Spend Trends: A $20 Billion Bill and Plenty of Change

Pharma marketing appears to operate in a world of its own. When US ad expenditures dipped in 2001, pharma’s spend marched steadily on. (See "A Different Drum."). Now, as the ad industry celebrates the quadrennial coincidence of the Olympics and the US presidential campaign, is pharma taking notice? “Not really,” says Anne Devereaux, chief integration officer at BBDO.

Last year the industry spent nearly $20 billion for marketing. It will almost certainly spend more in coming years. What is it paying for? Is it getting value in return? What worries pharma marketers most? Stay tuned...

Devil's in the Detailing

Direct-to-consumer (DTC) advertising gets a lot of attention but detailing and sampling, lurking below the waterline, still constitute the bulk of pharma's marketing spend. (See "Where the Money Goes.") No one expects this to last.

"We have a 90,000-plus sales force because of blockbusters and striving for reach and frequency," says Maureen McLaughlin, head of the promotional effectiveness practice at NOP World. "But now the return isn't there, and so a lot of people are grappling with sales force reduction." Cutbacks, though, have yet to happen. Meanwhile, the cost of detailing and sampling continues to climb. For the last five years, the average annual increase has been just over 14 percent. For the last year and a half, it's been closer to 20 percent. It's a classic case of perverse "system effects." Left to itself, each company would disarm, but the competitive standoff leads them all to do just the opposite.

Big-Picture TV

Detailing may have reached a point of diminishing returns, but "DTC advertising is still early in its lifecycle," says Sue Ramspacher, head of the healthcare consumer practice at NOP World. What drives DTC spending? Devereaux says it's "launch dependent and responsive to the competitive environment. For some brands—allergy, the COX-2s, and other high-volume parity categories—considerable DTC spending is just a cost of entry. There are such subtle differences between brands that DTC is one of the few ways to differentiate."

A Different Drum

So why does DTC spending go up every year if it's driven by launches? The number of product introductions isn't rising. One reason is that DTC has only been around since 1997, so it's building on a relatively small base. (By contrast, the detailing and sampling spend, already huge, just keeps getting bigger at a similar pace—no mean feat.) Another reason is the constantly increasing cost of air time. Finally, Ramspacher says, "a small number of big DTC players have generated an 'arms race' like the one in detailing. These companies have just got to be out there more often than their competitors." Consider the Super Bowl. Given the fragmentation of the mass audience and the diminished reach of network TV these days, why was there so much pharma advertising during the game? Devereaux says, "The majority was spent by three competing brands who all felt it was an ideal way to reach their male targets and to announce their strong presence as players."

What's odd is how unevenly DTC works. Peter Mehr, vice-president of promotion analytics for Health Products Research, says DTC is not performing as strongly across all brands as people think. For some it works brilliantly. But half the time it fizzles. (See "Moving the Market.") What makes the difference? Mehr says some companies know what they're doing, others don't. DTC campaigns "lose traction. They wear out. Target markets and demographics shift. Diligence is required to keep campaigns effective year after year, to make sure your message isn't stale and is still breaking through the clutter." Mehr says, "There's an embedded belief that if an initial campaign is successful, the follow-on will be, too. Not necessarily."

This too shall change. Mehr says, "In five years, I'd expect detailing and sampling to come down a bit as other channels start to become more effective, as people learn how to better leverage DTC. Then you'll start to see these bars shift a bit."

"In five years, I expect detailing and sampling to come down a bit in share-change effectiveness as people learn to better leverage DTC. peter mehr, vice-president, promotion analytics, health products research

Within DTC, spending on branded and non-branded campaigns is headed in opposite directions, the former up, the latter down. Companies, Devereaux says, "are turning to cause marketing—providing programs to the needy, for example—to generate press, instead of doing aggressive corporate advertising. The few who are doing image advertising are ending up spending their money to speak for the industry instead of building their brands." Ramspacher, however, believes "we'll see much more growth in unbranded DTC, focusing more on disease management and education, in addition to, not in place of, branded DTC." She says pharma has two motives to go this route. One is to tap into the broader untreated "sufferer" population and move them into the healthcare system. Novartis, for example, has a "know your blood pressure" campaign that makes no mention of Diavan (valsartan). The other is to address the industry's reputation problem with PR-type advertisements on pricing and value. (Indeed, David Gascoigne, leader of the promotion management practice at IMS Consulting, says public relations is a "rapidly growing component of the promotional mix.") Some of this will be image advertising. GSK is running an ad highlighting the company's research on Alzheimer's. Ramspacher says it tugs at the heartstrings but is clearly intended to promote the company.

DTC appears to be nowhere near its potential. "Compared with more 'sophisticated' consumer product advertising," Ramspacher says, "DTC is somewhat 'immature' in the complexity of its message and creative." A common criticism, she says, is "every ad looks the same: smiling people walking along a beach." There's not a lot of differentiation. "You can almost attach any brand name and it would work the same way." Her conclusion: "There is still room for pharmaceutical advertisements to grow." But, she warns, "it's a tricky proposition. You have serious diseases being treated. How do you make ads less 'happy' but not depressing or disconcerting?" As much as pharma is mulling how to scale back its sales forces, Ramspacher says, similarly tough questions are being asked about how to differentiate products and speak to the seriousness of disorders while staying within FDA guidances. Gascoigne believes "we'll start to see pharma experiment with very focused programs targeting key patient segments, such as Hispanics, to reap the benefits of DTC."

Close Relations

One trend operating below the radar is the growing importance of relationship marketing, defined by Devereaux as "establishing a dialogue over time between customer and marketer that allows both to benefit." Related phenomena are permission and loyalty marketing. "Sometimes," Devereaux says, "it happens online, sometimes by mail, and sometimes through programs, like frequent-buyer plans in the consumer world." But no one knows what this kind of marketing adds up to. "You can't track patient communication in the doctor's office," Devereaux says. "We can look at individual client budgets and see the marketing mix shift from awareness advertising to relationship marketing, but an outside service can't track total spend." Still, Devereaux says, "there's an increasing focus on targeted marketing because everyone's recognizing that if we can't help patients become more compliant and persistent with medication, all the other efforts aren't being maximized. And that will continue." It's not a swing from acquisition to adherence, Devereaux says, so much as a shift in stress: "DTC advertising in its traditional form will be dialed down, but it still has a crucial role to play."

‘‘ROI is crucial. But it’s far easier to measure in relationship marketing than in awareness advertising. Relationship marketingis built on numbers.anne devereaux,chief integration officer, BBDO”

Ramspacher hasn't seen many adherence messages in broadcast DTC yet, though there's talk of weaving more in. But she is seeing the marketing mix moving toward more compliance and persistence messaging. As examples, she cites direct-to-patient or customer relationship management (CRM) and behavioral modification programs that complement DTC awareness advertising.

The internet, small as pharma's current spend there is, plays a crucial role in relationship marketing, according to Devereaux: "The first thing people do when they have symptoms or get a diagnosis is go online. The internet used to be a way we talked to young people. Now it's increasingly important for reaching baby boomers who are becoming more internet dependent." The web, she says, "is becoming a fantastic way to disseminate information and begin a dialogue where the patient opts in."

The web may be a magnet for consumers seeking health information, but pharma's own sites attract comparatively little attention if you measure expenditures against results. Internet spend is the fastest-growing item on pharma marketers' agenda, but traffic in "the pharmaceutical space online," says Dawn Brozek, senior analyst with Nielsen Net-Ratings, "has been fairly static."

The good news is that more folks are going to product sites, condition sites, and unbranded general health information portals supported by pharma. But, Brozek says, "not in large numbers." WebMD gets six million unique visitors per month. The leading pharma health portals fetch a fifth as much. This is one reason, Brozek says, pharma offers sponsored content on commercial portals such as WebMD, Yahoo!, and MSN. What's worse, "other industries' audiences are growing much faster," she says. Brozek believes "pharma hasn't really embraced the web fully. I suspect if more dollars were directed toward the web we'd see traffic increase."

''Pharma hasn't really embraced the web fully. If more dollars were directed there, we'd see traffic increase. Dawn brozek,senior analyst, nielsen netratings

Raising Cost Consciousness

What is the most powerful force now shaping pharma marketing? With the industry facing the loss of pricing power, a passel of blockbuster patent expirations, and a paucity of new brands, it may be frugality. These days, pharma is looking to wring the most from every dollar.

"ROI is crucial," Devereaux says. "But it's far easier to measure in relationship marketing than in awareness advertising. Relationship marketing is built on numbers: What does it cost to generate a lead or convert a new user? It all comes down to math. Awareness ads cast a wide net, reaching targets and their influencers, but you don't have any way to track how that changes behavior. There's a lot of gray space between an NRx (a new prescription, intended to denote a patient's first time on therapy) and a TRx (or total prescription, how many people are taking a drug altogether). You can't know whether the patient you're counting as new is someone you counted two years ago but then went off therapy. When you don't know the specific individual, tracking ROI is more difficult."

The search for cost-effective methods is working its way through the entire marketing function, kicking off other trends. One is vendor consolidation. Devereaux says, "The major pharma companies, Pfizer, GSK, Schering, all have limited the number of agencies or networks they're dealing with in order to gain efficiencies."

Concentrated Efforts

Another trend Devereaux sees, not only in pharma but across all the brands she works on, including consumer brands, is the growing reliance on quantitative testing. Her clients use a measurable threshold for advertising effectiveness. "If the campaign doesn't meet their individual objectives, they say, 'Go back to the drawing board until you come up with work that's going to move the needle beyond the norm.'" It's one way to measure ROI when you can't track behavior patient by patient.

The Marketing Remix

What does the future of pharma marketing look like? Everyone, it seems, wants to pare sales force costs but can't. Pharma is still learning the ABCs of DTC. The web will become a marketing mainstay. Although permission, relationship, experiential, and other nontraditional marketing alternatives will become more prominent—Gascoigne sees "a gradual migration from macro- to micro-marketing"—more money will be spent on mass advertising. "It's still so much more expensive," Devereaux says, "that it's always going to represent a disproportionately large share of the budget." The question is: Does mass advertising have an impact proportional to the spend? Devereaux's answer: "It could be that you have to spend—I'm making this up—$50 million in advertising to achieve a level of awareness that you need so an additional $10 million in relationship marketing will contribute dramatically more to the bottom line—because it's talking exactly to those people who have said they want to be talked to."

''Pharma marketing is about all forms of promotional activity working together across disciplines to develop synergy for the brand by leveraging and coordinating communications channels. david gascoigne, practice leader, promotion management,tims consulting"

This points toward another big trend: integrated marketing. Pharma marketers, Ramspacher says "are getting a better feel for how to get things to work in concert, how to get the right media mix." Mehr says, "It's not an either/or decision. You'll start to see promotion channels complement one another." The industry is "very good at promoting in each channel. Integrating across and developing a single-stream message, that's a challenge right now. You'll see more people testing that approach and asking about leveraging channels simultaneously or concurrently rather than independently. The more weapons you have and the bigger their impact, the more flexibly you can handle competitive threats and changing market conditions."

While it's tempting to navigate by a single number, say, ROI, there are no mechanical answers. It's important to remember, as Gascoigne says, that "different forms of promotional activity have varying impact in different markets and at different times in the product lifecycle." The optimal strategy uses every available element as part of a unique solution. "Pharma marketing," he says, "is about total brand communications—all forms of promotional activity working together across disciplines to develop synergy for the brand. It's important to continually leverage and coordinate every communications channel to maximize awareness and reinforce key messages."

This is a tall order, and with budget constraints, Gascoigne says, "there is greater pressure to get the promotional mix right the first time."

Hey,big spenders

This places a premium on comprehensive data, analytic brainpower, and a holistic perspective. McLaughlin says the pharma industry is "looking for help from third parties to put the various data streams together to make sense of things." She believes the industry needs "an end-to-end solution that puts the pieces together in a systematic way, one that doesn't exist now in a turnkey solution. So you're going to see, on the vendor side, people trying to figure out how they partner with other people, how they cooperate to provide multiple data sources from multiple companies to pharma."

You'll also see greater and more sophisticated "application of the behavioral sciences to messaging," Devereaux says. "If you understand which of your segments you're never going to reach—who is so far at the beginning of the adoption curve that getting them to where they're willing to talk to a physician about a drug is not worth your spend—then you're going to be able to home in on truly receptive people." Another goal would be "understanding what small moves we need to get people to make to get them over the fence." McLaughlin agrees: "The industry has to better understand the attitudes and values of its customers. That means better segmentation, not just of physicians but consumers." She says there's a tremendous opportunity to segment physicians psychographically, that is, by how they perceive different types of promotion. That could be the way to make sales forces more effective. "You could have a much more complex and targeted delivery." The issues are: "How do we get that information to reps without overwhelming them? And how do we measure it to see if it's resonating and turning into actual prescribing?"

What might help, McLaughlin says, is "continuous tracking of metrics so when you find a problem, you can dig deeper and take immediate corrective action, particularly on things like physician attitudes and messaging." Marketers should be able to know moment to moment whether such metrics are believable, important, or relevant. Until recently, she says, not many companies monitored these kinds of data with the same fervor with which they collected prescription data. Says McLaughlin: "We spent a lot of time in the '80s and '90s perfecting physician-level data. Today that's very robust. The industry understands who, what, where, and when. Now it's about why."