Spillovers and Other Externalities in Pharmaceutical Marketing - Innovation and Marketing in the Pharmaceutical Industry - page 661

Chapter 23
Spillovers and Other Externalities
in Pharmaceutical Marketing
Ramarao Desiraju and Thanh Van Tran
Abstract This chapter highlights the impact of spillovers and other externalities on
the pharmaceutical manufacturer's marketing strategy. First, a spillover arises when a
marketer's action affects either an unintended audience or the targeted audience in an
unintended manner; an externality is defined more broadly in the sense that all
spillovers are externalities, but all externalities need not be spillovers. Next, the phar-
maceutical industry is characterized by three relatively unique features: (1) unlike
other consumer settings, ethical drugs can be dispensed to patients only when they are
prescribed by a licensed practitioner; (2) drug manufacturers have patent protection;
and (3) there is variation in how marketing activities are regulated across different seg-
ments or geographical regions. These features facilitate the existence of certain types
of spillovers and externalities. For instance, direct-to-consumer advertising (DTCA) is
permitted in the USA but not in Canada; this suggests the possibility of a spillover—
onto the unintended Canadian consumers from DTCA in the USA. For illustration, we
use IMS data on nasal steroids to explore empirically both the existence of a spillover
and its impact. The empirical analysis suggests that the DTCA spillover into Canada
contributes around 4-6 % to the US long-term DTCA return on investment. Such
results underscore the value of accounting for spillover effects in developing and evalu-
ating marketing strategy. More generally, this chapter juxtaposes the unique features of
the pharmaceutical industry with the extant work on spillovers and other relevant exter-
nalities to identify knowledge gaps that warrant research attention.
Thanks are due to the two anonymous reviewers, Siva K. Balasubramaniam and Pradeep
Chintagunta for their insightful comments and valuable suggestions on an earlier draft of this
manuscript. The usual caveat applies.
R. Desiraju ( * )
University of Central Florida, Orlando, FL, USA
e-mail: [e-mail]
T.V. Tran
University of Central Oklahoma, Edmond, OK, USA
e-mail: [e-mail]