Quantifying the Benefits of Individual-Level Targeting in the Presence of Firm Strategic Behavior

Abstract

The authors develop a method to quantify the benefits of individual-level targeting when the data reflect firm strategic behavior—that is, when firms (1) are engaged in targeting and (2) take into account the actions of competing firms. This article studies a pharmaceutical firm's decision on the allocation of detailing visits across individual physicians. For this analysis, the authors develop, at the individual level, a model of prescriptions and a model of detailing. Using physician panel data, they estimate, at the physician level, the parameters of the prescription and detailing models jointly using full-information Bayesian methods. The results suggest that accounting for firm strategic behavior improves profitability by 14%–23% compared with segment-level targeting. In addition, ignoring firm strategic behavior underestimates the benefit of individual-level targeting significantly. The authors provide reasons for this finding. They also carry out several robustness checks to test the validity of the modeling assumptions.