DTC budgets: How low can they go?
Jul/13/2008 11:48
A high level look at the pharmaceutical industry changes over the last 5 years shows an industry trying to redefine itself and come up with a business model that will sustain strategic growth for a long time. Has any other industry faced so many challenges before? Well one could argue that the automobile industry is indeed going to have to change to survive but those changes are being forced by primarily one factor: fuel prices. The pharma industry on the other hand is facing both external and internal pressures to change business models.
You can only serve one master
In the late 90’s the pharma industry began to realize the potential of blockbuster drugs. DTC ads could surely open up new markets and reach patients so they could help drive sales. Profit dollars were pouring in from drugs like Prozac, Lipitor and Viagra and it was quite easy to allocate dollars from the sales of these drugs to drive sales. Soon prescription drug ads were all over TV and people were going into doctors asking for these drugs.
Then came along a pesky thing called the Internet. With health information available 24/7 patients became more empowered and started talking to one another online via chat rooms or message boards. To drive these conversations came media stories about drug side effects or data that was hidden from the FDA during clinical trials. Soon the media began to take down some big name drugs; Avandia and Vytorin just to name a few. And what did pharma do during this time? Well a lot, and I mean a lot, of CEO’s said goodbye and left with their golden parachutes to buy mansions in the sun. DTC marketers ignored patient empowerment and were stuck in Web 1.5.
Most pharma companies continued to talk a good game, about how it was “about patients” but in reality the were really interested in one thing and that was service the analysts on “The Street”. Sidney Taurel, before he left Lilly, wrote an article that appeared in the Wall Street Journal on how the analysts did not understand drug development risks and ROI. He forgot that their motto is “instant gratification takes too long”. He left Lilly, frustrated I am sure with how the world seemed to change overnight.
So the new CEO’s have the challenge of producing medicines that can be successful in a marketplace that is undergoing a transformation to a knowledge based economy. Transparency is the rule of the day but alas how can we be transparent when people don’t understand the data? What the should be asking is how can we be transparent so that people and customer UNDERSTAND the data (and the risks). Moreover who is more important? Shareholders and investors or patients? Without investors we don’t have the money to develop as many new drugs anymore and without patients who will drive demand for our products?
It now costs more money to develop drugs and the FDA is asking a hell of a lot of companies to submit more data before issuing approvals. This means more time and money in development and less time on the market to recoup expenses and make money. Surely the street does not want to hear this but it is a reality of a changing business model. The other part of the equation is that payers want physicians to prescribe generics as a first line treatment option. This means not only clinical studies on the effectiveness of the product but additional head to head clinical studies against generics which means even more money.
Lost in all this are the rising costs of DTC ads. Cable and Network TV ad rates are increasing but even more alarming is that audiences are becoming more and more fragmented. CPM models don’t work anymore and how are DTC marketers going to explain ROI for DTC programs?
The Web is ignored
Lost in all this is ANYONE, and I mean anyone, who can look at the Web as a long lost opportunity. You could spend $75 million on TV ads or spend half that on the Web and get better results. Better results? Yes better results, but first pharma has to stop looking at the Web as a push channel and think about how people USE the Web in their health searches.
While people are talking to one another online about medications pharma stays out of the conversation because their lawyers don’t how to manage this channel. Why worry about it when we can just ignore it.
So what we see is, as a result of financial analysis, that cuts have to be made to continue to fund R&D and what better place to cut than DTC. After all financial people know the cost of everything but the value of nothing. Agencies in turn are feeling the squeeze, Revolution Health has laid off people and the DTC market is in decline as 2008 looks to be a really tough year.
In my contact with DTC people over the last 5 years I have never seen a shift of so many people leaving marketing before. Many have left the pharma industry all together others are going to new jobs within the organization and still others are vegetating in their positions continuing to do the basics just to keep their jobs. Industry trade magazines continue to sponsor award ceremonies that are bogus and real consumer marketers are starting to realize the hidden potential of becoming conversation aggregators rather message pushers.
Believe it or not the industry will get stronger because of this wrong turn. New people will come in and with them new ways of thinking about customers and patient interactions. Somewhere out there a new viral program is waiting to spring into everyones in-box and as a result a product with a small DTC budget will jump into the top 10 of sales. It will happen, I have to believe that, because there is just too much potential out there waiting to be explored.
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