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DTC SPENDING HAS DTC SPENDING REACHED A HIGH WATER MARK?

With direct-to-consumer (DTC) advertising currently on shaky ground, some may feel this form of marketing will not be worth the time and money spent on it. However, a recent study has shown that DTC marketing continues to be a strong driver of brand performance for selected categories and brands.
By John Busbice

IIMS HEALTH RECENTLY UPDATED ITS DIRECT to-Consumer (DTC) ROI Benchmark Study conducted previously in 2004 and 2006. The update analyzed spending and returns for 25 of the heaviest advertisers in 2007, all of which had also been advertised in 2006. The study leveraged anonymized, patient-level data to evaluate the lifetime impact of the DTC investment—not just the impact at the time of advertising— for a more accurate, fully-loaded calculation of return on investment (ROI).

The findings suggest (in the absence of knowing what changes may stem from legislation) that DTC budgets will hold steady in the near future while supporting a broader range of DTC and direct-to patient activities.

SPENDING OVERVIEW
Although DTC spending in general has nearly quadrupled in the past decade to reach $4.6 billion in 2007, it is unlikely that this growth rate will continue. Realistically, only so many products lend themselves to DTC advertising, and it appears that only a select number of new products on the horizon would benefit from this form of marketing. At the same time, many products that have used DTC advertising heavily will be facing patent expiration in the near future. Also, since some individual products command DTC advertising budgets in excess of $100 million a year, a cut back by only a few advertisers has an appreciable impact on overall spending levels. The 2007 expenditure among the 25 brands in the study showed a slight decline from 2006, yet reflected heavy continued DTC investment.

MIX OF DTC SPENDING
The mix of spending across media stabilized in 2007, with TV and print as a mainstay (Figure, page 34, top). Over the next two to three years, resources are expected to shift toward E-based channels and other forms of “new” media.

The level of unbranded advertising has fluctuated over the years and declined markedly between 2006 and 2007. Given the pressure to reduce the level of DTC promotion in general, the fact that so little of it is unbranded is somewhat surprising. The branding decision appears to be less related to political pressure than to the practical fact that unbranded advertising is best reserved for times when a new product is actually opening up a new therapy area.

RETURN ON INVESTMENT
The level of investment in DTC advertising is not all that astonishing, considering the return it yields. Of the 25 brands studied, 21 had positive ROIs, with an average return of $2.04 for every dollar spent, a level consistent with what we’ve seen in the 2004 and 2006 studies.

The average ROI, however, differs substantially from one therapeutic class to the next, reflecting the size of the marketplace and the level of competition within it. Television advertising for depression and central nervous system therapies delivered an ROI of 2.9, whereas advertising for lipid-lowering agents, hypertension, and thrombosis yielded an ROI of 1.5. (Figure, page 34, bottom).

The average ROI within print media was slightly greater than that of TV, stemming from the relative advantage that print offers in targeting a specific audience. In addition, since the overall spend on print is much less than of television, print advertisers are less likely to hit the point of diminishing marginal returns.

In 2007, the average heavy DTC advertiser broke even around the first year of investment in both print media and television advertising. Television spending averaged 10% of sales with an annual contribution of about 9% of sales. Print media averaged about 4% of sales and returned the same percentage in average annual contribution. These findings show a slightly earlier payback time on print media compared to television, although television generally has a longer impact on overall sales.

ADVICE FOR DTC SUCCESS IN 2009
How can you increase the probability of success with DTC?

• Perform a zero-based review of your promotional budgets and allocations each year. Determining what—and where—you should spend shouldn’t be based on what you did last year, but on promotional response models that take into account share-of-voice and share-of-market metrics. The process, called “competitive response modeling,” estimates how a company’s historical response curves for inline products would be affected by competitive moves. For pipeline brands, analog databases can be used to estimate the likely channel-level response curves for a product.
• Don’t just worry about the total expenditure; take the time to balance the media mix for your brand and to ensure you are maximizing targeting within each media category. Some brands overspent on television and thus missed the optimal media mix. Consider the size of the market as well as your competitors’ share of voice.
• Think holistically in terms of total brand communication, not just regarding the expenditure in individual channels. Leverage a suite of channels and integrated messaging to maximize your impact. And think about investing in adherence-based messaging for patient retention rather than in broad-based DTC advertising.
• Be certain that you are directing your activities to reach and resonate with the target population, leveraging the unique advantages of individual channels. Patient-level data, drawn before and after a campaign, can reveal the extent to which your DTC promotion is having its desired effect.
• Be sensitive to changes in market dynamics. If you are late in the order of entry to a market, realize that it will be more difficult to get the same ROI as the brands that preceded you.

CONCLUSION
As the research illustrates, DTC marketing continues to be a strong driver of brand performance for selected categories and brands. The stabilization of spending is not a reflection of poor returns, but of the nature of companies’ portfolios. “Be sensitive to changes in market dynamics. If you are late in the order of entry to a market, it will be more difficult to get the same ROI as the brands that preceded you.”

John Busbice is a Principle within IMS Health’s Commercial Effectiveness practice (www.imshealth.com). He can be reached at jbusbice@us.imshealth.com.