March 28, 2011
School of Business, Coimbatore
Direct to consumer advertising (DTCA) has long been controversial. Originally appearing in Western media publications in the early 1700s, ads promoted medicinal cures without disclosing ingredients or potential hazardous side effects.
That all changed in 1938 when the Food, Drug and Cosmetic Act was passed in the US. It required pharmaceutical companies to label all drug ingredients and side effects. The Act also introduced regulations on advertising and marketing.
Even with the new regulations, DTCA continued to be controversial. The effect that DTCA has on public demand is still debated to this day. DTCA increases consumer awareness. However, the ultimate goal of DTCA is to sell a product. To do this, advertisements exaggerate benefits of a pharmaceutical and minimize its side effects.
Addressing the ramifications that DTCA has on pharmaceutical demand, ASB Dean and Professor Dr. Gurumurthy Kalyanaram and ASB Professor Dr. Deepak Gupta, wrote a paper titled, The Effect of Direct Advertising to Consumers (DTCA) on Market Share and Quantity in Pharmaceutical Drugs and Consumer Welfare.
The two professors collaborated with faculty from Kazakhstan Institute of Management, Economics and Strategic Research, Alma Alpeissova and Dilbar Gimranova to present the paper at the the 47th Annual MBAA International Conference in Chicago during March 23rd-25th. The paper received the 2011 Best Paper Award in Pharmacoeconomics, Pharmaceutical Industry and Wellness Track.
In their paper, Kalyanaram and Gupta sought to determine the statistical effect of DTCA on market share and quantity.
They proposed their findings would support or refute claims made by the pharmaceutical industry, insurers and medical providers.
“The pharmaceutical industry suggests DTC ads inform consumers about new treatment options, thereby generating more doctor visits,” they wrote. “While insurers and medical providers claim that DTCA has a business-stealing effect, causing misled patients to demand pharmaceuticals they don’t need.”
The team examined data over a six year period. They studied four drug classes of frequently prescribed brand-name drugs for four common chronic conditions. In total, 19 brands were analyzed.
The authors concluded that DTCA had a substantial and significant effect on market share. They also found DTCA to have a marginally significant, less pronounced effect on quantity sold.
“Our empirical results demonstrate support for both propositions argued by pharmaceutical firms and medical providers and insurers,” they concluded.
Results suggest that DTCA is driving consumers to spend more money.
Pharmaceuticals mean big business. Considering the $975+ billion projected to be the global pharmaceutical market value by 2013, why wouldn’t pharmaceutical companies invest billions of dollars each year in DTCA?
DTCA is legal in only two of the world’s 194 countries, the United States and New Zealand.