After the federal government relaxed rules on pharmaceutical advertising in the mid-1990s, companies spent hundreds of millions making DTC a component of their marketing budgets. Branded marketing expenditures rose 16.2% a year between 1995 and 1999. Although it doesn't have the biggest market share - that goes to one-on-one physician visits and to product sampling - DTC grew at a higher rate between 1995 and 1999, 53.7% a year, from $200 million in 1995 to $1.5 billion in 1999. Eighty percent of all pharmaceutical brands launched between 1996 and 2001 used DTC advertising.
But two recent studies found that DTC lags behind other more traditional marketing in ROI. One of the studies, 2001's "ROI Analysis of Pharmaceutical Promotion (RAPP)," found DTC had an overall ROI of 19 cents for every $1 invested and a range between $0 and $1.37 depending on the brand. The study's author, Dr. Scott Neslin, suggested throwing money at DTC wasn't the solution. But he also said it was more effective for larger and more recently launched brands. Another study, conducted by Harvard University and the Massachusetts Institute of Technology and funded by the Kaiser Family Foundation, suggested that DTC had value but probably only at the class level and not for individual brands.
Meanwhile, a new study conducted by IMS Health, found DTC achieved better ROI than either previous report concluded. IMS found DTC can work for both new and established brands, depending on the market and other variables.
IMS' study measured the effects of DTC advertising between 1998 and 2002 for 41 brands. The study was presented Monday morning at the first day of the Advertising Research Federation's Week of Workshops in New York, which focused on pharmaceutical advertising.
Only 10% of brands in the IMS study failed to reach positive ROI, earning less than a dollar for each $1 of spending on DTC. Seventeen percent earned between $1.01 and $1.50, 24% delivered $1.51-$2 for each $1 spent; 29% delivered between $2 and $3 for each $1; 14.6% delivered between $3.01-$5; and 4.9% delivered between $5.01 and $7.
The size of the brand in the market also had an impact. Generally, the larger the brand, the larger the ROI, said David Gascoigne, practice head-promotion at IMS Health. The average ROI was $1.09 for every $1 for pharmaceuticals with under $200 million in annual brand sales but rose to $2.01 for products with between $200 million and $1 billion in annual brand sales; and $3.66 for products with more than $1 billion in brand sales.
Several brands overachieved, although in general the risks of DTC are greater for smaller brands.
Gascoigne said that advertising and media are a major factor driving ROI. He said that improving the quality of the creative is as important or more important than the weight of the media spend. He also said that depending on the situation, a $20 million to $30 million spend can be equal to a $50 million to $60 million spend.
Brands analyzed in the study mostly spent their DTC dollars on both TV and print, although a handful were all TV and a few all print. While there's no hard-and-fast rule vis-à-vis the study, TV seemed to be more effective in the lifestyle and seasonal segments of the market. Print seemed to be more effective with more severe conditions.
"Getting the right media for the right market is very important," Gascoigne said.
Gascoigne said DTC doesn't deserve the bad reputation it's received in recent years, and said that some of the lower ROI could have been the result of overspending by companies in the early days of DTC. He said that many brands have a lot more experience now compared to previous years.
"There's a greater diligence about choosing brands and level of DTC spending," said Gascoigne.
That diligence was displayed in a panel following Gascoigne's presentation, where a Bristol Myers Squibb executive, analyst and account director described how the decision is made to embark on a DTC campaign. They described an eight-month process that involved test-control marketing, adapted from the consumer packaged goods field. They found a sudden jump in the markets where the DTC advertising broke compared to the control market.
But Gascoigne and others said that DTC isn't a magic cure-all for the pharmaceutical industry. It has its place within the overall marketing, including the much larger share of spend that goes to physician visits, sampling and other promotional activities.
"There are situations where DTC ROI does not pay for itself. You still have to advertise the right brand in the right market," Gascoigne said.