Glaxo SmithKline's chairman, Jean-Pierre Garnier, made headlines a few days ago with his comments on the size of the marketing budgets in the industry. His main focus is on the sales force, which is about the most expensive form of marketing we have. From the Reuters story linked to above:
"We do believe there is an arms race out there in terms of sales forces and that if you were to redesign the system from scratch you would end up with smaller sales forces," Garnier told reporters in a post-results conference call. "If more common sense comes back to the picture, I think it will be a good thing for the industry. Certainly, we are eagerly observing what others are doing."
The number of representatives promoting rival medicines has now reached the level where physicians are becoming overwhelmed and it would make much more sense to divert some of the marketing spend to more productive areas, he said.
"We do not need those large sales forces to do the job. We need them because the competition is planning to increase their noise level," Garnier said.
He's got a point, I'm sorry to say, although not for all the reasons he gives. We spend a lot of money on marketing in this business, as any number of people will be overjoyed to tell you. And like any other business, we expect a return on it. Why else does a company spend money? For some time, we've been able to earn as high a return on our cash by promoting existing drugs as we can spending it on R&D - in some cases, higher. That's partly because of all the money to be made from the drugs, and partly because of the spotty returns on research in the last ten years or so. Naturally enough, we've seen plenty of promotion.
But I have to think that the sales force has crossed over a threshold at some companies. Doctors have been getting swarmed by sales reps, many of whom don't even get close to seeing an M.D. any more. Further expenditures on more salespeople bring a smaller and smaller return, to the point where it stops making economic sense. Things have gotten to the point where you're better off giving the money to us dice-rollers over in the labs.
Garnier's comments clearly refer to Pfizer's situation, because that's the marketing machine that everyone else in the industry fears. But with all due respect, I don't think that it's all a case of "We're only doing it because Pfizer does it", though. If Pfizer's getting a lower return on its sales force than it could make by spending the money somewhere else, then that's their problem (and Glaxo's gain). Each company has to make that decision on its own, based on the markets it competes in and the products it has to sell.
And conversely, if Pfizer's getting a higher rate of return by running a monster sales force, then the rest of the industry just has to deal with it somehow - ideally, by making better products or by competing in Pfizer's under-served markets. Both of which are good for the customers, I might add, and we'll end here with the standard round of applause for Adam Smith and his Invisible Hand.