Pharmaceutical Executive Europe - February 2008 - (Page 28)

28 The Mix February 2008 Pharmaceutical Executive Europe The Mix Relevant ROI T he sales force is the dominant promotional channel in pharmaceutical marketing, the single greatest marketing expense, and an influential way to communicate product information to prescribers. Pharmaceutical firms in sophisticated markets allocate 70–75% of marketing spend on the sales force alone, rising to 80–85% in less developed markets such as Eastern Europe. Sophisticated markets tend to have additional promotional channels available to communicate messages, for example, journal advertising, directto-consumer (DTC) advertising, medical communications, and medical meetings. So which channel or mix of marketing spend is most effective, and which yields the greatest ROI? Strategies, tactics, insights and opportunities Gerhard Symons outlines ROI’s role in evaluating the effectiveness of a given marketing channel. costs are important for general business analysis, but not for specifically sales force ROI. The contribution of a brand is more than just annual sales. Consider the following: ● Incremental sales, independent of sales generated by previous promotional effort. ● Sales generated this year will carry over to next year’s sales, which is part of the promotional contribution. ● Underlying category sales, and overall market growth. ROI calculations for a discrete time period do not take into account that the marketing spend of one dollar may affect goodwill past that current period. Thus, a multi-period ROI needs to be considered to take into account this temporal influence. Marketing mix One study investigated marginal spend ROI of detailing, medical meetings, medical journal advertising, and DTC advertising1. The method was to observe monthly sales variations of a large dataset of branded and generic drugs over five years, and to correlate marketing expenditure with monthly revenues. The drugs were further divided by launch year, and by annual sales. The highest ROIs were seen for drugs launched between 1998-2000 with sales in excess of $500m per year, with little variation in ROI using detailing ($11.6), journal advertising ($12.2), or medical meetings ($11.7). The ROI for any promotional activity, except journal advertising, in brands generating only $25-100m per year was extremely low ($0.1 – $1.0). DTC had the lowest ROI of all promotional channels, irrespective of annual sales or launch year. Defining ROI ROI is a means of calculating accrued benefit for a given cost over a given time period. ROI methodologies in the pharmaceutical industry are used for resource allocation to compare relative returns in a portfolio of options. There is no single, all-purpose evaluation tool, but the following quantitative measures are often used: ● Payback period: the amount of time required for the benefits to equal the cost of the project ● Net present value: the present value of future net cash flows ● Internal rate of return: annualised compounded return rate expressed as a percentage ● Average marginal ROI: the return from the marginal expenditure of one dollar Calculating the investment requires that all sales force costs are taken into account — for example, training, salary, samples — and that cost is divided by the proportion of the sales force which promotes any particular brand. For the cost side, one may exclude advertising and promotion costs, which are not part of the sales force effort, although there are methods that describe the analysis of using multiple channels simultaneously. In addition, one may exclude distribution, medical or general business administration costs, as these Carry-over This residual effect of incremental sales accounts for the observation that sales do not decrease to zero if promotion stops, and that the return on promotional expenditure is not immediate. Thus, the concept of carry-over acknowledges the time component to ROI calculations and that carry-over is crucial to discount the projected sales that occur in absence of continued promotion. The carry-over of a product marketed with significant funding will be greater than one with modest funding. In a dynamic market, there are many independent variables which affect carry-over rate, such as an increasing market size, overall volume of sales, and sales response to promotional activity. Carry-over values could range from 60% for a generic drug, to 85% for a branded, well-marketed drug. A carry-over rate of 85% implies that for any given year, if all promotional and sales activities stopped, 85% of the previous year’s sales would still be made due to the residual brand equity, product familiarity, widespread adoption, and customers’ prescribing experience. Conclusion The data show that launch date and annual sales volume affect channel effectiveness, therefore life cycle marketing managers need to assess category growth and market maturity. ROI is a useful tool to evaluate the cost and contribution of a marketing channel for a brand, or across the portfolio of brands. Using robust and current data allows management to analyse promotion to move from a low-profit to a high-profit portfolio position. Unless there are clear commercial reasons, such as marketing investment at launch, it appears prudent to concentrate resources on promoting highestvalue brands. Reference 1. Wittink, D., “Analysis of ROI for Pharmaceutical Promotion” Presentation, 18 September 2002. About the Author Gerhard Symons is a doctoral researcher at the Centre for Health Management, Tanaka Business School, Imperial College London.

Table of Contents for the Digital Edition of Pharmaceutical Executive Europe - February 2008

Pharmaceutical Executive Europe - February 2008
From the Editor
News and Analysis
Brussels Report
R&D: Innovation - Learning to Share
Drug Launch - The Preparation Game
Q&A - Getting a Head Start
Regulatory Compliance - Credible Compliance
Clinical Trials - Establishing Trials in China
The Mix - Relevant ROI
Comment - Taming the Trader
Last Word - Under the Microscope

Pharmaceutical Executive Europe - February 2008