The Role of Marketing Activity and Contagion in Adoption:
An Individual Level Analysis in the Pharmaceutical Industry
Puneet Manchanda
University of Chicago, Graduate School of Business
Ying Xie
Rutgers University, Business School
Nara Youn
University of Washington Business School
Working Paper No: RBS-MKT-2004-02
This work cannot be cited without the authors' permission
Abstract
Firms often target communication at individual customers in order to influence the
adoption of a new product. However, consumer adoption could also be influenced by the
adoption pattern of other consumers “near” a given consumer. This is especially true of
products that are complex. For these consumers, the adoption behavior of other near
consumers may act as a signal of product performance or product quality. We therefore
expect that both targeted communication and the adoption patterns of close consumers
will affect adoption. However, the extent to which either influences the adoption decision
has not been well documented at the individual customer level on the basis of behavioral
data.
The pharmaceutical industry has provided an appropriate context to study this problem.
Pharmaceutical companies develop target individual physicians in terms of marketing
activity. For example, detailing provides physicians with information about the new drug,
and sampling allows physicians to try out the new product. Anecdotal evidence suggests
that physicians interact with other physicians when deciding whether to adopt or not.
The relatively small social network of physicians makes it easy to study the effect of
“contagion” (near physician adoption) on a given physician’s adoption decision. There
are three key differences that distinguish our paper from previous work in this area. First,
we use behavioral data to estimate the empirical model instead of self-reported survey
data. Second, we account for the effect of targeted communication (detailing and
sampling) in our model. Third, we allow for heterogeneity in individual physicians’
response.
Thus, our key research objective is to tease out the effect of contagion using “behavioral”
data after controlling for marketing activities and the role of “time”. We model the
decision to adopt as a binary choice process. We estimate our model in a hierarchical
Bayesian framework.
Our data contain the launch of a new drug from an important drug category. We have
information on the marketing activity directed at each physician. We also construct a
contagion measure on the behavior of geographically near physicians. We chose a
compact geographical market, Manhattan in New York city, for the empirical analysis.
Our results from the Manhattan market indicate that both targeted communication
(current detailing and sampling stock) and adoption patterns of near physicians have an
effect on the individual physician’s adoption decision. However, the effect of detailing is
larger than that of other physicians’ adoption.
Keywords: New Product Adoption, Hazard Models, Hierarchical Bayesian Methods,
Pharmaceutical Industry