Andrew Ching is Associate Professor of Marketing at Rotman. He is a winner of the Young Economist Award from the European Economic Association in 2003, and received Honorable Mention for the Dick Wittink Prize Award in 2011. His research is focused on developing new empirical models and estimation methods to understand choices of consumers, firms and managers. His papers are published in Econometrica, Management Science, Journal of Applied Econometrics, International Economic Review, International Journal of Industrial Organization, Quantitative Marketing and Economics, and Journal of Banking and Finance.
Publicity and Paid Advertisements
We all know the saying, “There is no such thing as bad publicity”. Publicity attracts attention to a product or individual and with attention comes the opportunity to tell your story in a way that benefits you. In the business world, a product’s story is typically told via paid promotional activities. Our research asks if publicity enhances the value of paid promotional activity or mitigates the need for it.
We investigate the market for prescription pharmaceuticals, particularly for cholesterol lowering drugs called statins. The prescription pharmaceutical market is an approximately $350 billion US market. In many cases, the long-term impact of pharmaceutical products is uncertain for many years. This leads to on-going clinical studies whose results generate publicity for the drug. As is well known, drug companies spend significant amounts each year promoting their products. Statins are good exemplar of all of these features.
Our study shows that the impact of publicity depends on the statin feature being publicized. Publicity touting a statins effectiveness at lowering cholesterol mitigates the need for paid promotional activities. Basically, this publicity is free advertising. By contrast, publicity promoting a statins effectiveness at reducing heart-disease risk enhances the value of paid promotional activities. This publicity gets the attention of physicians and makes them open to the “big sell”. Why the difference? A statin’s effectiveness at lowering cholesterol is simple to communicate: promotional activities add little to what is provided by publicity. On the other hand, a statin’s effectiveness at reducing heart-disease risk is complex to communicate. Now publicity has credibility that “gets the doctor’s attention” while paid promotional activities can “provide all the details”.