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UNDERSTANDING & STRUCTURING THE IMPACT OF PROMOTION
The Economics of Promotion
Presented to:
Association of Medical MediaJanuary 21, 2010
Presented by:
Richard C. (Dick) AndersonPromotional Economics InstituteWilliamsburg, Virginia(757) 565-2671
BACKGROUND
35+ years of strategic and tactical promotional research Have worked within both the mail house and publishing
environment, and studied Detailing reach and frequency patterns for many different Pharmaceutical Houses
Have developed a method to analyze and project the impact of a fully integrated Promotional campaign
Professional career, for the last 35+ years, has been focused on understanding the role of promotion, each of the promotional forms/channels and how they come together to create a successful campaign
Have completed several hundred integrated promotional studies, covering 1,000’s of products
WHAT DO WE WANT TO ACCOMPLISH TODAY?
First, acquire a better understanding of the sequence of events that lead to promotional impact
Second, develop an understanding of the role of each promotional form within this sequence
Third, how to use this knowledge to better understand the role of promotional mix
And, finally, develop an understanding of the role of Competitive Environment
STARTING POINT
Promotion is an Investment, NOT an Expense! Promotional Theory does not change from one
Therapeutic Class to another Marketing Theory does not change from one
Therapeutic Class to another So what does change? Competitive Environment Changes
Marketing Environment Promotional Environment Product Environment Disease Environment
QUESTIONS TO CONSIDER What drives product growth? Promotion or Product
Benefits? What is the role of promotion? What is the role of promotional mix? How do promotional forms work together …
interactions? Does journal advertising work? What is the role of journal advertising? Does detailing work? What is the role of detailing? Does XXX Work? What is the role of XXX. How does promotion manifest its impact?
CAN YOU PROJECT PROMOTIONAL IMPACT?
I CAN and HAVE … and, normally, will be within ¼ to ½ of 1 percent
Patently Absurd you say, no one can predict the impact of promotion … and you are right if you continued to think in traditional patterns!
Let’s start with one very widely held belief … promotion drives sales / market share!
NO … at least NOT DIRECTLY Promotion drives Instability, which drives
Accountability, Acceleration, Velocity, Momentum and final Sales and/or Share!
KEY TO SUCCESS
Understand the sequence of events that take you from Promotional Program Construction to the Ultimate Impact of that campaign
Understand the role of each Promotional Form … how and where it manifests its impact, and how product Momentum is created and maintained
If a promotional form appears not to be working, find out why! BECAUSE ALL PROMOTIONAL FORMS CAN AND DO WORK THOUGHOUT THE PRODUCT’S LIFE CYCLE . THAT IS IF THEY: CONTAIN A GOOD MESSAGE ARE CORRECTLY STRUCTURED STRATEGICLY AND
TACTICALLY, AND ARE BUDGETED CORRECTLY!
MISLEADING QUESTIONS & STATEMENTS
Is my campaign increasing sales? Wrong question. Should be … is my campaign increasing sales profitably
and/or optimally?
Does Journal Advertising work? This question/statement never ceases to amaze me. Of course Journal
Advertising works! That is, if you do it CORRECTLY … good ad, budgeted properly and balanced with the rest of the campaign.
Does Detailing work? This is a more legitimate question than the prior question! Of course
Detailing works! But, does it work Profitably throughout the product life cycle? What is the MARGINAL ROI of the 3rd detail versus the 100th detail?
What about other modalities? Same profitability concepts apply and same interactive relationships apply
TRADITIONAL THOUGHT PROCESS
Promotional
Campaign
If this is what your client believes, no wonder you can not create an “Optimal” campaign and project its impact!
Sorry, but the real world is a lot more complex than the above picture!
KEY TERMS AND CONCEPTS INSTABILITY … the change in any element from one month to
the next … NRxs, share, details, pages, etc ACCOUNTABILITY … What percent of the Instability did you cause, take-up
and/or account for
CONCENTRATION … A measure of uniformity NRxs, Market Share, Number of Details, Pages, PME events, Sampling, etc.,
etc LOCATION … position within the concentration curve DOMINANCE … measure dealing with ability to dominant products with
smaller shares
BASIC ECONOMIC THEORY Multiplier Effect … a feedback loop that generates more impact Acceleration Principle … rate of change drive change
VELOCITY … first derivative or first difference … period to period change
ACCELERATION … second derivative or second difference … period to period change in the period to period change (basically, the change in Velocity
Momentum … function of Velocity and Mass … mass equating to share, NRxs, number of details, pages, samples, etc., etc.
ProductPromotion
NRx Accountability
Share Accountability
Share Acceleration
Share Velocity
Share Momentum
Market Share
Pro
duct
Pro
duct
PROMOTIONAL IMPACT & INTERACTION
AggregatedPromotion
(all Products)
Market Impact:NRx InstabilityShare Instability
Market Acceleration:NRx Growth
Market Velocity:NRx Growth
Market Momentum:NRx Growth Market NRx’s
Mar
k et
Mar
k et
This thought process lays a strong economic & necessary foundation for understanding the role of the various promotional forms and the ultimate impact of the campaign
HOW DO THE MODALITIES FIT IN THIS MODEL?
What is the role of Detailing? What is the role of Sampling? What is the role of CME? What is the role Mail? What is the role of Journal Advertising? What is the role of “E-What ever”? What is the role of Diffusion Theory? What does it take to both CREATE and
CONVERT Instability?
The Importance of Understanding
the Impact of Promotion
onAcceleration and Velocity
Predictability
WHY STUDY THIS IMPACT?
Advantages of understanding the functional relationship between promotional structure and Acceleration and Velocity Predictability Profit… as it relates to share gain and/or
lack of share loss Negative Acceleration vs. Positive Relationship between Acceleration and Velocity
VELOCITY AND ACCELERATION
Jan-
99
Apr
-99
Jul-
99
Oct
-99
Jan-
00
Apr
-00
Jul-
00
Oct
-00
Jan-
01
Apr
-01
Jul-
01
Oct
-01
Jan-
02
Apr
-02
Jul-
02
Oct
-02
Jan-
03
Apr
-03
Jul-
03
Oct
-03
-8
-4
0
4
8
12
16
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
Shar
e (%
)
Shar
e V
eloc
ity
Jan-
99
Apr
-99
Jul-
99
Oct
-99
Jan-
00
Apr
-00
Jul-
00
Oct
-00
Jan-
01
Apr
-01
Jul-
01
Oct
-01
Jan-
02
Apr
-02
Jul-
02
Oct
-02
Jan-
03
Apr
-03
Jul-
03
Oct
-03
-0.50
-0.40
-0.30
-0.20
-0.10
0.00
0.10
0.20
0.30
0.40
0.50
-0.100
-0.080
-0.060
-0.040
-0.020
0.000
0.020
0.040
0.060
0.080
0.100
Sh
are
Vel
ocit
y
Sh
are
Acc
eler
atio
n
Market Share
Market Share Velocity
Market Share Acceleration
Market Share Velocity
VELOCITY AND ACCELERATION
-8
-4
0
4
8
12
16
Jan
-99
Ap
r-9
9
Ju
l-9
9
Oct-
99
Jan
-00
Ap
r-0
0
Ju
l-0
0
Oct-
00
Jan
-01
Ap
r-0
1
Ju
l-0
1
Oct-
01
Jan
-02
Ap
r-0
2
Ju
l-0
2
Oct-
02
Jan
-03
Ap
r-0
3
Ju
l-0
3
Oct-
03
Sh
are (
%)
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
Sh
are V
elo
cit
y
-0.60
-0.50
-0.40
-0.30
-0.20
-0.10
0.00
0.10
0.20
0.30
0.40
0.50
Jan
-99
Ap
r-9
9
Ju
l-9
9
Oct-
99
Jan
-00
Ap
r-0
0
Ju
l-0
0
Oct-
00
Jan
-01
Ap
r-0
1
Ju
l-0
1
Oct-
01
Jan
-02
Ap
r-0
2
Ju
l-0
2
Oct-
02
Jan
-03
Ap
r-0
3
Ju
l-0
3
Oct-
03
Sh
are V
elo
cit
y
-0.120
-0.100
-0.080
-0.060
-0.040
-0.020
0.000
0.020
0.040
0.060
0.080
0.100
Sh
are A
ccele
ra
tio
n
Market Share
Market Share Velocity
Market Share Acceleration
Market Share Velocity
THE PATH TO SUCCESS
As shown earlier, the first job of promotion is to CREATE Instability and/or Accountability
Once this is achieved, the same strategy / message / tactics must CONVERT that Instability into growth for your product
This growth dynamic manifests itself in the concepts of Acceleration … which leads to Velocity … which leads to Momentum … which leads to Share and NRxs
This entire sequence is a function of the product’s quality, it’s campaign and the full Competitive Environment
WHO/WHAT DRIVES WHAT?
Which Promotional forms drive Instability?
Which Promotional forms drive Accountability?
Which Promotional forms drive Acceleration?
Which Promotional forms drive Velocity?
Which Promotional forms drive Momentum?
How do Promotional forms interact? Why is this understanding Important?
TRADITIONAL VIEW – NO INTERACTIONS
Detailing
Sampling
CME
Professional Print
DTC
SocialNetworking
Online
INTERACTIONSTHE REAL WORLD OF CAMPAIGN IMPACT … BASE FORMS
Detailing
Sampling
CME
Advertising
It is the Integration and Interactions of all campaign elements/modalities that drive impact!
ROLE OF EACH PROMOTIONAL FORM
Detailing
Sampling
Professional Print
Physicians Meeting & Events
Direct to Consumer
Prescription Pads
On-Line
Instability Accountability Acceleration Velocity Momentum
10 10 8 7 6
3 3 5 7 8
9* 7* 3* 2* 1*
10 7 5 3 2
Role of Promotional FormMinor ……………………………………..…………………………… Major1 2 3 4 5 6 7 8 9 10
* = Short term
COMPETITIVE ENVIRONMENTMarketing Environment
Promotional Environment
Disease Environment
Product Environment
Your Campaign must work within this Competitive Environment
COMPETITIVE ENVIRONMENT +CAMPAIGN STRUCTURE
Marketing EnvironmentPromotional Environment
Disease Environment
Product Environment
DetailingSampling
PrintAdvertising
PME
RESEARCH FINDINGS CONCERNING PROMOTIONAL IMPACT
After 1,000+ Promotional Studies
26
IMPACT OF PROMOTIONAL CHANGETIMING TO 90% MANIFESTATION
I M
P
A
C
T
Number of Months 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18-3 -2 -1 0
PMEDETAILING
PAGES
90%
What is the speed of impact of other promotional forms?
THE REAL WORLD OF PROMOTION IMPACT OF DETAILING VS. SAMPLING
Impact of most promotional forms diminish as product ages Sampling is the only form impacted minimally by age or time Question: At what point, in the product life cycle, does the
sample become the driver of the Detailing and Sampling combination?
time
Imp
act
Samples
Details
t
THE REAL WORLD OF PROMOTIONACTUAL VERSUS AUDITED DATA
Audited details are projected from a physician sample Actual details (calls) are recorded and reported by the sales
representatives Physician recall of a sales call declines as the product ages Question: If two products each show 20,000 details/month, are
they spending the same on Detailing?
time
Level
Call Report Data
Audits
Typical History
100*(Audit/Actual) = % Pick-up
65-70%20-35%
Launch
18
-24
Month
s
29
THE REAL WORLD OF PROMOTION MATHEMATICAL RELATIONSHIPS
What is the functional relationship between audited promotion data and market share? Market Share increasing over time Detailing and other audited promotion declining over
time
Market Share
Audited Detailing+ -
30
THE IMPACT OF PRODUCT AGEINGMATHEMATICAL RELATIONSHIPS What is the functional relationship between
Promotional Impact and Product age?
TimeProduct Age
Rela
tive Im
pact
DetailingAdvertisingCME/PMEDTC
Sampling
What are the implications of this on one’s ability to model promotional impact• Census vs. recall vs. age on impact• Recall vs. impact
EXAMPLECASE STUDYEXAMPLECASE STUDY
CASE STUDYESTABLISHED PRODUCT
Crowded set (40+ products) Mature product (7+ years old) New claim – 18 months earlier Promoted new claim through DTC print – 18
months Professional target: FPs, GPs, IMs, & one
Specialty Consumer target: Specified Sub-Group Considering a Multi-Million dollar television
campaign History: Sales force reduction 3-years earlier History: NO faith in professional print
CASE STUDYCLIENT’S QUESTIONS
Should DTC television campaign be implemented?
Planned start is July – is this justifiable? What is our promotional ROI likely to be? How do we insure success? How should our professional campaign be
structured? Do we need to alter our current professional
promotional mix? Justify all projections and predictions!
Delay start of DTC Television for six months. Get professional up to speed first!
Add 2xx++ Salespeople before DTC start. Increase professional advertising by
$1,600,000. Keep sampling in step with detailing. Increase Primary Care activity.
CASE STUDY ESTABLISHED PRODUCT
RecommendationsRecommendations
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
550,000
600,000
t-12
t-10 t-8
t-6
t-4
t-2 t
t+2
t+4
t+6
t+8
t+10
t+12
t+14
t+16
t+18
t+20
t+22
t+24
t+26
t+28
t+30
t+32
New
Pre
scri
pti
ons
Forecast - Base
Forecast - Campaign
Actual
Case Study: New Prescriptions/ROI Forecast
ProjectionsProjectionsNew Campaign StartsNew Campaign Starts
36
Example: 2Anti-Cholesterol
Statins
Example: 2Anti-Cholesterol
Statins
CHOLESTEROL REDUCERS - STATINS
Jan-
92
Jul-
92
Jan-
93
Jul-
93
Jan-
94
Jul-
94
Jan-
95
Jul-
95
Jan-
96
Jul-
96
Jan-
97
Jul-
97
Jan-
98
Jul-
98
Jan-
99
Jul-
99
Jan-
00
Jul-
00
Jan-
01
Jul-
01
Jan-
02
Jul-
02
Jan-
03
Jul-
03
Jan-
04
Jul-
04
Jan-
05
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
NR
x's/
Mon
th
37
Question:What do you see in this chart that is unusual?
Zocor
Lescol
Lipitor
Baycol
Baycol
Crestor
CHOLESTEROL REDUCERS – MARKET VELOCITYJa
n-92
Jul-
92
Jan-
93
Jul-
93
Jan-
94
Jul-
94
Jan-
95
Jul-
95
Jan-
96
Jul-
96
Jan-
97
Jul-
97
Jan-
98
Jul-
98
Jan-
99
Jul-
99
Jan-
00
Jul-
00
Jan-
01
Jul-
01
Jan-
02
Jul-
02
Jan-
03
Jul-
03
Jan-
04
-10,000
0
10,000
20,000
30,000
40,000
50,000
Vel
ocit
y --
- N
Rx'
s/M
onth
LipitorLaunch Baycol
Recall
CrestorLaunch
AHA/ACCGuidelines?
CHOLESTEROL REDUCERS:CONCENTRATION INDEX & CURVE
Jan-
92
Jul-
92
Jan-
93
Jul-
93
Jan-
94
Jul-
94
Jan-
95
Jul-
95
Jan-
96
Jul-
96
Jan-
97
Jul-
97
Jan-
98
Jul-
98
Jan-
99
Jul-
99
Jan-
00
Jul-
00
Jan-
01
Jul-
01
Jan-
02
Jul-
02
Jan-
03
Jul-
03
Jan-
04
0
10
20
30
40
50
60
70
80
Con
cen
trat
ion
Mea
sure
- %
39
Zocor Launch
LescolLaunch
LipitorLaunch
Lescol XL
Launch
BaycolLaunch
BaycolRecall
CrestorLaunch
Lovastatin
Launch
AltocorLaunch
COMPARE LAUNCH ENVIRONMENTS
Market Size: Zocor Launch ……………. 600,000 NRx’s/month Lipitor Launch …………… 1,300,000 NRx’s/month Crestor Launch …………… 2,800,000 NRx’s/month
Market Acceleration: Zocor Launch ……………. 100 NRx’s/month/month Lipitor Launch …………… 300 NRx’s/month/month Crestor Launch ………….. -500 NRx’s/month/month
Market Velocity: Zocor Launch ……………….. 1,000 NRx’s/month Lipitor Launch ……………….. 20,000 NRx’s/month Crestor Launch ……………… 5,000 NRx’s/month*
Market Concentration: Zocor Launch ………………………………. 20% Lipitor Launch ……………………………… 15% Crestor Launch ……………………………... 65% 40
*NOTE:Market Velocity had been negative several months prior to Crestor launch.
UNDERSTANDING & EMPLOYING THE CONCEPTS DISCUSSED TODAY
Concepts discussed today require learning and application experience
While the real power of this approach rests in developing the full system of simultaneous equations, the working experience needs to be acquired first
This can be accomplished with an Excel Worksheet that sequentially develops each of the measures
EXCEL WORKSHEET
TC1 TC2TC3
Base
NRxs
Share
NRx Instab
Share Instab NRx Acct
Share Acct
Concentration
Velocity
Acceleration
Momentum Summary
NRxs&
Share
NRxs&
Share
NRxs&
Share
PROMOTIONAL
ENVIRONMENT
THE SIMPLE WORLD OF PROMOTION
NewPrescriptions
Market
Share
Detailing
Sampling
Advertising
DTC
Dinner Meetings
Etc., etc., etc.
THE REAL WORLD OF PROMOTION
Marketing Environment
Promotional Environment
ProductEnvironment
DiseaseEnvironment
Instability
Velocity
Acceleration
ACCOUNTABILITY
DTC
DetailingSampling
Mai
lA
dver
tisi
ng
NRx’s&
Share
SUMMARYPromotional Economics
SUMMARY OF RESEARCH AND CONCEPTS All promotional forms work Each form plays a specific set of roles in the campaign Promotional Theory and Marketing Theory DO NOT
change between therapeutic classes The sequence events of between program design,
implementation and ultimate impact are important The power of a campaign lays in the interactions and
efficiencies of the integrated campaign, NOT the individual elements
Finally, your campaign must work in the Competitive Environment in which you are competing … and this environment changes between classes and within a class over time
THANK YOU!
“The best way to predict the future, is to create it”
“Models are meant to be used, NOT BELIEVED”