Is DTC Spending On A Downward Spiral?
“I am quite optimistic that DTC will grow in the future.”
The recently released 1Q Nielsen spending numbers do not look very pretty. Total measured spending was down about 14% to $898 million. Anytime comps are down 14% one has to ask if this is a blip or start of something really bad. My take is simple. The spending on DTC reflects new product activity in categories that have mass potential. Clearly, there has been a dry spell in major new entries the last few
I do not see this serious decline in 1Q 2012 as any indication of a permanent drop in DTC. There is no doubt drug companies are watchful of the effect of spending on their bottom line in this economy. They are reducing costs of operations through layoffs and budget cuts. These budget cuts include advertising spending. The uncertainties of Obamacare and its impact on drug utilization and pricing surely have drug companies nervous.
DTC spending is not immune to budget cuts in these perilous times. The good news is that most new brands still use DTC and if the number of new brands grows then DTC total spending will grow. Patent expirations for a number of branded drugs are hurting spending. It is hard to replace monster brands
What is interesting about the spending numbers is that mass media held its share of spending at around 93%. Within that 93%, however, we saw television rise and magazines fall. Television grew 5 percentage points. That shows that drug companies are very reluctant to shift out their main awareness medium. While all brand managers want to better target their ads, the numbers do not show a willingness to take those targeted dollars from television.
The lessons from declining spending are that new media companies will have a harder time getting their products in the door. In hard times experimentation becomes less prevalent. There is just less risk taking. That does not mean there are not opportunities for good new media vehicles. It is just going to be more work to make the contacts with agencies and brand people and more of a lengthy process getting approval for new ideas.
I am quite optimistic that DTC will grow in the future. The demographics are favorable as well as the urgency of cost control through prevention of disease. Drugs are the most cost effective way of preventing escalation of spending on hospitalizations and procedures. The new category of obesity drugs will almost certainly be large DTC spenders by 2014. Diabetes remains on the rise and that means many new drugs. The medical monitoring and home testing business will continue to grow. Baby boomers will be a ripe market for the many new age defying products to come along. Genomic products are just at their infancy and many are great DTC candidates.
DTC will grow because DTC works. Advertising creates demand. ROI is good for most DTC brands. As long as government does not make it too onerous to produce a DTC ad we can expect a healthy industry for a long time to come.
Bob Ehrlich, Chairman
DTC Perspectives, Inc.