How Much Is Your Patient Worth? Using Patient Lifetime Value to Sharpen Your Marketing Strategy
Dan Frey and Jean-Jacques Raoult
S A LES & M A RKE T ING INS IGHTS
Unlike marketers in other industries, many
pharmaceutical marketers have a limited understanding
of patients’ value. As a result, patient marketing
investments may be set improperly, leaving potential profit on
the table.
Unless patients are not influential in brand selection and
persistence, pharmaceutical marketers should be rigorously
quantifying patient lifetime value (PLV), the present value of
the cash flows that a patient brings in over his or her lifetime
for a targeted disease area. More precise valuation of patient
segments enables marketers to move beyond unreliable bench-
marks and rear-view mirror analytics to set direct-to-consumer
and direct-to-patient budgets and plan campaigns that can
maximize profits.
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Table of Contents
3 Introduction
3 The Problem
4 The Solution
6 Customer Value Beyond Pharma
8 Embracing Patient Lifetime Value
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Introduction
For good reason, pharmaceutical companies have increased their
focus on marketing to patients. More patients are entering the physi-
cian’s office with information about their condition and potential treat-
ments. As of 2010, 76% of all adults had gone online to find informa-
tion related to health, and 62% of all adults had gone online within the
previous month to find health information1. With payers pushing higher
co-pays onto them, patients have an increasing stake in prescribing
decisions and they are exercising more influence.
Unfortunately, many pharmaceutical companies have a limited un-
derstanding of patients’ value. As a result, they set patient marketing
investment levels improperly, and occasionally focus on the wrong
segments. This contrasts with many other industries, which rigorously
quantify the value of the end consumer.
If a company does patient marketing, it needs to understand patient
lifetime value (PLV): simply, the present value of the cash flows that a
patient brings in over his or her lifetime for a targeted disease area. A
good patient segmentation along with PLV analysis enables appropriate
valuation of patient segments and offers greater precision in direct-to-
consumer (DTC) and direct-to-patient (DTP) budgets.
The Problem
Case 1: Poor budgeting
A brand manager based her DTC budget largely on historical budgets,
while looking at competitor spending and historical ROI analyses to con-
firm these budgets. The ROI analyses looked at change in NRx versus
DTC budgets over time. The approach captured the short-term boost
of DTC, but undervalued the long-term benefits of acquiring a patient,
leading the manager to underinvest in her patient marketing efforts.
Competitive benchmarks were also of little help. Not only were her
brand sales considerably different from the competition, the bench-
marks gave little insight into the marginal value of slight budget in-
creases or decreases.
1 Source: The Harris Poll ® #95, August 4, 2010, http://www.harrisinteractive.com/NewsRoom/HarrisPolls/tabid/447/mid/1508/articleId/448/ctl/ReadCustom%20Default/Default.aspx
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Unfortunately, as the product approached loss of exclusivity (LOE), the
historical budgets pointed her to maintain spending when it should
have been reduced. New patients would have been on therapy for such
a short time that their value was no longer worth the acquisition cost.
Case 2: Misguided segment focus
Another brand manager was responsible for a therapy that had three
years of exclusivity remaining. His team thought that young women
(18- to 25-year-olds) were the best targets as they were likely to be on
the therapy for much longer than other age segments. Brand position-
ing, marketing investments and messaging were then geared toward
this segment.
In reality, because of high switching rates, more drug holidays and lower
compliance in young women, as well as the impending loss of exclusivity,
the next age cohort (26- to 35-year-olds) was actually more valuable. If
the company had focused its acquisition efforts on naive patients within
that group, it could have grown revenue without additional cost.
As both of these stories illustrate, brand managers often struggle to set
appropriate budgets for patient marketing and they may have a false
sense of confidence in their segment focus. Fortunately, several compa-
nies have found a solution from outside the industry.
The Solution
Several leading pharmaceutical companies have embraced the con-
cept of PLV. Let us see how PLV could have helped the brand managers
above to sharpen their brand strategies.
Case 1: Using PLV to refine DTC budgets
In the first example, PLV analysis illustrated exactly how much a naive
patient acquired next year would be worth. The next questions were
how productive would advertising be and what would be the right
budget. That required defining a forward-looking relationship between
spending and patient acquisition.
Physician research showed that patient requests were typically fulfilled,
so identifying drivers of patient requests was important. The two compo-
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nents of patient requests were awareness and intent to request. Without
awareness, there could be no request. Fortunately, consumer tracking
studies enabled managers to derive the relationship between historical
DTC expenditure and naive patient awareness, as well as intent to re-
quest product. Simulated media plans then allowed the brand to model
the prospective relationship between budget and changes in awareness,
incorporating decays in awareness.
Figure 1 shows the expected diminishing returns to DTC spending. If
the budget were increased, it would be less productive. But as Figure 2
illustrates, there was still significant room to grow the budget as the
current figure was delivering patients at a marginal cost that was far
below their value.
FIGURE 1 & 2
In this case, the company could have nearly tripled its DTC budget,
which would have nearly doubled patient requests for the brand. This
would have increased the brand’s annual revenue approximately 20%.
Case 2: Using PLV to refine segment focus
The belief that younger patients were better targets seemed logical. For
lifestyle products, the earlier a company acquires patients, the more
prescriptions one would expect. However, PLV analysis produced a
segment portrait that revealed PLV was actually lower for the younger
segment. Several factors drove this counterintuitive insight: The im-
pending loss of product exclusivity prevented the younger segment
from reaching its maximum potential, and the younger segment actu-
ally had more brand switching and more breaks in therapy than some
of their older cohorts (see Figure 3).
Fig 1. DTC Impact
DTC Budget ($M)
CurrentBudget
IdealBudget
DTC Budget ($M)Mar
gina
l Acq
uisi
tion
Cos
t ($)
Incr
emen
tal p
atie
nts
(000
s)
Fig 2. Marginal patient acquistion cost
Brand PLV
Figure 1. DTC impact
Figure 2. Marginal patient acquisition
cost
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FIGURE 3
In this case, the brand manager should have refocused marketing efforts
as LOE neared by targeting a cohort that had—earlier in the brand’s life
cycle—been heavily marketed to, rather than continue to try to attract
younger patients.
Customer Value Beyond Pharma
The concept of customer lifetime value is not new. Many industries, includ-
ing automotive, hospitality, retail, consumer banking and even fast food
have long quantified customer value to identify insights that can boost
revenue and profitability.
Customer value analyses can suggest ignoring certain customer segments
in which customer lifetime values are below acquisition costs, or focusing
on segments where acquisition costs are lower than their current or poten-
tial value. Analyses can identify the importance of customer satisfaction as
a vehicle to create loyalty and repeat purchases. They can also highlight
opportunities to drive additional customer value by upselling additional
products or services.
For a variety of reasons, the concept has not been common in the phar-
maceutical industry. For companies that have emphasized patient market-
ing, executing a patient lifetime value analysis has not been easy. Robust
patient-level data did not exist several years ago. And even now, using the
Figure 3. Segment patient lifetime
value
Time on Therapy
Patent Expiration
Impact
Brand Switch Impact
Breaks in Therapy
PLV Time on Therapy
Patent Expiration
Impact
Brand Switch Impact
Breaks in Therapy
PLV
PLV for Naive 18-25 year old Females PLV for Naive 26-35 year old Females
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data to derive customer value is not straightforward. Rudimentary ap-
proaches for evaluating customer value often grossly underestimate the
actual PLV because they provide a limited window of history for any one
patient (see Figure 4).
Figure 4.
In both customers shown, the data in the PLD window (the period in
which patient-level data are available) reflect a fraction of the product
they consume over their lives. If only three years of patient-level data
are available, identifying customer values beyond three years is pos-
sible, but requires advanced analytic approaches that leverage projec-
tions or string together cohort behaviors.
In addition, a meaningful analysis illustrates what customer value
would be moving forward, not what it has been in the past. Basing DTC
investments on historic customer values when a product nears patent
expiration makes little sense.
Embracing Patient Lifetime Value
All the dynamics that have prevented pharmaceutical companies from
embracing the concept of customer value are changing.
PLV methodologies and data have gotten better. The capture rate and
quality of anonymous patient-level data have improved. ZS has used
Figure 4. The graph illustrates the
difficulty of calculating PLV
with only patient-level data.Patient A Drug Consumption
Patient B Drug Consumption
PLD Window
3 2 2
230
Time
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patient segmentation in concert with patient-level data to create a
robust data-driven simulation of patients over their entire lifetime. In
these simulations, each patient is different, but behaviors are based
on real distributions. For example, the average patient may be on
therapy for 24 months, but one patient picked at random from the
simulation could be on the therapy for eight months and another for
40 months. This is important because events that are months beyond
the average length of therapy can still affect the tails of the distribution.
Consequently, they would affect the PLV.
Simulations reveal how patients consume products over their lifetime
rather than just within the PLD window, and they can capture a com-
plex pattern of drug holidays, switches and returns. At the same time,
simulations allow a forward-looking view of patient value as scenarios
can be readily created to integrate future events, such as patent expira-
tion or competitive entry, to provide insights that diverge from historical
analyses. For example, a patent expiration in three years would shorten
the value of the simulated patient who would otherwise have been
expected to remain on therapy for 60 months, but would not affect the
patient on therapy for one month. Competitive entry, too, could affect
patient lifetime value, particularly if the competitor positions itself for
first-line usage.
In some ZS work, we have observed simulated PLVs that are higher
than internal estimates, which were based on the narrow patient-level
data window. We have helped organizations realize that PLV is not a
single number. Rather, it differs by segment and typically declines over
time—particularly as patent expiration nears. Reliance on historical
calculations would have led to inappropriate brand investments.
As the case studies illustrate, PLV analyses can provide significant
brand benefits. They can improve the segment focus as well as help
optimize patient acquisition investments. Brand managers who oper-
ate in categories in which patients exert significant influence ought to
know how much those patients are worth. Even outside of evaluating
patient-driven decisions, the concept of PLV is still important. Even if the
physician is driving many of the decisions, there is still an acquisition
process to get a patient, and understanding the return on that acquisi-
tion can guide smarter investment decisions. Moreover, understanding
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PLV allows companies to evaluate it as a leverage point. Specifically,
they may want to consider how they can increase their PLV by improv-
ing adherence.
Brand managers in other industries have long used rigorous customer
valuation. Given the advances in data and methodologies, the phar-
maceutical industry should think seriously about adding it to their
brand managers’ tool kits.
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About the Authors
Dan Frey is a Principal with ZS Associates in New York. He is responsi-
ble for ongoing development of ZS’ patient marketing capabilities and
dedicated client work. Dan chaired the 2009 Eyeforpharma confer-
ence entitled “Patient Adherence and Engagement” and co-authored
“Drivers of Change,” an article on the future of pharmaceutical sales
forces, published in Pharma Times in February 2009. Prior to ZS, Dan
was a strategic consultant for several firms, and founded two compa-
nies. He has a Bachelor of Arts degree in the Woodrow Wilson School
of Public and International Affairs from Princeton University and an
M.B.A. from Northwestern University’s Kellogg Graduate School of
Management.
Jean-Jacques Raoult is a Principal with ZS Associates in New York
and is responsible for the firm’s opportunity assessment practice. His
experience is in portfolio and brand strategy, and has led the develop-
ment of a new market simulation approach at the individual patient
and physician level (MarketLive). Jean-Jacques has helped develop and
implement PLV solutions with pharmaceutical marketers. He holds an
engineering degree in geology and geophysics, a Ph.D. in computer
sciences and an M.B.A. from INSEAD.
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About ZS Associates
ZS Associates is a global management consulting firm specializing
in sales and marketing consulting, capability building and outsourc-
ing. The firm has more than 1,500 professionals in 19 offices around
the world, and has assisted more than 700 clients in 70 countries. ZS
consultants combine deep expertise in sales and marketing with rigor-
ous, fact-based analysis to help business leaders develop and imple-
ment effective sales and marketing strategies that measurably improve
performance.
As the largest global consulting firm focused on sales and marketing, ZS
Associates has experience across a broad range of industries, includ-
ing medical products and services, pharmaceuticals, biotechnology,
high tech, telecommunications, transportation, consumer products and
financial services.
For more information on ZS Associates, call +1 847.492.3602 or visit
www.zsassociates.com.
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