M6 Flashcards
value of the product determined by the producer
Price mix
It is the amount of money charged for a product or service.
Pricing
It is the sum of the values consumers exchange for the benefits of having or using the product or service.
Pricing
A part of the marketing mix that brings the revenues.
Pricing
communicates the value positioning of the product
Price
perceived benefits - acquisition cost =
Value
used in government transactions in hospitals, industrial firms, and related health agencies
Bids or Quotations
used by drug manufacturers when selling products to trade outlets
Catalogue or List price
used by wholesalers and retailers when selling products to consumers or end-users
Retail price
when selling price in bulk quantities
Wholesale price
the cost of products inclusive of 10% VAT and discounts
Net price
the costs of products inclusive of raw materials, labor, and overhead
Billing price
the amount paid by manufacturers to trade outlets monthly for product displays either at the point-of-sale or preferential shelf spaces or floor display spaces
Rentals/allowance
Factors influencing price
- Price – quality relationship
- Product line pricing
- Explicability
- Competition
- Negotiating margins
- Effect on distributors and retailers
- Earning very high profits
- Charging very low prices
Customers use price as an indicator of quality, particularly for products where objective measurement of quality is not possible
Price – quality relationship
A company extends its product line rather than reduce price of its existing brand when a competitor launches a low price brand that threatens to eat into its market share,
Product line pricing
Ex. Branded vs. Generic drug
Price – quality relationship
Ex. Apple products
Product line pricing
The company should be able to justify the price it is charging, especially if it is on the higher side.
Explicability
Consumer product companies have to send cues to the customers about the high quality and the superiority of the product.
Explicability
Ex. A superior finish, fine aesthetics, or superior packaging
Explicability
A company reduces its price to gain market share
Competition
A company should be able to anticipate reactions of competitors to its pricing policies and moves.
Competition
Ex. Entering dissimilar products serving the same need in a similar way – NSAIDs drugs
Competition
allow price to fall from list price levels but still permit profitable transactions
Negotiating margins
A customer may expect its supplier to reduce price, and in such situations, the price that the customer pays is different from the list price.
Negotiating margins
Ex. Discounts based on order size or type of payments
Negotiating margins
When products are sold through intermediaries like retailers, the list price to customers must reflect the margins required by them.
Effect on distributors and retailers
It is never wise to earn extraordinary profits, even if current circumstances allow the company to charge high prices.
Earning very high profits
The company’s high profits lure competitors who are enticed by the possibility of making.
Earning very high profits
It may not help a company’s cause if it charges low prices when its major competitors are charging much higher prices.
Charging very low prices
If a company introduces very low prices, customers suspect its quality and do not buy the product in spite of the low price.
Charging very low prices
Internal Factors (TED COS PBC M)
○ Top-level management
○ Elements of marketing mix
○ Degree of product differentiation
○ Costs
○ Objectives
○ Stage of product lifecycle
○ Product quality
○ Brand Image
○ Category of Class of Product
○ Market share
External Factors (SEED CP BG)
○ Demand for the product
○ Competition
○ Price of raw materials and other inputs
○ Buyers behavior
○ Government rules and restrictions
○ Ethical consideration or code of conduct
○ Seasonal effect
○ Economic condition
When is pricing a problem to drug companies?
- When a company sets a price for the first time
- When inevitable circumstances lead a company to consider initiating a price change
- When direct competitors initiate a price change
Basic Pharmaceutical Pricing Policies
▷Differential Pricing
▷Competitive Pricing
▷Product-line Pricing
▷Psychological/ Image Pricing ▷Distribution-Based Pricing
Set different prices in different markets due to local regulations
Variable pricing
If the primary market covers fixed/ variable costs, enter the second market with a lower price.
Second market discounting
Set initial prices high, then lower gradually
Skimming
Lower prices at periodic intervals (e.g. seasonally)
Periodic discounting
Lower prices unpredictably and infrequently
Random discounting
Differential Pricing
▷Variable pricing
▷Second market discounting
▷Skimming
▷Periodic discounting
▷Random discounting
Offer products priced at the same level with competition. Avoid price wars.
Competition-meeting pricing
Offer prices lower than competitors to try to gain market share.
Competition-undercutting pricing
Capitalize on competitive advantage (e.g. unique formulation to set high prices)
Price leadership
Adjust prices according to the market leader’s pricing moves.
Following the leader pricing
Offer initial prices below cost, planning to capitalize as experience curve rises
Penetration pricing
Set initial prices low to eliminate competitors, then raise them.
Predatory pricing
Set according to historic price of “reference” drug (e.g. the first NSAID)
Traditional pricing
Adjust prices downward if inflation rises (lower purchasing power)
Inflationary pricing
Competitive Pricing
▷Competition-meeting pricing
▷Competition-undercutting pricing
▷Price leadership
▷Following the leader pricing
▷Penetration pricing
▷Predatory pricing
▷Traditional pricing
▷Inflationary pricing
Sacrificing an item’s price so that store traffic and, thus, total profit increase.
Total-profit pricing
Price a basic unit low, which its necessary supplies high.
Captive pricing
If the market leader, add a price premium on the preferred product.
Leader pricing
Set prices according to customer perceived value.
Value pricing
Offer an OTC priced low, planning to switch the customer to something higher.
Bait pricing
Instead of a wide range, offer three product classes at $5, $20, and $100 per unit.
Price lining
Offer discounts for buying a product package.
Price bundling
Bundle products in large quantities and low prices (economies of scale)
Multiple-unit pricing
Product-line Pricing
▷Total-profit pricing
▷Captive pricing
▷Leader pricing
▷Value pricing
▷Bait Pricing
▷Price lining
▷Price bundling
▷Multiple-unit pricing
Offering low-priced generic next to expensive “reference-priced” original.
Reference pricing
Odd prices indicate low price, while even prices indicate prestige
Odd and even pricing
Set very high to match a luxury item’s prestigious image.
Prestige pricing
Psychological/Image Pricing
▷Reference pricing
▷Odd and even pricing
▷Prestige pricing
all-inclusive price up to a destination point
FOB pricing
Price of a product delivered at the customer’s warehouse (e.g. hospital pharmacy
Delivered pricing
Prices set according to regional zones (e.g. north, south, central).
Zone pricing
Mail order pharmacies charge a uniform price across the country.
Uniform- delivered pricing
A manufacturer sells to a wholesale in Paris, with a London delivery-based price.
Basing-point pricing
Distribution-based Pricing
▷FOB pricing
▷Delivered pricing
▷Zone pricing
▷Uniform- delivered pricing
▷Basing-point pricing
Main factors affecting price determination of product:
- Product cost
- The utility and demand
- Extent of competition in the market
- Government and legal regulations
- Pricing objectives
- Marketing methods used
Issues in Price Management in Pharmaceutical Industry
- Price must give enough profit to the firm or drug outlet, which will keep invested capital and employed.
- Price should attract new capital to the industry under normal conditions.
- Increasing the quality without raising or reducing prices and without reducing the quality
