Marketing Spending Models

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. IntroductionThe pharmaceutical industry is one of the largest and most profitable industries From 1995 to 2002, the pharmaceutical industry was the leading industry in the USA in terms of return on sales. Pharmaceutical firms still ranked third, realizing a return on sales of 19.3 % in 200819.3 % in (Lundy 2010. Due to the long, complex, and highly regulated development process, firms needed to invest ca. US $ 1,318 million into a new drug in 2005 (EFPIA 2011). The market success of the new product, however, is uncertain. It depends on several factors, among them the entry order position (e.g., Berndt et al. 1995), perceived drug effectiveness (Venkataraman and Stremersch 2007), etc. As a consequence, marketing becomes crucial in order to maximize revenues over the life cycle of the new product. Since product development, distribution, and pricing are highly regulated across the world, pharmaceutical firms are not as flexible as firms in other industries in using these elements of the marketing mix.