Direct to Consumer Advertising History Term Paper

Pages: 59 (16271 words)  ·  Bibliography Sources: 0  ·  File: .docx  ·  Level: College Senior  ·  Topic: Business - Advertising

SAMPLE EXCERPT . . .

THE DTC ADVERTISING PHENOMENON

The National Institute for Health Care Management, a nonprofit watchdog agency, estimated that expenditures in pharmaceutical advertising in the U.S. grew from an estimated $55 million in 1991 to $2.5 billion in 2001. While the numbers seem exponential, the Institute points out that the ads represented merely 16% of the entire budget for drug promotions in 2001. A historic perception perpetuated by the drug industry is that costs are driven by expenditures in research and development. This has been considered a valid argument, as advances in drug research are indeed beneficial to humanity. However, recent examination of the industry's expenditures indicates that marketing (34.4%), not R&D (13.7%), comprise the lion's share of the industry's operating expenditures.

Families USA is a nonprofit group that champions for affordable health care. The group reported that, based on information obtained from the Securities and Exchange Commission, the top nine drug makers spent twice as much to advertise drugs as to develop new ones. One such company, Merck, spent 15% of its $40 billion in 2001 sales on advertising compared to 6% on R&D.

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During Congressional testimony a University of Minnesota Professor of Pharmaceutical Economics named Stephen Schondelmeyer stated that advertising comprised approximately 30% of the price of a medicine in the United States as compared with7% in Great Britain. Industry representatives countered by saying that half of the promotional expense had been attributable to free samples for patients. In addition, representatives countered estimates of R&D expenses, saying the $500 million figure that was used as the baseline for the development of a new drug was more like between $675 million (Lehman Healthcare) to $880 million (Boston Consulting Group). (Kennebec Journal, (http://www.mainetoday.com) Even so, when compared to outlays for advertising and promotion, the numbers speak for themselves.

TOPIC: Term Paper on Direct to Consumer Advertising History Assignment

In a study published by the Kaiser Family Foundation in November of 2001 entitled "Prescription Drug Trends: A Chartbook Update," sampling, or the value of samples left at sales visits to office-based physicians by pharmaceutical sales representatives, comprise at least half of promotional expenditures. The samples are valued at retail, which is a misleading figure, since the cost of placing an ad in a newspaper or a magazine does not come with a retail markup. The cost of this portion, then, would be significantly lowered if it were adjusted to reflect the cost basis of the samples.

Sampling

Detailing

DTC Advertising

Professional Journals

The actual dollar value of the amount of spending is represented in the chart below. As the graph illustrates, total promotional spending by pharmaceutical companies in the United States reached nearly $16 billion in the year 2000. Aside from the cost of "sampling," "detailing" is considered to consist of expenses for sales activity of pharmaceutical representatives directed to office-based and hospital-based physicians. According to Kaiser, approximately 83% of this spending is estimated to be for office-based sales visits. The remainder, while not specified, may consist of perks that salespersons offer to doctors as incentives for purchasing their products. The remainder, or the translation of 17% of the cost of "detailing," is illustrated in numeric values below:

Unspecified Detailing Expenditures

This calculation illustrates that between 1996 and 2000, or in the span of five years, $3.3 billion dollars was spent in unspecified promotional expenses to doctors, or the equivalent of the cost of producing 4.7 new drugs at an average cost of $700,000,000 each.

Sampling

Detailing

DTC Advertising

Professional Journals

Source: IMS Health, Inc., Integrated Promotion Service, and Competitive Media Reporting, 1996-2001.

A further examination of the data reveals the change in spending for each category over the years specified. While sampling (12.8%) and detailing increased at a steady pace (12.4%) and journal spending increased only slightly (1.4%), direct to consumer advertising increased threefold. The shift in the industry's promotional strategy indicates a strong leniency toward direct to consumer advertising.

Avg. Annual % Change

Sampling

Detailing

DTC Advertising

Professional Journals

The shift from marketing directly to medical professionals to targeting consumers is largely taking place on television. The Kaiser report shows that by the year 2000, $1.5 billion of the $2.5 billion spent on DTC advertising was for television placement, up from just $36 million in 1994.

Print & Other

TV

Source: Sonderegger Research Center analysis, based on data from IMS Health, Inc., Integrated Promotion Service, and Competitive Media Reporting, 1994-2001.

Since 1994, television ads increased an average of 87.9%, while print ads increased an average of 25.4%.

Avg. Annual % Change '94-'00

Print & Other

TV

CREATING DEMAND

It is true that in America, the demand for medical cures is prevalent among consumers. The Federal Trade Commission estimates that 75% of the population complain of physical problems (Greenan, James P. Report of the Presiding Officer on Proposed Trade Regulation Rule: Concerning the Advertising of Over -- the Counter Antacids. Washington, D.C.: Federal Trade Commission, 1979.). Ailments range from symptoms of general fatigue, the common cold or flu, or aches and pains to much more serious illnesses. In a society marked by convenience, it is a common notion to resolve any discomfort by taking a pill. Such societal norms are often invented by television and the media. This culture has been largely spawned by the abundance of advertisements for these miracle products and the image that is portrayed, from immediate relief to increased vitality and even a youthful or attractive appearance.

The pharmaceutical industry is not different than any other industry in its use of the media and advertising strategy in order to capture a larger share of the market for its products. In a report entitled "Top 10 Developments on the Pharmaceutical Landscape" published in Motion Magazine on July 26th, 2001, it was estimated that 40% of the $2.5 billion spent on advertising was to promote a total of ten products, which could be characterized as new, expensive drugs which were earmarked for long-term use by a wide audience. (Mintzes, Barbara. The Centre for Health Services and Policy Research at the University of British Columbia, Vancouver, British Columbia, Canada. Motion Magazine July 26, 2001.)

It is becoming increasingly evident that direct-to-consumer advertising is creating a demand for specific drugs -- drugs that may not be appropriate or necessary. According to a 1998 study reported in Prevention and Metro Doctors magazines, direct-to-consumer advertising "encouraged a projected 21.2 million consumers to talk to their doctor about a medical condition or illness they had never talked with their doctor about before seeing the advertising." While consumers may resort to available sources of information to investigate a drug such as newspapers and periodicals, a study by Harvard University and Harvard Pilgrim Health Care, published in the New England Journal of Medicine in June 2000 found that news articles often contain little or no substantive information, particularly with regard to cost or risk. Researchers reviewed 207 articles and found only 47% mentioned risks and only 30% mentioned costs. In addition, 170 stories cited an expert or a scientific study and 50% of those experts and studies were financially tied to the drug manufacturer.

According to Scott-Levin, a drug marketing research firm in Newtown, Pa., while all office visits to doctors rose 2% during the first nine months of 1998, visits for conditions targeted by ad campaigns rose exponentially. Patient visits for smoking cessation rose 263%, for example, while visits to treat impotence jumped 113%, hair loss 30%, osteoporosis 22%, high cholesterol 19% and allergies 11%. (Maguire, Phyllis. How Direct-To-Consumer Advertising Is Putting The Squeeze On Physicians. ACP-ASIM Observer, March 1999)

Increases in total drug spending are concentrated in a relatively small number of therapeutic categories. Four drug categories account for 30.8% of the total $42.7 billion increase in drug spending between 1993 and 1998: antihistamines, antidepressants, cholesterol lowering agents, and anti-ulcerant drugs. (Barents Group for the National Institute for Health Care Management (NIHCM), 1999).

In essence, is all this advertising paying off? Statistics indicate that it is. Prescription drug spending is the most rapidly growing segment of all healthcare spending. In the year 2000, an estimated $116.9 billion in spending can be attributed to prescriptions, almost double the amount spent in 1995. Conversely, expenditures for physicians and clinical services increased approximately 30%, whereas expenditures for hospital care increased 20%. Between 1997 and 2000, the Kaiser group cites the factors contributing to rising prescription drug expenditures as: 24% due to manufacturing price increases, 28% due to the type of prescriptions used, and 48% due to increased utilization (i.e., the number of prescriptions dispensed.) The average annual percent change per year during the same period was 3.9% price, 7.1% utilization, and 4.2% for the types of prescriptions used. The study measured the same parameters for the period from 1993-1997. The average annual percent changes for those years were: 1.9% price, 4.6% utilization, and 3.2% for the type of prescription. Price and utilization had increased the most between the two periods.

The Kaiser Group cites that the "top 10 drugs ranked by DTC advertising spending accounted for about 38% of all DTC spending… [END OF PREVIEW] . . . READ MORE

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