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

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