R&D and Promotion in Pharmaceuticals: A Conceptual Framework and Empirical Exploration

Abstract

Innovative firms investing heavily in R&D suffer from the problem of appropriability, that is, the inability to capture the full benefits of innovation because of imitation. Complementary promotion is an important instrument of modem marketing strategy by which firms mitigate this problem. The issue is examined conceptually and empirically in the context of the pharmaceutical industry. The study uses a quadratic model to estimate the relationship between promotional intensity and R&D intensity. The results support a statistically significant positive relationship between R&D and promotion and indicate complementarity between the two. The study raises an important managerial issue: Does a firm that recognizes the strategic importance of this complementarity have a greater chance of success than a firm that does not?

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