An empirical investigation of the variations in direct‐to‐consumer prescription drug advertising

Abstract

PurposeThe present paper aims to understand the underpinnings of the variations in brand level direct‐to‐consumer (DTC) advertising through a two‐part study. First, it seeks to examine the various influences on advertising intensity (operationalized by advertising to sales ratios) in the context of DTC advertising. Second, it aims to analyze how changes in share of voice impact changes in market share.Design/methodology/approachData on brand level advertising as well as sales were collected from different government and industry sources. This is used to compute the ratio of DTC advertising to sales as well as changes in share of voice, market share and average drug prices. A log‐log model is used to find parameter estimates based on OLS regression.FindingsMarket share has a negative influence on the ratio of advertising to sales. Drugs which have a greater degree of innovation (as judged by the FDA) appear to spend more on DTC advertising relative to sales. The paper also finds that an increase in share of voice is not associated with increased average drug prices, but is related to a growth of market share because of a change in the share of total prescriptions dispensed.Originality/valueThe paper is one of the few to examine the factors influencing advertising to sales ratios in the context of DTC advertising. It is also one of the first to investigate the relationship of changes in the share of voice with changes in market share.