Here is a link to a free version of a great 2001 Forrester report titled "Pharma's DTC Reorganization," in which they cite their own primary research from 14 pharmaceutical companies (this link goes to Simstar's site, as they are featured in the report).

Forrester Report

The report is a wealth of useful information, not the least of which is the origin of the MMM stat - Forrester's report says: "Our respondents expect their Net marketing budgets to double from an average of 9% of DTC budgets today to 18% in 2004."

It's not clear to me how Net marketing budgets are defined, but my experience with many of the companies cited by Forrester is that "Net marketing" means all expenses associated with the Internet, from site construction to banner media to strategy consultants like myself.

It appears that the 9% number is based on a qualitative survey of a small representative sample of pharma companies with respondents of unknown reliability. So, I cannot use this kind of number. It could be a complete guess on the part of respondents. We asked the same questioon of some e-business managers at the conference and they had no idea what their company spent on the Internet.

Figure 3 (from Scott Levin) of this report shows some hard numbers, but, again where do these numbers come from?

In my experience the divide is growing between the brands that are investing in online marketing and those that are simply using it as a checklist item. I would say that for those brands that are just slapping up a brand.com site and not promoting it, they are probably spending 1%-3% of their budget. In addition these are the brands that often don't have a DTC budget at all or a very, very small one (sometime the web site gets funded out of the PR budget).

On the other hand, those brands that believe in the benefit of online marketing are (in my experience) spending between 4% - 9% of what are often MUCH larger DTC budgets. Therefore the dollar spend between the "haves" and the "have nots" is much larger than the percentages might indicate. In addition to brand.com, the online marketing believes are engaging in a much wider variety of online initiatives.

As for growth, I think it is stagnant in the "checklist" group and growing in the "believer" group. At SimStar we feel that we have collected enough real-world ROI data that we believe that the long-standing (general) ROI question has been answered -- Online marketing is often the highest ROI initiative in the pharma marketers tool chest. Now this data doesn't pacify those people that fundamentally are skeptical of the Internet and have used ROI simply as an unreasonable hurdle, but it does help differentiate who is a "believer" and who is a "checklist".

I agree with Forrester that by 2004 at least a FEW brands will be spending 18% of their DTC budget on Internet but this will certainly not be an industry norm. I think what you will see over the next few years is an increasing divide between those brands that view the Internet as a regulatory or PR responsibility and those brands that view it as a strategic way to drive their business.

Thanks for the clarification, Dave.

I think what you say is true. There will always be variation in DTC spending patterns amongst brands. However, it is the aggregate or average magic number that I am interested in finding and using. I interpret your response to mean that this average is probably closer to the 1-3% range than the 4-9% number.

Anyway, suppose the average is 4% (which I think is high) - and that this covers all types of promotion on the Net (banner ads, web sites, email ,etc.). That's still only $124 million. This compares to $634 million for TV and $400 million for print. In the past we touted the growth of adoption of the Internet by the public as MUCH more rapid than the adoption of the telephone or TV. This growth in users has not translated into growth in budget spent by pharma to reach these users.

There must be a reason for this. I'm just trying to find out what these reasons are. Perhaps if we solve this, we can come up with the killer app that we can all sell and make some money from ;-) But right now, there's not enough pie to go around - if there's 1,000 of us chasing the $124 million (and that doesn't sound unreasonable), that's only $124,000 GROSS per year for each of us. What's the net and what's OUR ROI?

This is the state of affairs DESPITE all our efforts to promote the medium over several years! I guess I am just disappointed that our efforts seem to have been for naught!

Yep, it is frustrating that the CPOI (cost per opt in) online can be a third of the cost per inquiry offline, but dollars still aren't being spent online. Two thoughts:

1. Online media haven't offered the reach numbers to justify the bigger budgets - for media planners, it's near impossible to find x million consumers of a particular segment anywhere online (without a massive effort to connect dozens of small sites), and that's what brand managers need to move their share graphs. Furthermore, Web media is so cheap (today) that CPI - and online media budgets - are artificially low. Oversimplified a bit, but a big factor.

2. That emphasis on the Web as an awareness medium is likely never going to work - the Web's astounding relationship management capabilities mean it should be an infrastructure and strategic play - not just a huge-dollar media play. So the % of web spending probably should grow slowly, since the really big $$ are going to TV, etc.

The Web's killer app is to take all those overly expensive inquiries (from traditional media) and make the most of them!

Two thoughts:

1. Are too many people - meaning brand managers - looking at the Web as an awareness medium and not enough as a relationship management tool? Is pharma really serious about relatioinship management with consumers? Do they want to solve the privacy issues to enable them to actually get serious about patient relationship management on the Net - or anywhere for that matter (or do they just want to fight privacy laws tooth and nail at the federal AND state level)? I have some thoughts on this that will be published in iHealthbeat next week, so I don't want to give it away.

2. When you say cheap I guess you are referring to banner ads. But perhaps that aura is being transferred to website building as well - at the eyeforpharma conference last week, a site developer in the audience said she could build a credible pharma product website for about $100,000. Hard to believe, but if there are lots of vendors out there at that price point who knows what crap they are building and what effect they are having on % of budget spent on Internet? Also, this argument means that GROWTH in spending on Internet DTC should STAGNATE - there may be more projects, but at less cost per project.

Well, it is well documented that the Internet HAS been adopted by users much more rapidly than the telephone or TV. So why has Pharma not matched the investment seen in other vertical markets? I offer some reasons (although this is certainly not exhaustive):

1. We don't sell anything. The largest adoption of the Internet has occurred in markets where direct sales has reduced the cost of the middle man. This has resulted in wider availability at lower cost. Pharma doesn't fit this model.

2. We've been complacent. Pharma has had such a long run of successful financial returns that the general operating strategy has been "If it ain't broke, don't fix it." That explains pens, squishy balls, sales reps, detail aids, and CME (and I'm not disrespecting any of those channels either). However, as you might have noticed, things have changed in the last year or two. At SimStar we are occasionally having brands, especially mid-tier brands, say to us "The only thing I can afford is the Internet so that will be my entire consumer marketing channel". I think that if the tightening at Pharma continues, the Internet naysayers will be swept aside for those that need to do more with less. If the tightening goes away, it will be business as usual.

3. We're still not sure we like the consumer. For all of the gains of DTC there is still a raging debate over the relative value of going directly to consumers. Given this, the Internet scares the hell out of some brands who don't know what to say to consumers even if they had a cost-effective way to say it. Compare this to the package goods or automobile industries who really know what to say.

4. Physicians still have not widely adopted the Internet. If we're not sure about the consumer we definitely know that we love the physician. However, those pesky physicians have not adopted the Internet en masse (in fact I would ask what technology, outside of diagnostics, have they adopted at all in the last 20 years?). BUT the day that most physicians are active on the Internet (and it will happen), you'd better stand back for the tidal wave of money that will hit the channel. The challenge is whether the current e-health companies will still be in the game when this finally occurs.

5. For some reason, Pharma marketers themselves are not Internet users. This is only experiential but I would guess that the Internet literacy of Pharma markers is well below that of marketers in other industries. I'm not saying that this is their fault (in many ways it is our fault) but the truth is that you have to understand a medium before you will invest in it. It's a human nature thing. My 5 year old goes on the Internet (supervised of course!). Do you think that he is going to grow up thinking that the Internet is not important? Do you think he is going to invest 6% of his marketing budget in the Internet?

Sorry for the diatribe but there are some top line thoughts. To sum it up, my opinion is that the Internet will increasingly become valuable to Pharma and will one day be as unquestioned as the sales rep. HOWEVER, this is going to take a long, long time (10+ years). So if your business model doesn't carry you that far, you're going to have trouble (as the large stack of out-of-business e-health company business cards on desk demonstrates).