Advertising expenditures

DTC advertising expenditure has been increasing sharply in the United States, with almost 2.5 billion spent in 2000, three times the level spent in 1996. However, this accounted for only 15% of all drug promotion (Rosenthal etal, 2002). Of this, 60% was spent on television, 37% on print and 3% on billboards and other media advertisements. Use of DTC advertising varies from one pharmaceutical company to another. In the first quarter of2000, both Merck and the former Glaxo Wellcome spent more on DTC than on professional advertising, while Eli Lilly and Novartis both spent less than one-tenth as much on DTC as professional promotion (Matthews, 2001). 

The use of e-marketing in the pharmaceutical industry is still in its infancy and is subject to increasing regulations. E-detailing is used widely in the United States and increasingly in Europe, to provide doctors with secure online medical and product information. In 2001, six pharmaceutical companies out of 40 in the United States and 19 products out of 94 represented 80% of online advertising expenditure (Worah and Bimbrahw). 

Megna and Mueller, 1991 10 major pharmaceutical firms 1975-85 Compustat 1. No correction for inflation. 2. Estimated firm-specific rates of depreciation of R D and advertising by regression of sales on lagged R D and advertising expenditures (assumed binomial lag functions). 14.81% 12.1 5% (average over time) 0.82... 

Another possible explanation for the difference in estimated IRRs is the investment character of advertising and promotion. Baber and Kang did not convert advertising expenditures to invest-... 

Market values actually declined the ratio of advertising expenditures to investment in plant and equipment, but the relationship was... 

Few people realize that advertising is a 10 billion industry. Total national advertising expenditures may, in fact, reach 11 billion this year. Advertising has in the past decade grown much more rapidly than industrial production, gross national product, or almost any other index of economic activity. The explanation is to be found, in the fact that competition has become more intense directly in proportion to the increase in the available supply of all goods and services. 

There are no reliable estimates of total advertising expenditures of the chemical industry. For one thing, the chemical industry does not have very well marked boundaries. However, we spend at least 300,000,000 a year to advertise our products. By 1970 the chemical industry will be spending 750,000,000 for advertising, or about 1.75% of every sales dollar. 

Alcohol Policies Project, Center for Science in the Public Interest, 2003-Alcoholic-beverage advertising expenditures. Fact sheet, http //www.cspinet.org/ booze/FactSheets/AlcAdExp.pdf. 

These two hypotheses can be correctly tested in the case of the chemical industry, which is formed by many sectors where different firms are operating. Each sector is characterised by a different R D intensity and a different number of product classes, and presents a different market structure. In none of these sectors advertising expenditures are particularly relevant since most of their products are sold as intermediate outputs. 

Our results pertain to the chemical industry, which represents an important share of manufacturing output and employment. The interest of this industry is twofold. On the one hand, it encompasses different types of products in terms of the endogeneity of sunk costs, and a wide variety of consumer preferences. On the other hand, except for pharmaceuticals, advertising expenditures tend to be low since most products in the industry are not directed to final consumers. This allows us to clearly distinguish high from low R D industries, and test the different predictions on these two types of industries. By combining distinct... 

As the Design-planning formulation, the financial model follows the one presented in Chap. 2 (Eqs. (2.29)-(2.60)). Such a formulation uses theDFCF method in order to carry out the firm s valuation. However, some modifications are required to incorporate the advertising expenditures (AdvExpi t). This set of modified and new equations are described next. 

Free cash flow at every period t (FCFt) is defined by a function that depends on net operating profit after taxes, change in net working capital (NWCt), net change in investments (Netlnvesti) and now advertising expenditures (AdvExpi, ) as well. This can be seen in Eq.(4.7). This equation should replace Eq.(2.51) of Chap. 2. 

Approach Revenues Advertising expenditures Net revenues Corporate value Investment in capacity... 

Reference value for advertising expenditures for product i in market m Total demand in market m for product i during period t Media efficiency for product i in market m during period t Reference value for the media efficiency for product i in market m Copy effectiveness for product i in market m during period t Reference value for the copy effectiveness for product i in market m Reference value for price of product i in market m Market share reference value for product i in market m Tax rate... 

AdvExpi f Advertising expenditures for product i in market m during period t... 

---