Pharmaceutical

Marketing
UNIT 6: PRICE MIX
Content
ØWhat is Price?
ØWho decides for the price of a drug product?
ØWhat are the factors influencing the price?
ØWhen is pricing a problem to drug companies?
ØWhat are the goals of pricing?
ØWhat are the pricing strategies used in the drug industry?
ØPrinciples in Building a Drug Price Policy
What is Price?
ØPrice, is the amount of money charged for a product or service. It is the sum of
all values consumers exchange for the benefits of having or using a product or
service.
ØThe amount of money and/or goods needed to acquire some combination of
another good and its accompanying services.
ØPrice is also called
Øbids/quotations = government
Øcatalogues/list price = manufacturers to outlets
Øretail price = retailers/wholesalers to customers
Ønet price = cost of product + VAT and discounts
Øbilling price = cost of product inclusive of raw materials, labor and overhead
Ørentals/allowance = amount paid by manufacturers to trade outlet for their product display
Who decides for the price?
ØPricing is an art, attempts to balance factors where no price is possible to
attached, optimize profit, reduce losses and maintain market share.
ØTop executives usually decide on price following advices from other heads of
the company with direct relation to the product.
ØRoles of Marketing and Sales Managers:
1. Initiation of price changes
2. Price determination
3. Formulation or price policy
4. Price administration
Factors Influencing Price
A. The Market for the Product
1. Market Appeal
2. Market Characteristics
3. Elasticity of Market Demand
4. Expandability of Market Demand
5. Pattern of Income Distribution

B. Cost of the Product

1. Lower Production Cost
2. Higher Selling Cost
3. Joint Cost
When is Pricing Problematic?
1. When a company sets a price for the first time
ØAcquisition of new product, development of new product, launching of present product to new
distribution channels, and participation in government bids or negotiated contract.

2. When inevitable circumstances lead a company to consider initiating a price change

ØRe-pricing due to economic situations, total review of pricing related to demand, cost and competitor’s
prices.

3. When direct competitors initiate a price change

ØDecision to increase/decrease price by how much and for how long to gain a foothold on the market

4. When a drug company produces several drug products that have interrelated demands
and/or cost
ØCan use multi-branding pricing strategy for optimal price relationship among products on the line
What are the Goals of Pricing?
1. To maximize current profits.
2. To maintain or improve target share of the market.
3. To pre-empt or minimize entry of competition in the specified market
segment.
4. To trigger increased customer traffic into retail stores.
5. To survive in business due to increased overhead cost, excess capacity stiff
competition, and changing consumer need and wants
6. To attain the highest quality product in the market by setting high price to
justify the perceive high quality and high cost of R and D.
What are the Goals of Pricing?
7. To help in the stabilization of price in order to prevent price wars.
8. To keep loyalty and support of resellers or to avoid government intervention.
9. To help or augment the sales of other drug products in the company
10. To generate additional marketing effort.
11. To determine what product features would be offered and what production
cost could be incurred with price.
12. To develop and implement a consistent and effective marketing program by
closely coordinating price decisions wit production design, distribution and
promotion decision.
Pricing Strategies in the Drug Industry
1. Selling below cost
ØUndesired but necessary for the following reasons:
1. There is an overstock of drug product
2. The product is expiring in 3 months or in a year
3. New product introduction
4. Loss of leaders in retailing
5. Marketing costs are too high
6. Increase in volume (level unit cost of production)
Pricing Strategies in the Drug Industry
2. Selling below competition
ØThis done for the purpose of:
1. Gaining fast entry to desired market segment/sub-segment by therapeutic category
2. Getting bigger slice of the market
3. Satisfying management to dislodge competition out of the market at all cost to regain
market share
Pricing Strategies in the Drug Industry
3. Competitive Selling
ØThis is done by way of:
1. Following the Leader price policy
2. Launching or introducing specialty drug products
3. Highlighting technological advantages in terms of bioavailability or bioequivalence tests
Pricing Strategies in the Drug Industry
4. Pricing above Competition
ØDone by emphasizing value given and other non-price consideration such as: quality,
warranty, after-sales service, additional product features, additional quantity and
capacity of product line.

5. Stopping entry of Competition

ØDone by setting a price at very low levels relative to competition or even below cost
by means of higher discounts, product deals, allowances, subsidies, pin-money for re-
orders, and gift certificates.
Pricing Strategies in the Drug Industry
6. Psychological Pricing Strategy
ØDigits in prices are symbolic and provides visual quantities for the product. 8, 6 & 3
are round digits which provides a soothing effect. 7, 4 & 5 are more angular in shape
and provides a jarring effect.

ØA psychological difference in price of P 0.05 send the perception into the lower
range rather than the upper range. (P 599.95 = P 500 range rather than P 600).

ØPosition a product beside or close to a product of higher price but of the same
product category.

ØHigher prices symbolizes higher quality.

Pricing Strategies in the Drug Industry
7. Promotional Pricing Strategy
ØLoss Leader Pricing, lowering prices of products to attract more customers in the store with
the hopes that they will buy other products with normal mark-ups.

ØSpecial Event Pricing, done during certain seasons: Summer sales, Rainy Season, Christmas,
New Year, Valentine’s and other events.

ØCash Rebates/Pin Money, given by drug companies to consumers of their product for a given
period of time. Done by exchanging parts of packaging for coupons used upon purchase.

ØLow Interest Financing and Longer Warranties, reduces the customer’s or trade outlet’s
price.
Pricing Strategies in the Drug Industry
8. Geographical Pricing Strategy
Ø Higher prices are given to the same products that brought to further distribution
channels. Unilab follows a Uniform Pricing Scheme regardless of location.

9. Freight Absorption Pricing

Ø Companies absorb all freight charges to get the business away from competition or to
effectively penetrate other markets for more aggressive competition.

10. Market Skimming Pricing Strategy

Ø New products are priced higher initially to “skim” maximum revenue from willing
consumers and are then put at a lower price after establishment of market share in order
to attract price-sensitive consumers.
Pricing Strategies in the Drug Industry
11. Market Penetration Pricing Strategy
Ø New or innovative product are introduced into the market at a lower price in order to
attract buyers to purchase higher volumes of that product. This supports faster and bigger
growth of the product and helps keeping out competition.

12. Product-Bundle Pricing Strategy

Ø Drug companies combine product lines in a set and offers them at a lower price, low
enough for consumer to make the purchase even if they don’t have an actual need for one
of the products in the bundle.
Pricing Strategies in the Drug Industry
13. Discount Pricing and Allowance Strategy
Ø Cash Discounts, price reduction for outlets and buyers who pay their orders promptly or
on cash basis.
Ø Quantity Discount, price reduction given to buyers of larger quantities in order to offer
incentives for buying more than the usual amount from a given supplier.
Ø Trade Discount, offered to members of trade channels who perform functions such as
selling, storing and record keeping.
Ø Seasonal Discounts, price reduction for buyers of out of season products.
Ø Promotional Allowance, reward for outlet participating in sale promotions and
advertising programs.
Ø Other Discount Pricing, promotional discounts, cumulative discounts, display allowance,
warranty allowance, floor rentals, channel incentives.
Pricing Strategies in the Drug Industry
14. Discriminatory Pricing Strategy
Ø When companies sell the same product at different prices, which is not based on
differences of cost.

Ø Customer-Segment Pricing, different groups of customers ay different prices for the same
product. Eg. Senior citizens and younger customers.

Ø Product-Form Pricing, different versions of product which varies in brand name and
marketing effort but with the same generic are priced differently. Eg. Medical and Biogesic
tablets, Paracetamol-based products but of different prices.
Pricing Strategies in the Drug Industry
15. Full Cost Pricing Strategy
Ø Patronage mark-up equal to the cost of operating the store.

16. Sealed Bid Pricing Strategy

Ø Setting lower prices relative to other firms when bidding medicine requirement of
government hospitals and industrial firms.

17. Demand-Oriented Pricing Strategy

Ø Setting prices based on customer perceptions and demand intensity rather than on costs.
Pricing Strategies in the Drug Industry
18. Perceived Value Pricing Strategy
Ø Pricing based on the product’s “perceived value”, the buyer’s perception of value and not
the seller’s level of cost. Eg. Branded vs. Generic products

19. Going-rate Pricing

Ø Price at the average level charged by the drug industry.

20. Break-even Pricing Strategy

Ø Setting prices to break-even on the costs of making and marketing a drug product or to
make the desired profit. Also known as Target Profit Pricing.
Pricing Strategies in the Drug Industry
21. Cost-plus Pricing Strategy
Ø Adding a standard mark-up to the cost of a drug product’s total unit cost of product
changes as output expands or contracts.

22. Buyer-Oriented Pricing Strategy

Ø Starts with analyzing consumer needs and price perceptions. Knowing their understanding
of “value” for each benefit they can get from a product the set the price to fit this
information.

23. One Price Formula Strategy

Ø Can be applied to branded product, premium market or on exclusivity and monopoly of
drug product. Sets the same price for a product sold at different geographical location.
Pricing Strategies in the Drug Industry
24. Price Bargaining Strategy
Ø A growing need for a negotiated price and the demise of the established price. Eg.
Government purchase requirements.

25. Current Revenue Pricing Strategy

Ø Setting the price to maximize current sales revenue. Finding the price/quantity
combination that yields the largest sale revenue is critical.

26. Target Profit Pricing Strategy

Ø Pricing objectives towards satisfactory rate of return.
Pricing Strategies in the Drug Industry
27. Cost-Oriented Pricing Strategy
Ø Setting prices based only on costs such as mark-up pricing and cost-plus pricing.

28. Market Share Pricing Strategy

Ø Setting price to maximize market penetration even if it means letting go of current profits.
Eg. Done by drug companies trying to win government bidding even at a loss.

29. Mark-up Pricing Strategy

Ø Adding a fixed peso amount to the cost of a drug product. Fixed peso aount is a
percentage of the products cost. Eg. Done by hospitals and drug outlets.
Principles in Building a Drug Price Policy
1. Price must give enough profit to company to keep invested capital and
employed labor.
2. Price should be an amount that will put profit to the firm by making the
largest number of units of production in use.
3. Price should attract new capital to the industry under normal circumstances.
4. Increasing volume of product should make it possible for the drug firm to
either increase the quality without raising or reducing prices and without
reducing quality.
5. Average net profit over a number of years should form the basis for policy
validity instead of the profits for a single year.