societal context.
For many developed countries, health expenditures exceed 10 % of GDP (OECD
2011 ), and expenditure on pharmaceuticals accounts for approximately 10 % of this
total (CMS 2011 ). Consequently, government agencies, special interest groups, and
the media closely follow developments in the industry. One aspect that attracts
signifi cant attention is the widely debated use of pharmaceutical marketing activi-
ties (Families USA 2002 ). Opponents criticize pharmaceutical marketing for being
superfl uous, distorting physician prescribing behavior and contributing to overuse
and misuse of prescription drugs, and for being a major cause of high prices
(Families USA 2001 ). On the other hand pharmaceutical manufacturers defend their
expenditure on marketing by claiming that it is essential to optimize their return on
R&D investment in order to ensure survival in the market. In addition, rapid returns
from R&D, through successful marketing of existing products, not only offer incen-
tives to invest in new therapies but also guarantee rapid market takeoff. The fast
adoption of new and superior medications is benefi cial for all stakeholders in the
pharmaceutical market (Calfee 2002 ).
Stremersch ( 2008 ) and Shankar et al. ( 2008 ) observe that the scholarly attention
paid to the pharmaceutical industry is increasing. This is demonstrated by the
increase in the number of papers published by top journals in marketing, special
sessions that are organized at mainstream marketing conferences, and the publica-
tion of this topic. In this chapter we provide an overview of empirical papers which
examine the effectiveness of pharmaceutical marketing on aggregate demand.
There are several reasons why both practitioners and policy makers are interested
in establishing the effectiveness of pharmaceutical marketing efforts. Firstly, and
particularly important to practitioners, is the extent to which promotional efforts
signifi cantly affect demand measured, for example, by the number of (new) pre-
scriptions written, market growth, or market share. When allocating budgets it is
important to know the size of promotional effects as well as whether or not they are
systematic, and also whether the demand for pharmaceutical products can be con-
sidered to be price elastic or inelastic.
Secondly, it is important to clarify the function of promotion: The economic
literature provides a classifi cation where promotional efforts may have an informa-
tive function and/or a persuasive function. The informative function provides infor-
mation to decision makers, thereby contributing to transparency in the market
which leads to better decisions. Patients and tax payers benefi t from these informa-
tional promotional efforts undertaken by pharmaceutical manufacturers. The per-
suasive function causes decision makers to select products out of habit rather than
by evaluative choice (Leffl er 1981 ). This may lead to misprescription and overuse
(USA Today, Kaiser Family Foundation, Harvard School of Public Health 2008 ),
for example, in cases where the promoted brand is prescribed, rather than a better or
less expensive available alternative. Persuasive pharmaceutical promotional efforts
receive much attention in public debate (see, e.g., Angell 2005 ; Chetley 1995 ), and
in some countries such as Italy and France pharmaceutical promotional efforts are