Modelling the effects of promotion expenditures on sales of pharmaceuticals

The successful innovation of pharmaceuticals requires a substantial amount of marketing support, despite concerns about the effects of these marketing efforts. This study considers prior findings that indicate that higher marketing expenditures for a brand reduce its price elasticity of demand, which may lead to higher prices, in the context of the Dutch pharmaceutical market. The authors find that parameters are heterogeneous across brands, and that marketing effects differ across product life cycle stages. They propose a separate analysis of established and new brands. For established brands, marketing efforts neither have a positive effect on sales, nor do they affect the price elasticity. For new brands, several proposed models might capture their diffusion pattern; the diffusion-of-innovation models provide the best results. Marketing accelerates the rate of diffusion and leads to a higher baseline level of sales.