Effects of pharmaceutical marketing on the diffusion of prescription drugs

The pharmaceutical sector is very large; more than one percent of income in industrialised countries is spent on pharmaceuticals. For the pharmaceutical industry innovations are vital and expenditures on Research and Development are very high. After a lengthy development phase, a newly developed patented drug is protected from the introduction of (generic) competitive products for a limited amount of time. In order to maximize the likelihood that R&D costs will be recovered, it is important to discover factors that accelerate adoption of newly developed products. In addition, patient welfare is maximized via rapid diffusion of new drugs that provide unique and superior benefits.

Pharmaceutical firms spend 20% - 30% of their revenues on promotion. The promotion expenditures include direct mail activities, journal advertising, public relations, post marketing research, detailing (visits to physicians by representatives), physician meetings, sponsorships, and in the United States since 1997 direct-to-consumer advertising. The promotion budgets are directed to the different players in the industry, viz. the hospital pharmacist, the public pharmacist, the in-hospital specialist, the out-hospital specialist, the general practitioner, the patient and the consumer.

We investigate the effect of these marketing instruments on the speed of diffusion. We estimate and compare several models that are suggested by earlier work in this field. Based on the outcomes we characterize the effectiveness of the different promotion activities, and discuss their ROI implications.

Information: Dr.ir. P.W.J. Verlegh, pverlegh@rsm.nl, telephone 4082732