Botox: Almost Trouble-Free New Faces

In the movie virgule Face/Off, John Travolta got a new look by exchanging faces with Nicholas Cage. Unfortunately, he
got a lot of trouble along with it. Today, John could receive a much less troublesome new look by using Botox, from
Allergan Laboratories in Irvine, California. Not only has Botox smoothed the visages of aging actors, it has also come to
the rescue of countless comedians and late-night talk-show hosts. Beyond perhaps doing wonders for their appearance,
it’s also given them a slew of new jokes as the “next Viagra.”

In 1990, Allergan was just a small specialty pharmaceutical firm selling little-known eye and skin drugs and over-the-
counter contact lens cleaners. The introduction of Botox wasn’t such a big deal initially. After all, typical of Allergan
specialty products, it was just another specialty drug aimed at a small market (treatment of cross-eye) supported by little
marketing effort.

That was before doctors discovered that injecting Botox around eyes not only eliminated ocular problems, it erased
frown lines as well. Once that happened, the buzz was on between doctors and patients. Before long, doctors in most
major U.S. cities were giving patients off-label (not approved by the FDA for this use) Botox injections. Even though
Allergan could not openly market the product for cosmetic purposes, by 2001 sales of Botox rocketed to $310 million
and were growing between 25 percent and 35 percent per year. That translates into over 1.6 million Botox cosmetic
procedures performed on roughly 850,000 patients. FDA approval, granted in April 2002, only accelerated this sales
bonanza.

The good news for Allergan does not end with wiping out frown lines. Botox also effectively treats migraine headaches,
chronic neck and back pain, excessive sweating, and possibly spastic disorders. With all those target markets, Botox
could become a blockbuster drug—with more than a billion dollars in sales—bringing Allergan out of the backwaters of
the pharmaceutical business.

Botox Cosmetic is botulinum toxin A, a heavily diluted version of the feared botulinum toxin found in spoiled canned
soups and vegetables. It contains only 20 units of the toxin compared to the thousands of units found in spoiled food, but
it works in the same way—by paralyzing facial muscles to the point where they can no longer contract.

Frown lines are definitely a sign of age, use, and wear. They occur when facial muscles contract, drawing the skin up.
When the muscles relax, the lines disappear. As we get older, it becomes more difficult to relax, so that we seldom fully
relax our facial muscles.

Although eliminating frown lines sounds great, there is at least one small problem. Totally relaxed forehead muscles
leave you incapable of rendering any expression at or above the eyes. For the celebrities and stars that were among the
first to use Botox, this resulted in “performance” problems. One TV star commented that when the director kept telling
her to show anger, she replied, “I am, I am.” Unfortunately, nothing was moving on the upper half of her face. As a
consequence, she stopped using Botox except for Emmy awards night!

For others, however, the loss of expression might be a positive. Business people seeking a softer look might want to
eliminate frown lines that make them look irritated or impatient. Trial lawyers attempting to establish rapport with juries
might want to eliminate expressions of annoyance and anger. And sales representatives might want to appear
unperturbed by what their clients and customers are saying. But while some observers think Botox could give us a
kinder, gentler-looking America, others think it could turn us into a nation of zombies.

Besides loss of expression, Botox produces additional side effects. When used on the forehead and around the eyes,
Botox can cause drooping eyelids (you won’t be able to close or open them completely—this could be either a sexy or a
dopey look). Used around the mouth, Botox may cause slurred speech, a droopy mouth, and constant drooling. Other
possible side effects include nausea, allergic reactions, headaches, respiratory infections, flu symptoms, and redness and
swelling around the injections. The redness and swelling usually go away in a couple of days.

Because Botox Cosmetic lasts only three to six months, all side effects are temporary. This also means, however, that
Botox treatments must be repeated when the effects wear off. While that is bad news for consumers, it’s good news for
doctors. The margins on Botox are quite high—around 80 percent. A vial of Botox Cosmetic costs about $400 and can
be used for four treatments. Depending on the doctor’s pricing scheme, each treatment can be $500 to $1,000. That’s
quite a nifty profit for a treatment that usually takes less than 15 minutes, and it’s quite a bill for the patient, because
insurance companies don’t pay for Botox Cosmetic treatments.

Botox has become so lucrative and the demand so great that the treatments are sometimes offered in a party atmosphere
—sort of like a Tupperware party. Doctors usually ask a current patient to invite 10 to 15 prospective clients to a party at
his or her home, where the partygoers are offered such tidbits as chocolates, brie, and champagne. After a brief social
period, the doctor gives a short lecture on Botox and invites the partygoers to sign up for treatment. Patients take turns
leaving the room, to the applause of other partygoers, and the doctor gives the injections in private. Parties provide a
nonclinical atmosphere more conducive to patient receptivity and reduce the time and costs incurred by the doctor. Even
good champagne costs less than nurses, receptionists, and rent, and the doctor can give patients a price break—maybe
charging only $250 per treatment at a party. Thus, parties are “good” for everyone. Some doctors, however, object to the
“party scene” on the basis that this is a medical treatment and not a social gimmick. Therefore, they hold multiple client
sessions in their offices in the evening with the same benefits of price breaks for patients and lower costs and less time
for themselves.

Resorts have even gotten on the Botox bandwagon. Jamaica’s Half Moon Golf, Tennis and Beach Club retains Dr. Z
Paul Lorenc on their staff to give customers quick Botox cosmetic treatments. By the time patients return home, any
swelling, redness, or other side effects have disappeared.

Once allowed to advertise Botox for cosmetic purposes, Allergan wanted to capitalize on its popularity. It identified the
primary market as the approximately 29 million women between the ages of 30 and 64 with household incomes over
$50,000. Within that market, the company believed that 7 million women greatly concerned about their appearance were
likely to be heavy users. While women constitute the bulk of the market, there are also plenty of guys who want a
smoother forehead. Middle-aged men made up 13.8 percent of the market for Botox in 2001, up from 6.1 percent the
year before, making males the fastest-growing user segment.

To reach these markets, Allergan began spending $50 million on marketing in 2002. The backbone of this consumer-
oriented campaign was advertisements on TV and in 24 magazines such as People, The New Yorker, Vogue and InStyle.
Allergan estimated that 90 percent of the audience would see ads at least 10 times a year. Most of the ads featured
models in everyday clothing and wearing wedding bands—a look that communicated the message that Botox is for
everyone.

In addition to the consumer campaign, Allergan began an industry outreach campaign directed at doctors and
pharmacists. Beginning with the company Web site, health professionals could obtain information about Botox and its
use. The company also beefed up its sales force and armed salespeople with promotional materials for distribution to
health professionals. Finally, it conducted clinics demonstrating the appropriate use of Botox in treating patients for
cosmetic purposes.

All of this was part of CEO David Pyott’s plan to move Allergan into position as a major player in the pharmaceuticals
industry. When he took office in 1998, he found that Allergan had not changed its strategy in decades. Among his first
moves were closing plants, slashing jobs, and cutting overhead. To refocus the company, he selected target industries for
growth and started making the moves necessary to achieve that growth. The company increased R&D expenditures by
26 percent and expanded the sales force by 28 percent. As a result, Allergan actually employed more people by the end
of 2002 than it had two years earlier. The expanded sales force allowed Allergan to establish relationships with many
more doctors and pharmacists, relationships that Pyott believes are the basis for sales growth. After all, patients don’t
buy treatments directly; doctors buy Botox and use it on patients.

Allergan’s major growth opportunity is the ophthalmologic market, where rival Alcon is number one. Allergan believes
that it can capture the number one position there within three years. The second growth target will be dermatology,
where Botox gives the company a major advantage and where it can grow by acquiring new formulas or purchasing a
license from a foreign producer. Doing that is more cost-effective than developing new products in the R&D laboratory
from scratch.

Sales of Botox fuel much of this growth, as Allergan’s margins on Botox are about 60 percent. To prevent the
competition from developing their own Botox, the formula for making it is one of the most closely held secrets in the
world. With the dollars from Botox, Allergan can increase its marketing efforts, add products to its line, and attack
competitors. The best news of all is that sales of Botox are not likely to decline unless consumers and movie stars
suddenly face up to their age—wrinkles and all.

Questions for Discussion

1. What are the needs, wants, and demands of consumers of Botox products in its different treatment markets?
What value does Botox deliver in each market? How does value affect price for Botox?
2. When Allergan sold Botox as a specialty drug for ocular problems, what marketing management orientation was
it employing? When it sells Botox as a cosmetic treatment, is it employing the same or a different orientation?
3. When doctors treat patients with Botox in their office, is that an example of a selling concept or a marketing
concept? Which concept applies when they hold parties for patients in private homes?
4. Apply the concepts of customer lifetime value and customer equity to Botox. How do doctors and Allergan
improve the way they manage customer relationships?
5. How does Allergan connect with its customers (doctors)? How does it connect with final consumers? How does
it connect with the world around it? What could it do to improve these connections?

Sources: Richard Corliss, “Smile—You’re on Botox,” Time, February 18, 2002, p. 7; Rafer Guzman, “Takeoffs & Landings,” The Wall Street
Journal, November 23, 2001, p. 11C+; Michael Lemonick, “The Pros and Cons of Botox,” Time, April 29, 2002, p. 77+; David Noonan and Jerry
Adler, “The Botox Boom,” Newsweek, May 13, 2002, pp. 50–58; Brian O’Reilly, “Facelift in a Bottle,” Fortune, June 24, 2002, pp. 101–104; Tara
Parker-Pope, “Wrinkle-Fighter Botox Is Being Used to Treat a Variety of Ailments,” The Wall Street Journal, February 22, 2002, p. B1 +; Rhonda
Rundle, FDA Clears Botox for Cosmetic Use,” The Wall Street Journal, April 16, 2002, p. D6+; Justin Schack, “Eyes on the Prize,” Institutional
Investor, September 2000, pp. 30–32; and Rachel Zimmerman, “Botox Gives a Special Lift to These Soirees,” The Wall Street Journal, April 16,
2002, p. B1+.