Skip to main content
SpringerLink
Log in

Marketing Spending Models

  • Chapter
  • First Online:
Innovation and Marketing in the Pharmaceutical Industry

Part of the book series: International Series in Quantitative Marketing ((ISQM,volume 20))

Abstract

To the surprise of many, pharmaceutical firms belong to the biggest spenders on marketing. The marketing spend-to-sales ratio may be as high as 30 %. Expenditures in the USA alone were $10.9 billion in 2009. Hence, there is a strong interest in understanding how effectively this industry spends its marketing money.

The objective of this chapter is to review and synthesize the literature on marketing spending in the pharmaceutical industry. It reviews recent trends in pharmaceutical marketing. It looks at how marketing managers in the pharmaceutical industry actually arrive at spending decisions. The author further discusses models that describe how pharmaceutical demand responds to marketing expenditures. He summarizes findings on the responsiveness and profitability (ROI) of various spending categories.

Another focus of the chapter is on normative applications of marketing spending models. Normative models help finding the right budget across spending categories, customer groups, and products. The discussion covers static and dynamic optimization approaches. The author identifies fields of promising future research from this synthesis of the extant literature.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 149.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 199.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 279.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    Product management does not only refer to phase III studies that are required to obtain drug approval but also to phase IV studies. These studies are carried out after launch and may include comparative studies to show the superiority of the drug over competitive drugs.

  2. 2.

    I want to emphasize that I use the term ROI from a marginal analysis perspective. Here, the objective is to find the profit maximizing spending level. The ROI measures the incremental profit gain from an incremental increase in spending level divided by that increase in spending. Practitioners sometimes refer to the ratio of total profit gain and total spending level. By definition, this ratio is maximized if incremental ROI is zero.

References

  • Albers S (2012) Optimizable, implementable and generalizable aggregate response modeling for decision support. Int J Res Market 29(2):111–122

    Google Scholar 

  • Albers S, Mantrala M, Sridhar S (2010) Personal selling elasticities: a meta-analysis. J Mark Res 47(5):840–853

    Article  Google Scholar 

  • Azoulay P (2002) Do pharmaceutical sales respond to scientific evidence? J Econ Manag Strateg 11(4):551–594

    Article  Google Scholar 

  • Bauer HH, Fischer M (2000) Product life cycle patterns for pharmaceuticals and their impact on R&D profitability of late mover products. Int Bus Rev 9:703–725

    Article  Google Scholar 

  • Berndt ER, Bui L, Reily DR, Urban GL (1995) Information, marketing, and pricing in the U.S. antiulcer drug market. Am Econ Rev 85(2):100–105

    Google Scholar 

  • Berndt ER, Pindyck RS, Azoulay P (2003) Consumption externalities and diffusion in pharmaceutical markets: antiulcer drugs. J Ind Econ 51(2):243–270

    Article  Google Scholar 

  • Blasko VJ, Patti CH (1984) The Advertising Budgeting Practices of Industrial Marketers. J Mark 48(Fall):104–110

    Article  Google Scholar 

  • Caplow T, Raymond JJ (1954) Factors influencing the selection of pharmaceutical products. J Mark 19(July):18–23

    Article  Google Scholar 

  • Ching A, Ishihara M (2010) The effects of detailing on prescribing decisions under quality uncertainty. Quant Mark Econ 8(2):123–165

    Article  Google Scholar 

  • Chintagunta PK, Desiraju R (2005) Strategic pricing and detailing behavior in international markets. Mark Sci 24(1):67–80

    Article  Google Scholar 

  • Chintagunta PK, Jiang R, Jin GZ (2009) Information, learning, and drug diffusion: the case of Cox-2 inhibitors. Quant Mark Econ 7(4):399–443

    Article  Google Scholar 

  • Colsarici C, Vakratsas D (2010) Category-versus brand-level advertising messages in a highly regulated environment. J Mark Res 47(6):1078–1089

    Article  Google Scholar 

  • Crawford GS, Shum M (2005) Uncertainty and learning in pharmaceutical demand. Econometrica 73(4):1137–1173

    Article  Google Scholar 

  • Dekimpe MG, Hanssens DM (1999) Sustained spending and persistent response: a new look at long-term marketing profitability. J Mark Res 36(4):397–412

    Article  Google Scholar 

  • Dong X, Chintagunta PK, Manachanda P (2011) A new multivariate count data model to study multi-category physician prescription behavior. Quant Mark Econ 9(3):301–337

    Article  Google Scholar 

  • Donhue JM, Berndt ER (2004) Effects of direct-to-consumer advertising on medication choice: the case of antidepressants. J Publ Pol Market 23(2):115–127

    Article  Google Scholar 

  • Dorfman R, Steiner PO (1954) Optimal advertising and optimal quality. Am Econ Rev 44(December):826–836

    Google Scholar 

  • EFPIA (2011) The pharmaceutical industry in figures, key data, 2011 update. European Federation of Pharmaceuticals Associations, London. http://www.efpia.eu/uploads/roduecs/Documents/figures_204finne-20110610-014en-vl.pdf. Accessed 27 July 2011

  • Fischer M, Albers S (2010) Patient- or physician-oriented marketing: what drives primary demand for prescription drugs? J Mark Res 47(1):103–121

    Article  Google Scholar 

  • Fischer M, Shankar V, Clement M (2005) Can a late mover use international market entry strategy to challenge the pioneer? MSI Report No. 05-118. Cambridge, MA: Marketing Science Institute

    Google Scholar 

  • Fischer M, Leeflang PSH, Verhoef PC (2010) Drivers of peak sales for pharmaceutical brands. Quant Mark Econ 8(4):429–460

    Article  Google Scholar 

  • Fischer M, Shin H, Hanssens DM (2011) Brand performance volatility arising from marketing spending behavior under competition. Working paper, University of California at Los Angeles

    Google Scholar 

  • Fischer M, Albers S, Wagner N, Frie M (2011b) Dynamic marketing budget allocation across countries, products, and marketing activities. Market Sci 30(4):568–585

    Article  Google Scholar 

  • Gönül FF, Carter F, Petrova E, Srinivasan K (2001) Promotion of prescription drugs and its impact on physicians’ choice behavior. J Mark 65(3):79–90

    Article  Google Scholar 

  • Gonzalez J, Sismeiro C, Dutta S, Stern P (2008) Can branded drugs benefit from generic entry? the role of detailing and price in switching to non-bioequivalent molecules. Int J Res Mark 25:247–260

    Article  Google Scholar 

  • Grabowski H, Vernon J (1990) A new look at the returns and risks to pharmaceutical R&D. Manag Sci 36(7):804–821

    Article  Google Scholar 

  • Hahn M, Park S, Krishnamurthi L, Zoltners A (1994) Analysis of new product diffusion using a four segment trial-repeat model. Mark Sci 13(3):224–247

    Article  Google Scholar 

  • Hanssens DM, Parsons LJ, Schultz RL (2001) Market response models, econometric and time series analysis, 2nd edn. Kluwer Academic Publisher, Boston

    Google Scholar 

  • IMS Health (2010) IMS integrated promotional services: total US promotional spend by type, 2009. http://www.imshealth.com/deployedfiles/imshealth/Global/Content/StaticFile/Top_Line_Data/PromoUpdate2009.pdf. Accessed 12 July 2011

  • Hurwood DL (1968) How companies set advertising budgets. Conf Board Rec 5:34–41

    Google Scholar 

  • Kotler P, Armstrong G (2010) Principles of marketing, 13th edn. Prentice Hall, Upper Saddle, NJ

    Google Scholar 

  • Kremer STM, Bijmolt THA, Leeflang PSH, Wieringa JE (2008) Generalizations on the effectiveness of pharmaceutical promotional expenditures. Int J Res Mark 25:234–246

    Article  Google Scholar 

  • Leeflang PSH, Wittink DR, Wedel M, Naert PA (2000) Building models for marketing decisions. Kluwer Academic Publisher, Boston

    Book  Google Scholar 

  • Lilien GL (1979) ADVISOR 2: modeling the marketing mix decision for industrial products. Manag Sci 25(2):191–204

    Article  Google Scholar 

  • Lilien GL, Weinstein D (1984) An international comparison of the determinants of industrial marketing expenditures. J Market 48(Winter):46–53

    Article  Google Scholar 

  • Lilien GL, Rao AG, Kalish S (1981) Bayesian estimation and control of detailing effort in a repeat purchase diffusion environment. Manag Sci 27(5):493–506

    Article  Google Scholar 

  • Lundy J (2010) Prescription drug trends, Kaiser family foundation fact sheet #3057-08. http://www.kff.org. Accessed 18 July 2011

  • Manchanda P, Chintagunta PK (2004) Responsiveness of physician prescription behavior to sales force effort: an individual level analysis. Mark Lett 15(2–3):129–145

    Article  Google Scholar 

  • Manchanda P, Honka E (2005) The effects and role of direct-to-physician marketing in the pharmaceutical industry: an integrative review. Yale J Health Pol Law Ethics 2:785–822

    Google Scholar 

  • Manchanda P, Rossi PE, Chintagunta PK (2004) Response modeling with nonrandom marketing-mix variables. J Mark Res 41(4):467–478

    Article  Google Scholar 

  • Manhattan Research (2008) Taking the Pulse® Europe, proprietary market research report. http://manhattanresearch.com/Products-and-Services/Physician/Taking-the-Pulse-Global/Taking-the-Pulse-Europe. Accessed 20 July 2011

  • Mantrala MK (2002) Allocating marketing resources. In: Weitz B, Wensley R (eds) Handbook of marketing. Sage, London, pp 409–435

    Chapter  Google Scholar 

  • Mantrala MK, Sinha P, Zoltners AA (1992) Impact of resource allocation rules on marketing investment-level decisions and profitability. J Mark Res 29(2):162–175

    Article  Google Scholar 

  • Mitchell LA (1993) An examination of methods of setting advertising budgets: practice and the literature. Eur J Market 27(5):5–21

    Article  Google Scholar 

  • Mizik N, Jacobson R (2004) Are physicians ‘easy marks’?: quantifying the effects of detailing and sampling on new prescriptions. Manag Sci 50(12):1704–1715

    Article  Google Scholar 

  • Montgomery DB, Silk AJ (1972) Estimating dynamic effects of market communications expenditures. Manag Sci 18(10):B485–B501

    Article  Google Scholar 

  • Montoya R, Netzer O, Jedidi K (2010) Dynamic allocation of pharmaceutical detailing and sampling for long-term profitability. Mark Sci 29(5):909–924

    Article  Google Scholar 

  • Nair HS, Manchanda P, Bhatia T (2010) Asymmetric social interactions in physician prescription behavior: the role of opinion leaders. J Mark Res 47(5):883–895

    Article  Google Scholar 

  • Narayanan S, Manchanda P (2009) Heterogeneous learning and the targeting of marketing communication for new products. Mark Sci 28(3):424–441

    Article  Google Scholar 

  • Narayanan S, Desiraju R, Chintagunta PK (2004) Return on investment implications for pharmaceutical promotional expenditures: the role of marketing-mix interactions. J Mark 68(4):90–105

    Article  Google Scholar 

  • Narayanan S, Manchanda P, Chintagunta PK (2005) Temporal differences in the role of marketing communication in new product categories. J Mark Res 42(3):278–290

    Article  Google Scholar 

  • Nerlove M, Arrow KJ (1962) Optimal advertising policy under dynamic conditions. Economica 29(May):129–142

    Article  Google Scholar 

  • Neslin SA (2001) ROI analysis of pharmaceutical promotion (RAPP): an independent study. Association of Medical Publications. http://www.rxpromoroi.org/rapp/. Accessed 26 Oct 2005

  • OECD (2011) OECD health data 2011. http://stats.oecd.org/index.aspx?DataSetCode=HEALTH_STAT. Accessed 27 July 2011

  • Osinga EC, Leeflang PSH, Wieringa JE (2010) Early marketing matters: a time-varying parameter approach to persistence modeling. J Mark Res 47(2):173–185

    Article  Google Scholar 

  • Osinga EC, Leeflang PSH, Srinivasan S, Wieringa JE (2011) Why do firms invest in consumer advertising with limited sales response? a shareholder perspective. J Mark 75(1):109–124

    Article  Google Scholar 

  • Parsons LJ, Vanden Abeele P (1981) Analysis of sales call effectiveness. J Mark Res 18(1):107–113

    Article  Google Scholar 

  • Piercy NF (1987) The marketing budgeting process: marketing management implications. J Market 51(October):45–59

    Article  Google Scholar 

  • Prendergast G, West D, Shi Y-Z (2006) Advertising budgeting methods and processes in China. J Advert 35(3):165–176

    Article  Google Scholar 

  • Rao AG, Yamada M (1988) Forecasting with a repeat purchase diffusion model. Manag Sci 34(6):734–752

    Article  Google Scholar 

  • Rizzo JA (1999) Advertising and competition in the ethical pharmaceutical industry: the case of antihypertensive drugs. J Law Econ 42(April):89–116

    Article  Google Scholar 

  • Shankar V (1997) Pioneers’ marketing mix reactions to entry in different competitive games structures: theoretical analysis and empirical illustration. Mark Sci 16(4):271–293

    Article  Google Scholar 

  • Shankar V, Carpenter GS, Krishnamurthi L (1998) Late mover advantage: how innovative late entrants outsell pioneers. J Mark Res 35(1):54–70

    Article  Google Scholar 

  • Shankar V, Carpenter GS, Krishnamurthi L (1999) The advantages of entry in the growth stage of the product life cycle: an empirical analysis. J Mark Res 36(2):269–276

    Article  Google Scholar 

  • Skiera B, Albers S (2008) Prioritizing sales force decision areas for productivity improvements using a core sales response function. J Pers Selling Sales Manag 28(2):145–154

    Article  Google Scholar 

  • Sridhar S, Mantrala MK, Albers S (2014) Pharmaceutical detailing elasticities, Pharmaceutical Marketing, Springer’s ISQM series (forthcoming)

    Google Scholar 

  • Srinivasan S, Hanssens DM (2009) Marketing and firm value: metrics, methods, findings, and future directions. J Mark Res 46(June):293–312

    Article  Google Scholar 

  • Tull DS, Wood VR, Duhan D, Gillpatrick T, Robertson KR, Helgeson JG (1986) ‘Leveraged’ decision making in advertising: the flat maximum principle and its implications. J Mark Res 23(1):25–32

    Article  Google Scholar 

  • Venkataraman S, Stremersch S (2007) The debate on influencing doctors’ decisions: are drug characteristics the missing link? Manag Sci 53(11):1688–1701

    Article  Google Scholar 

  • Wagner N, Fischer M (2011) An empirical analysis of the use of rules in the marketing budget allocation process. Working paper, University of Cologne

    Google Scholar 

  • West D, Crouch GJ (2007) Advertising budgeting practices in Australia and New Zealand. Australas Mark J 15(3):21–34

    Google Scholar 

  • Wittink DR (2002) Analysis of ROI for pharmaceutical promotions (ARPP) presentation to the Association of Medical Publications. http://www.vioworks.com/clients/amp. Accessed 26 Oct 2005

Download references

Author information

Authors and Affiliations

  1. University of Cologne, Sydney, Australia

    Marc Fischer (Professor of Marketing and Market Research)

  2. UTS Business School, Sydney, Australia

    Marc Fischer (Associate Professor of Marketing)

Authors
  1. Marc Fischer
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Marc Fischer
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Marc Fischer .

Editor information

Editors and Affiliations

  1. Smeal College of Business, The Pennsylvania State University, University Park, Pennsylvania, USA

    Min Ding

  2. The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania, USA

    Jehoshua Eliashberg

  3. Department of Business Economics, Erasmus School of Economics, Erasmus University Rotterdam, Rotterdam, The Netherlands

    Stefan Stremersch

Rights and permissions

Reprints and permissions

Copyright information

© 2014 Springer Science+Business Media New York

About this chapter

Cite this chapter

Fischer, M., Fischer, M. (2014). Marketing Spending Models. In: Ding, M., Eliashberg, J., Stremersch, S. (eds) Innovation and Marketing in the Pharmaceutical Industry. International Series in Quantitative Marketing, vol 20. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-7801-0_19

Download citation

Publish with us

Policies and ethics

Search

Navigation