Marketing Mix I - Product design and pricing

Question 1

What is the value proposition?

Answer 1

The value that you offer your customers.

• Starting point of nearly all practical marketing considerations.
• Must be clear to the customer

Question 2

What are the opportunities for value propositions in biotech/pharma/medtech?

Answer 2

• Newness
• Usability/convenience
• Performance
• Risk reduction
• Price/ / costs
• Customization
• Design
• Getting the job done (simplifying procedures, speeding up diagnosis)

Question 3

What is the Target Product Profile (TPP)?

Answer 3

It is a planning tool for therapeutic candidates.

• How product will be differential to competitors
• Having “end in mind” when initiating product development
• Facilitating communication (e.g. FDA) since it summarizes the drug development program in relation to intended labeling content and claims.
• Record of the durg that is most likely to launch, incorporating the latest data from the clinical program and evolving pharmacology
• Summarizing indications and usage, incl dosing and administration, contraindications, warnings and precautions, adverse reactions, description, clinical pharmacology, clinical studies, storage and handling

Question 4

What are the product characteristics that can be used for product differentiation?

Answer 4

• Performance quality
• Form
• Features (characteristics beyond basic functionality)
• Durability
• Design/style
• Usability
• Customization

Question 5

What are the services that can be used for product differentiation?

Answer 5

• Ease of ordering
• Delivery
• Installation
• Customer training
• Customer consulting
• Maintenance and repair

Question 6

What is the product mix?

Answer 6

A set of all products and items that a particular firm offers for sale.

It includes for dimensions:
1. Width: How many product lines (e.g. clinical products, diagnostics, imaging and therapy systems)
2. Length: total number of items in the product mix
3. Number of product variants of each product offered in each line
4. How closely related the various lines are in end use, production requirements and distribution

Question 7

What did Pfizer do well with their drug Lipitor?

Answer 7

It became the most used drug ever.

• Value proposition clear: Improved efficacy
• As a result: Aggressive marketing was undertaken
• Price was comparable to competitor prices leading to gain of higher market share

Question 8

What was the topic/theme of discussion with Biopure case?

Answer 8

Segmentation and pricing

Question 9

What are the pricing objectives?

Answer 9

1. Maximize current profit: Price is chosen to maximize the returns or profitability based on demand and cost functions.
2. Maximum market share: Higher sales volume –> lower cost/unit –> higher long-run profit –> low price as result
3. Survival: Useful if intense competition, overcapacity in production or changing consumer demands that cannot immediately be addressed
4. Product quality leadership: High quality products offering at premium price

Question 10

What is elastic price-demand?

Answer 10

Demand is highly responsive to change in price.

• If demand is price elastic, a supplier stands to gain extra revenue if they reduce their prices.
• The change in quantity demanded will be proportionally higher than the reduction in price

Question 11

What happens to the demand of a product if the price is incresed and the product is price elastic?

Answer 11

There will be a drop in demand that is larger than the relative price increase –> bad idea!!

Question 12

What is in-elastic price demand?

Answer 12

The demand is unresponsive to a change in price.

• If price is changed, the total revenue depend of the PED for its product (Inelastic demand PED<1)
• if PED<1 there will be an increase in total revnue

Question 13

Are biotech/pharma products usually elastic or in-elastic price demand?

Answer 13

They are typically in-elastic i.e. a change in price does not lead to change in demand.

Question 14

What global factors lead to reduced price sensitivity?

Answer 14

Reduced price sensitivity means more inelastic price-demand.

• Product is more distinctive
• Buyers are less aware of substitutes
• Expenditure is a smaller part of the buyer’s total income
• Part of the cost borne by another party
• Product is used in conjunctions with assets bought previously
• Product assumet to have more quality, prestige, or exclusiveness

Question 15

What are the drivers of price sensitivity in a pharma setting?

Answer 15

• If a disease is very severe
• If market has none or few alternative products
• IP – excludes competition
• Number of patients

Question 16

What are the generic pricing strategies?

Answer 16

• Value-based (not completely independent from any kind of benchmarking)
• Cost-based (mark up & target return)
• Market oriented (benchmark)

Question 17

What are the specific pricing strategies?

Answer 17

• Bundling and couponing (coupons)
• Pay for performance/out-come based (price is set depending on fulfillment of particular outcome)
• Premium/skimming (accept initial low demand, only work for inelastic price demand products)
• Penetration (low intro price to gain market share)
• Differentiation (price varies between customer groups - some groups are willing to pay more than other - consumer surplus is reduced if price is differentiated)
• Target/return: Sets selling price to achieve a specific revenue or profit taget at a specific volume

Question 18

What are the new pricing schemes for biopharma?

Answer 18

• Outcome based/performance based (e.g. gene therapy)
• Bundled payment (e.g. vaccines)
• Indication-specific pricing (Price differential dependent on performance for different indications e.g. lung cancer vs. colorectal cancer)
• Financial-based risk sharing (Price linked to utilization - the price will drop the more it will be used e.g. France and Gilead - France wants to make sure they don’t overspend. Interest of Gilead in case overperforms)
• Annuity model: payments spread over time as opposed to upfront payment

Question 19

Why are new pricing schemes being introduced in pharma?

Answer 19

• Some drugs approved with less clinical data –> risk must be spread out
• Some drugs are too expensive to use generics pricing models
• To improve competitive advantage

Question 20

Which pricing model is typically used in diagnostics?

Answer 20

The razor-blade pricing model.

Question 21

What are the 4ps and what can they be used for?

Answer 21

Prouduct, price, promotion and place.

They can be used to plan and analyze marketing activities.