Spillovers and Other Externalities in Pharmaceutical Marketing - Innovation and Marketing in the Pharmaceutical Industry - page 682

Table 23.5 ROI for detailing and combined DTCA (i.e., TV DTCA + Magazine DTCA)

Additional revenue of ($)
USA only

For every marginal
$ spent on Period Canada only USA + Canada

Detailing Current-period 0.2881 0.1784 No spillover

Multi-period (current +
future periods)

1.5847 0.9825

OME Current-period 2.0750 - No spillover

DTCA Current-period 0.6737 0.0291 0.7028

Multi-period 1.4925 0.0647 1.5572

month of expenditure, and that it may take at least a year for most of this impact to be
realized (see also Mizik and Jacobson 2004 ). In that spirit, we focus below on both the
short-term (i.e., current-period) ROI and the long-term (multi-period) ROI.

Short - term or current - period ROI . Suppose X is one such investment in the USA;
then due to spillovers, a measure of the short-term return on investment (ROI) in
period t is:

=

d
d

S
G

d
d

G
X

+

d S d

d

G
X

X USA , t USA , t Canada , t Canada , t

ROI P P (23.5)

t USA , t Canada , t

d G

USA , t USA , t Canada , t Canada , t

where G is the goodwill associated with X . For detailing and OME, the spillover
term in ( 23.1 ) is eliminated. These results appear in Table 23.5 .
Short-term ROIs for US detailing are smaller than short-term ROIs for US
DTCA; though, the US estimates are larger than the corresponding Canadian detail-
ing ROI. Next, turning to the impact of spillover on ROI, we note that it accounts
for about 4 % of total US ROI. Current-period ROIs, however, ignore the fact that
the effects of marketing investments last more than one period. When a firm raises
its promotional expenditure by a dollar, that dollar affects not only the goodwill
for the current period but also the goodwill in future periods. Indeed, in our specifi-
cation, there is a carryover of 84 and 55 % for detailing and DTCA, respectively.
Due to this inter-temporal linkage, we now turn to the multi-period ROI.

Long - term or multi - period ROI . Here, for a given set of values of all the independent
variables, we compute the expected-value of the dependent variables (shares, cate-
gory sales, and consequently, revenues). Then, we raise a given promotional expen-
diture for a single focal period by a dollar and compute the new revenues in the
current and subsequent periods. We repeat this procedure and report the multi-
period ROI as the change in the sum of revenues for the current and 11 subsequent
periods for every additional dollar spent on that promotional activity in the current
period. That is, multi-period ROI represents the change in revenues for a year from
the period when the promotional activity is changed.