The Economics of Promotion. Education Associated Arts Degree in Pre-Engineering Bachelors Degree in Business & Applied Mathematics Masters Degree in Business.

UNDERSTANDING & PROJECTING THE IMPACT OF PROMOTION

The Economics of Promotion

WHAT IS MY BACKGROUND

Education Associated Arts Degree in Pre-Engineering Bachelors Degree in Business & Applied Mathematics Masters Degree in Business & Applied Statistics PhD (ABD) in Business and Applied Economics, with a

Statistics Major Professorial

Professor/Instructor … Statistics, Marketing, Computer Simulation, Marketing Research at California State University (San Luis Obispo, California), University of Montana, New Jersey Institute of Technology, Farleigh Dickinson University,

WHAT IS MY BACKGROUND (CONTINUED) Professional

Researched the value of R&D support given by The National Institutes of Health and The National Science Foundation, and evaluated research findings/reports

Started and sold several research businesses Strong background in all areas of pharmaceutical

promotionStrong background in a host of Therapeutic areas Created & implemented the analytic methodology that permits

the analysis and projection of impact of a fully integrated promotional campaign … studied the fully integrated promotional campaigns of over a thousand different pharmaceutical products

Professional career, for the last 35+ years, has focused on understanding the role of promotion, each of the promotional modalities and how they come together to create a campaign work

WHAT IS MY BACKGROUND (CONTINUED)

Promotional Research Studied several hundred Pharmaceutical Mail campaigns Studied all aspects of Detailing for many Pharmaceutical

companies Reach Frequency Multiple Sales Forces

Studied all aspects of Journal Advertising Single page through multi-page units Single and Multiple Insertions

Studied many levels of PME /CME Dinner meetings Small and Large Groups Convention/Conference meetings Etc., etc., etc.

WHAT IS MY BACKGROUND (CONTINUED)

Promotional Research (continued) I have built proprietary promotional models for many

different pharmaceutical companies in the US The basis of the research finds its roots in solid Economic

Theory, Various aspects of Physics, Marketing and Promotional Theory, and Finance and Investment Theory(s).

The approach has proven to be highly accurate across 100’s of products and many therapeutic classes

Have completed several hundred integrated promotional studies, covering over a 1,000 products

One has to keep in mind that Marketing Theory and Promotional Theory DO NOT change from one therapeutic class to another.

What does change is the competitive Environment.

PRESENTATION RECIPIENTS IN CANADA

Merck … Directors and entire marketing team

Novartis … VP of Marketing, Analytics, and Senior Members of Brand teams

BMS … VP of Marketing and all members of Brand Teams

Abbott … Directors and Product Managers

Pfizer … VP of Marketing, Product Managers from Primary Care

Sanofi … VP of Marketing, VP of Finance and all Product Managers

Boehringer Ingelheim … VP Marketing and all Product Managers

Novo Nordisk … Director Marketing and all Product Managers

Amgen … Business Unit Managers and Product ManagersHave done projects with most of the above Pharmaceutical Companies in the US and a few in Canada

CAN YOU PROJECT PROMOTIONAL IMPACT?

I HAVE … and, normally, will be within ¼ to ½ of 1 percent

Patently Absurd you say, no one can predict the impact of promotion … and you are right if you continued to think in traditional patterns!

Let’s start with one very widely held belief … Promotion directly drives sales / market share!

I hope before you leave today, that I have planted some doubt in your mind concerning this idea … because, I DO NOT believe it does!

QUESTIONS TO CONSIDER What drives product growth? What is the role of promotion? What is the role of promotional mix? How do promotional work together …

interactions? Does journal advertising work? What is the role of journal advertising? Does detailing work? What is the role of detailing? Etc., etc., etc. How does promotion manifest its impact?

TRADITIONAL THOUGHT PROCESS

Promotional

Campaign

If this is what your client believes, no wonder you can not create an “Optimal” campaign and project its impact!

Sorry, but the real world is a lot more complex than the above graph!

REAL ROLE/PATH OF PROMOTIONAL IMPACT

Promotional

Campaign

Market Instabilit

y

Product Accountab

ility

Product Accelera

tion

Product Velocity

Product Momentu

m

Product NRx’s And

Share

This thought process lays a strong economic & necessary foundation for understanding the role of the various promotional modalities and the ultimate impact of the campaign

HOW DO THE MODALITIES FIT IN THIS MODEL?

What is the role of Detailing? What is the role of Sampling? What is the role of CME? What is the role Mail? What is the role of Journal Advertising? What is the role of “E-What ever”? What is the role of Diffusion Theory? What does it take to both CREATE and

CONVERT Instability?

WHO/WHAT DRIVES WHAT?

Which modality(s) drive Instability? Which modality(s) drive

Accountability? Which modality(s) drive Acceleration? Which modality(s) drive Velocity? Which modality(s) drive Momentum? How do modalities interact? Why is

this understanding Important?

THE PATH TO SUCCESS

The first job of promotion is to CREATE Instability

Once this is achieved, the same strategy / message / tactics must CONVERT that Instability to growth for your product

This growth dynamic manifests itself in the concepts of Acceleration and Velocity

Finally, positive Momentum must be achieved and maintained … which, of course, is a function of both the campaign and the product’s quality

INTERACTIONS – TRADITIONAL VIEW

Detailing

Sampling

CME

Advertising

INTERACTIONS – THE REAL WORLD OF IMPACT

Detailing

Sampling

CME

Advertising

It is the Integration and Interactions of all campaign elements/modalities that drive impact!

KEY TO SUCCESS

Understand the sequence of events that take you from Promotional Program Construction to the Ultimate Impact of that campaign

Understand the role of each Promotional Modality, how and where it manifests its impact, and how product Momentum is created and maintained

If a Modality appears not to be working, find out why! BECAUSE ALL PROMOTIONAL FORMS DO WORK THOUGHOUT THE PRODUCT’S LIFE!

FALSE / MISLEADING QUESTIONS & STATEMENTS

Is my campaign increasing sales? Wrong question. Should be … is my campaign increasing sales

profitably and/or optimally? Does Journal Advertising work?

This question/statement never ceases to amaze me. Of course Journal Advertising works! That is, if you do it properly … good ad, budgeted properly and balanced with the rest of the campaign. Balance referring to many different concepts revolving around the creation and conversion of Instability

What about other modalities? Same profitability concepts apply and same interactive

relationships apply

ROLE OF EACH PROMOTIONAL MODALITY

Detailing … Sampling … CME / PME … Mail … Journal Advertising … DTC / DTP …

Do you remember?

ROLE OF EACH PROMOTIONAL MODALITY

Cre

ate

In

stabili

ty

Convert InstabilityNone

None

Str

on

g

Strong

DetailingNew Product

Journal AdvertisingNew Product

SamplingNew Product

CME/PMENew Product

RESEARCH FINDINGS CONCERNING PROMOTIONAL IMPACT

After 1,000+ Promotional Studies

21

IMPACT OF PROMOTIONAL CHANGETIMING TO 90% MANIFESTATION

I M

P

A

C

T

Number of Months 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18-3 -2 -1 0

PMEDETAILING

PAGES

90%

THE REAL WORLD OF PROMOTION IMPACT OF DETAILING VS. SAMPLING

Impact of most promotional modalities diminish as product ages Sampling is the only modality impacted minimally by age or time Question: At what point in the product life cycle does the sample

become the driver of Detailing and Sampling Impact?

time

Imp

act

Samples

Details

t

THE REAL WORLD OF PROMOTIONACTUAL VERSUS AUDITED DATA

Audited details are projected from a physician sample Actual details (calls) are recorded and reported by the sales

representatives Physician recall of a sales call declines as the product ages Question: If two products each show 20,000 details/month, are

they spending the same on Detailing?

time

Level

Call Report Data

Audits

Typical History

100*(Audit/Actual) = % Pick-up

65-70%20-35%

Launch

18

-24

Month

s

THE REAL WORLD OF PROMOTIONACTUAL VERSUS AUDITED DATA

Audited journal Ads are usually a function of a census Actual units are recorded and reported by visually checking all

journals Physician recall is not needed Question: If two products each show 30 pages of advertising per

month, are they spending the same on Journal Advertising?

time

Level

Audited/Census Pages-per-monthActual Pages

Typical History

100*(Audit/Actual) = % Pick-up

Launch

18

-24

Month

s

But, this does not mean that the value is the same over time.

25

THE REAL WORLD OF PROMOTION MATHEMATICAL RELATIONSHIPS

What is the functional relationship between audited promotion data and market share? Market Share increasing over time Detailing and other audited promotion declining over

time

Market Share

Audited Detailing+ -

26

THE IMPACT OF PRODUCT AGEINGMATHEMATICAL RELATIONSHIPS What is the functional relationship between

Promotional Impact and Product age?

TimeProduct Age

Rela

tive Im

pact

DetailingAdvertisingCME/PMEDTC

Sampling

What are the implications of this on one’s ability to model promotional impact• Census vs. recall vs. age on impact• Recall vs. impact

EXAMPLECASE STUDYEXAMPLECASE STUDY

CASE STUDYESTABLISHED PRODUCT

Crowded set (40+ products) Mature product (7+ years old) New claim – 18 months earlier Promoted new claim through DTC print – 18

months Professional target: FPs, GPs, IMs, & one

Specialty Consumer target: Specified Sub-Group Considering a Multi-Million dollar television

campaign History: Sales force reduction 3-years earlier History: NO faith in professional print

CASE STUDYCLIENT’S QUESTIONS

Should we implement this DTC television campaign?

Planned start is July 1998 – is this justifiable? What is our promotional ROI likely to be? How do we insure success? How should our professional campaign be

structured? Do we need to alter our current professional

promotional mix? Justify all projections and predictions!

Delay start of DTC Television for six months. Get professional up to speed first!

Add 2xx++ Salespeople before DTC start. Increase professional advertising by

$1,400,000. Keep sampling in step with detailing. Increase Primary Care activity.

CASE STUDY ESTABLISHED PRODUCT

RecommendationsRecommendations

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

t-12

t-10 t-8

t-6

t-4

t-2 t

t+2

t+4

t+6

t+8

t+10

t+12

t+14

t+16

t+18

t+20

t+22

t+24

t+26

t+28

t+30

t+32

New

Pre

scri

pti

ons

Forecast - Base

Forecast - Campaign

Actual

Case Study: New Prescriptions/ROI Forecast

ProjectionsProjectionsNew Campaign StartsNew Campaign Starts

UNDERSTANDING & EMPLOYING THE CONCEPTS DISCUSSED TODAY

Concepts discussed today require learning and working with a set of new measures

While the real power of this approach rests in developing the full system of simultaneous equations, a good starting point is in the development and use of all appropriate measures

This can be accomplished with an Excel Worksheet that sequentially develops each of the measures

EXCEL WORKSHEET

Prod1 Prod2Prod3

Base

NRxs

Share

NRx Instab

Share Instab NRx Acct

Share Acct

Concentration

Velocity

Acceleration

Momentum Summary

NRxs&

Share

NRxs&

Share

NRxs&

Share

PROMOTIONAL

ENVIRONMENT

THE SIMPLE WORLD OF PROMOTION

NewPrescriptions

Market

Share

Detailing

Sampling

Advertising

DTC

Mail

Dinner Meetings

Etc., etc., etc.

THE REAL WORLD OF PROMOTION

Marketing Environment

Promotional Environment

ProductEnvironment

DiseaseEnvironment

Instability

Velocity

Acceleration

ACCOUNTABILITY

DTC

DetailingSampling

Mai

lA

dver

tisi

ng

NRx’s&

Share

THANK YOU!

“The best way to predict the future, is to create it”

“Models are meant to be used, NOT BELIEVED”