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

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99

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-99

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00

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-00

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-00

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-8

-4

0

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16

-0.40

-0.20

0.00

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0.60

0.80

Shar

e (%

)

Shar

e V

eloc

ity

Jan-

99

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-99

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0.080

0.100

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are

Vel

ocit

y

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are

Acc

eler

atio

n

Market Share

Market Share Velocity

Market Share Acceleration

Market Share Velocity

VELOCITY AND ACCELERATION

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-4

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4

8

12

16

Jan

-99

Ap

r-9

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are (

%)

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are V

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0.50

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are A

ccele

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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

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92

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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

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-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

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93

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93

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0

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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

Mail

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”