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How DTC ads heal consumer malaise

News, 05 May 2017
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NEW YORK: Direct-to-consumer advertising for prescription drugs has favourable outcomes for brands and consumers alike, according to research published in the Journal of Advertising Research (JAR).

How Direct-to-Consumer Advertising for Prescription Drugs Affects Consumers' Welfare: A Natural Experiment Tests the Impact of FDA Legislation, featured in the latest issue of JAR, compared consumer welfare before and after the 1997 policy change by the US Food and Drug Administration that permitted brand-specific ads on TV.

Using a structural econometric model, authors Prokriti Mukherji (King's College London), Ramkumar Janakiraman (Darla Moore School of Business at the University of South Carolina), Shantanu Dutta, an expert on strategic marketing, and the late Surendra Rajiv (National University of Singapore) concluded that direct-to-consumer advertising (DTCA) in the statins category – where products treat high cholesterol – seems to increase consumer welfare.

Over the course of their study, the researchers discovered that this practice had a significant impact on both overall category sales and individual drug choices, too. "The main takeaway from the model is that DTCA has a significant positive effect on category growth," they wrote.

Looking at the impact on patients, the analysis calculated that the "dollar amount that consumers would need to be compensated to keep their level of utility the same as before the [policy] change" came in at $9,408.14.

Drilling down further into the results, they reported that "detailing" – visits by salespeople to physicians' offices – has an even greater impact than advertising on overall category sales in the earlier part of the category life cycle, and also plays a larger role than DTCA in individual drug choice.

Reflecting on criticisms that marketing has "enhanced corporate rather than consumer welfare", the authors suggested further analysis will be required to redress this imbalance. Other categories, they also noted, may have witnessed different impacts from advertising.

"More generally," they wrote, "as advertising spending on paid digital media by the US healthcare and pharmaceutical industry keeps increasing (from $1.18bn in 2013 expected to be $1.47bn by 2017), it may be worthwhile for practitioners to understand in what category of drugs such advertising enhances consumer welfare and where it does not."

Data sourced from Journal of Advertising Research; additional content by WARC staff

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