M6 Flashcards by Anna Michaela Gatchalian

value of the product determined by the producer

Price mix

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It is the amount of money charged for a product or service.

Pricing

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It is the sum of the values consumers exchange for the benefits of having or using the product or service.

Pricing

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A part of the marketing mix that brings the revenues.

Pricing

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communicates the value positioning of the product

Price

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perceived benefits - acquisition cost =

Value

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used in government transactions in hospitals, industrial firms, and related health agencies

Bids or Quotations

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used by drug manufacturers when selling products to trade outlets

Catalogue or List price

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used by wholesalers and retailers when selling products to consumers or end-users

Retail price

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when selling price in bulk quantities

Wholesale price

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the cost of products inclusive of 10% VAT and discounts

Net price

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the costs of products inclusive of raw materials, labor, and overhead

Billing price

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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

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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

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Customers use price as an indicator of quality, particularly for products where objective measurement of quality is not possible

Price – quality relationship

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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

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Ex. Branded vs. Generic drug

Price – quality relationship

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Ex. Apple products

Product line pricing

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The company should be able to justify the price it is charging, especially if it is on the higher side.

Explicability

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Consumer product companies have to send cues to the customers about the high quality and the superiority of the product.

Explicability

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Ex. A superior finish, fine aesthetics, or superior packaging

Explicability

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A company reduces its price to gain market share

Competition

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A company should be able to anticipate reactions of competitors to its pricing policies and moves.

Competition

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Ex. Entering dissimilar products serving the same need in a similar way – NSAIDs drugs

Competition

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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?

1. When a company sets a price for the first time 2. When inevitable circumstances lead a company to consider initiating a price change 3. 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:

1. Product cost 2. The utility and demand 3. Extent of competition in the market 4. Government and legal regulations 5. Pricing objectives 6. Marketing methods used

Issues in Price Management in Pharmaceutical Industry

1. Price must give enough profit to the firm or drug outlet, which will keep invested capital and employed. 2. Price should attract new capital to the industry under normal conditions. 3. Increasing the quality without raising or reducing prices and without reducing the quality