tag:blogger.com,1999:blog-8550428.post3325049426057562162..comments2024-03-28T13:38:36.788-04:00Comments on Pharma Marketing Blog: An Experiment: Ban All DTC Broadcast Advertising for One YearVladhttp://www.blogger.com/profile/04114063498108633047noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-8550428.post-86740240042283224892008-11-05T21:17:00.000-05:002008-11-05T21:17:00.000-05:00Ok John- you are incorrect on two counts. First, y...Ok John- you are incorrect on two counts. First, you need to use marginal profit analysis, not average profit. The DTC spending is done at the margin, meaning you need to take the variable cost of selling the last pill- more like a 5% cost plus the advertising.<BR/><BR/>So DTC returns $2 per $1 cost for the ad and .10 for the cost of the pill. The 20% profit you use iincludes all the fixed costs.<BR/><BR/>Second, DTC spending is not $5 billion. Those numbers are list price. All brand managers will tell you that their real spending is 50-65% of reported numbers. DTC soending is about $3 billion in reality against that $284 billion you quote. <BR/><BR/>So the $3 billion generates $6 billion and the profit is about 2. billion. Now you are correct that DTC is not a major driver of sales, but good at the margins of promotional spending. For some brands it can be a driver, like antihistamines, ED, or lifestyle drugs like diet pills. For most big brands it is a nice to do but not a creator of blockbuster sales.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8550428.post-71639846956477476632008-11-05T16:14:00.000-05:002008-11-05T16:14:00.000-05:00Don't get me started on DTC ROI! I've written abou...Don't get me started on DTC ROI! I've written about that and the lack of it many times.PharmaGuyhttps://www.blogger.com/profile/10211557578124130640noreply@blogger.comtag:blogger.com,1999:blog-8550428.post-36612590716192109872008-11-05T16:10:00.000-05:002008-11-05T16:10:00.000-05:00It's possible that DTC ads are not all that effect...It's possible that DTC ads are not all that effective. Taking into account the negative view of DTC with pharma by the public, likely the industry will move to online advertising at select and relevant websites.<BR/><BR/>Also, there are several cases where little if any ad spending was directed at particular drugs, yet they still experienced similiar if not greater growth than those advertised.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8550428.post-52433051808694111582008-11-04T16:44:00.000-05:002008-11-04T16:44:00.000-05:00Why don't we just agree to disagree as to whose nu...Why don't we just agree to disagree as to whose numbers are valid? It's all just an educated, rough calculation anyway.<BR/><BR/>Both calculations prove my main QUALITATIVE point: profits will not suffer if TV DTC were eliminated. <BR/><BR/>In your analysis, the profit lost equals exactly the money saved by eliminating DTC. In my analysis, the money saved is greater than the profit lost. Since these are only approximations, I see no real difference and the fact remains, the industry certainly would not face a great loss and probably NO loss in profits if TV DTC advertising were banned and it might -- just maybe -- benefit!<BR/><BR/>My goal here is to point out to the drug industry how it may benefit financially and definitely benefit in the public relations arena by eliminating TV DTC ads. That makes me pro-industry rather than anti-DTC.PharmaGuyhttps://www.blogger.com/profile/10211557578124130640noreply@blogger.comtag:blogger.com,1999:blog-8550428.post-21333689287856738632008-11-04T16:32:00.000-05:002008-11-04T16:32:00.000-05:00Sorry to belabor the point, but this is a direct q...Sorry to belabor the point, but this is a direct quote from your post:<BR/> <BR/>"That's a drop of $1.2 billion in profit (20% of $6 billion). The $3 billion in savings would more than make up for that loss."<BR/><BR/>That is <B>simply not true</B>, because the calculation is invalid - per my original post.<BR/><BR/>I understand your sentiment, and it is an opinion shared by many, but your contention that it is backed up by numbers is what I have a problem with.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8550428.post-8392467084140594802008-11-04T15:39:00.000-05:002008-11-04T15:39:00.000-05:00I'm not obliged to retract anything I did not say....I'm not obliged to retract anything I did not say. I'm only talking about the 60% of the DTC budget that is earmarked for TV. Which still leaves print and Internet, the latter, I believe, has a much higher marginal ROI than broadcast TV.<BR/><BR/>What the industry needs is more TARGETED marketing to get the most bang out of its DTC budget.<BR/><BR/>It also needs to wean itself from TV, which often stokes the egos of marketers rather than the bottom line.PharmaGuyhttps://www.blogger.com/profile/10211557578124130640noreply@blogger.comtag:blogger.com,1999:blog-8550428.post-20546899120327431212008-11-04T15:31:00.000-05:002008-11-04T15:31:00.000-05:00So, does that mean that you retract the conclusion...So, does that mean that you retract the conclusion that cutting DTC actually saves the industry money?<BR/><BR/>I'm curious, what other forms of promotion generate a higher marginal ROI than what you've laid out for DTC?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8550428.post-53639848585846596612008-11-04T15:21:00.000-05:002008-11-04T15:21:00.000-05:00I don't believe broadcast DTC has a lifetime value...I don't believe broadcast DTC has a lifetime value that cannot be more than compensated for by other means of promotion -- remember, I am not proposing that all forms of DTC be banned.<BR/><BR/>Anyway, I think we can reach the same conclusion from both analyses: pharma profits would NOT suffer if broadcast DTC advertising were banned.PharmaGuyhttps://www.blogger.com/profile/10211557578124130640noreply@blogger.comtag:blogger.com,1999:blog-8550428.post-6940143528627897532008-11-04T15:10:00.000-05:002008-11-04T15:10:00.000-05:00Sorry, but you can't assume that your profit margi...Sorry, but you can't assume that your profit margin remains the same when you take away spending that generates 2 to 1 revenue.<BR/><BR/>Here's how you do this analysis:<BR/><BR/>Assuming that the industry does have a 20% profit margin, it spends $227b to make $284b in sales. If you cut DTC, assuming a 2:1 ROI, the industry would spend $222b to make $274b.<BR/>Industry margin with DTC: $57b<BR/>Industry margin w/o DTC: $52b<BR/>Marginal difference = $5b<BR/><BR/>Thus, the marginal ROI is actually 1:1.<BR/><BR/>This, of course, assumes only a short-term ROI. If you believe that DTC has a longer term effect due to lifetime value, the DTC investment pays off rather nicely over 2-3 years.<BR/><BR/>If you agree with this analysis, I hope you'll post a correction which would get distributed as widely as your original post did.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8550428.post-23728292944436943442008-11-04T14:38:00.000-05:002008-11-04T14:38:00.000-05:00Of course this experiment would require a mandator...Of course this experiment would require a mandatory ban via legislative action of Congress.<BR/><BR/>It would be a form of wealth redistribution! Those companies with negative ROI would benefit more than those with positive ROI. It's just like the case where homeowners who are under water because they borrowed more than their houses are worth benefit more from Bush's bailout than those whose home equity is more than enough to cover their mortgage debt.PharmaGuyhttps://www.blogger.com/profile/10211557578124130640noreply@blogger.comtag:blogger.com,1999:blog-8550428.post-36206124322934278932008-11-04T14:22:00.000-05:002008-11-04T14:22:00.000-05:00Interesting theory. Problem is that you are using...Interesting theory. Problem is that you are using aggregates, and advertising decisions are made based on the ROI for that drug at that time. A moratorium would require consensus, and that is not likely to happen for a company that is realizing a beneficial ROI from its ads.Anonymousnoreply@blogger.com