Santa Clara University

A House Call for the Doctor

For Pharmaceutical Firms, Results are Dramatic

For some time now, pharmaceutical companies have made a considerable investment in face-to-face sales calls to physicians, reasoning that it’s a good way to get their products better known and more widely prescribed.

Academic research so far has indicated that the technique is effective, but in a soon-to-be-published paper, Xiaojing Dong, assistant professor of marketing at SCU’s Leavey School of Business, concludes that individual calls are far more effective than previously believed and has come up with a model to allow other businesses to calculate the impact of the practice in their field.

“The main point of the paper is that targeting at the individual level will bring more benefits, and that previous research has underestimated the benefits of this form of marketing,” she said. “We believe it’s a substantive contribution to the literature, and that it can be applied to other industries where the data exists to calculate the benefit.”

Others in the field apparently agree. The paper, “Quantifying the Benefits of Individual Level Targeting in the Presence of Firm Strategic Behavior,” has been accepted for publication in Journal of Market Research, and an earlier version (her doctoral dissertation) received the 2005 Alden G. Clayton Doctoral Dissertation Proposal Award, presented by the Marketing Science Institute.

Dong is lead author on the paper, along with two faculty advisors from the University of Chicago, Puneet Manchanda and Pradeep K. Chintaugunta. The advisors were in possession of the data used in the paper, and she saw how it could be used to answer the questions she had about the effectiveness of marketing at the individual level.

The data consisted of detailed information regarding sales calls on physicians and prescriptions subsequently written for acid-reflux medications, such as Nexium, Prevacid, Aciphex and Protonix. It was compiled by a pharmaceutical market research firm, ImpactRx Inc., and consisted of a sample of 330 physicians, with 12 quarterly observations for each physician.

Beginning with that information, Dong set about to develop a model that would take into account the pharmaceutical firms’ strategic behavior, specifically the targeting they were already doing and the actions and strategies of their competitors. The model factors in both physicians’ response and pharmaceutical firms’ decisions at the individual level, explicitly accounts for the actions of competitors, and documents the economic marginal cost of individual sales calls.

“It took about a year and a half to think about the model, play with it, and get it right,” she said. “We used game-theory concepts to simulate competitors trying to optimally maximize profits.” It took another two years after that to update and fine-tune the dissertation paper for publication.

When the numbers were run through the model that was finally accepted, the results were striking. Previous studies had indicated that individual level targeting improved profitability by 5 percent over broader segment-level targeting (reaching physicians through groups and publications).

Dong’s model showed that the average increase in profitability from individual targeting was 23 percent — nearly five times greater than previously believed. What’s more, the marked profitability increase was consistent with all four brands surveyed.

“Our basic result — that ignoring firm strategic behavior underestimates the benefit of individual level targeting — is a leap forward in the understanding of this question,” Dong said. “We believe the findings are likely to generalize beyond the context of our application.”

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