OUR LADY OF FATIMA UNIVERSITY

College of Pharmacy
PHARMACEUTICAL MARKETING
AND ENTREPRENEURSHIP
(PHME311)

Module 6
Price Mix, Decision
and Strategies
 UNIT
OUTCOMES:
𝖣 At the end of the lecture, the students
should be
○ Discuss the role of pricing towards the early
realization of profits for the firm
○ Enumerate the external and internal factors that
affect pricing decisions for pharmaceutical
products.
○ Analyze determinants of pricing drug products

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UNIT OUTLINE

1. Meaning
2. Objectives
3. Factors influencing price
4. Importance
5. Pricing problems in the
Philippines.
6. Methods and Strategies of pricing
7. Determinants of pricing
8. Issues in Price Management in
Pharmaceutical Industry 3
CHECKLIST

 Read course and unit objectives

 Read study guide
 Read required learning resources
 Refer to unit terminologies for
jargons
 Participate in weekly discussion
board (Canvas)
 Answer and submit course unit tasks
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REQUIRED READINGS

𝖣 https://yourarticlelibrary
.com

5
TER M INOLOGIES

𝖣 Price Mix – refers to the value

of the product determined by
the producer.

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 Price Mix, Decisions
and Strategies
What is pricing?
𝖣 It is the amount of money charged
for a product or service.
𝖣 It is the sum of the values consumers
exchange for the benefits of having or
using the product or service.

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𝖣 A part of marketing mix that
brings the revenues
𝖣 Price communicates the
value positioning of the
product
𝖣 Value = perceived benefits –
acquisition cost

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Price is called by many names as commonly used
by various practitioners in the pharmaceutical
fields such as the following:

𝖣 (1) Bids or Quotations, as used in

government transactions in hospital,
industrial firms and related health
agencies.
𝖣 (2) Catalogue or List price, as used
by drug manufacturers when selling
products to trade outlets.

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Price is called by many names as commonly used
by various practitioners in the pharmaceutical
fields such as the following:

𝖣 (3) Retail price, as

used by wholesalers
and retailers when
selling products to
consumers or end-users.
𝖣 (4) Wholesale price,
when selling price in
bulk quantities.
𝖣 (5) Net price, the cost
of products inclusive of 10
Price is called by many names as commonly used
by various practitioners in the pharmaceutical
fields such as the following:
𝖣 (6) Billing price, refers to the
costs of products inclusive of
raw materials, labor and
overhead.
𝖣 (7) Rentals/allowance, refers
to 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.
Factors influencing
price
𝖣 1. Price – quality relationship
○ Customers use price as an indicator
of quality, particularly for products
where objective measurement of
quality is not possible
○ Price strongly influences quality
perceptions of such products
■ Ex. Branded vs. Generic drug

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 Factors influencing
price
𝖣 2. Product line pricing
○ 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,
It launches a low price
fighter brand to compete
with low price competitor
brands.
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○ Ex. Apple products
 Factors influencing
price
𝖣 3. Explicability
○ The company should be able
to justify the price it is
charging, especially if it is on
the higher
side.
○ Consumer product companies
have to send cues to the
customers about the high
quality and the superiority of
the product.
■ Ex. A superior finish, fine
aesthetics or superior packaging
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 Factors influencing
𝖣 price
4. Competition
○ A company reduces its price to gain market
share
○ A company should be able to anticipate
reactions
of competitors to its pricing policies and
moves.
■ Ex. Entering dissimilar products serving the
same need in a similar way – NSAIDs drugs

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 Factors influencing
price
𝖣 5. Negotiating margins
○ allow price to fall from list price levels
but still permit profitable transactions
○ 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
■ Ex. Discounts based on order size
or type of payments

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 Factors influencing
price
𝖣 6. Effect on distributors
and retailers
○ W hen products are sold through
intermediaries like retailers, the
list price to customers must
reflect the margins required by
them
○ Sometimes list prices will be
high because middlemen want
higher margins.

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Factors influencing
price
𝖣 7. Earning very high profits
○ It is never wise to earn extraordinarily profits,
even if current circumstances allow the
company to charge high prices
○ The company’s high profits lure competitors
who
are enticed by the possibility of making profits.

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 Factors influencing
price
𝖣 8. Charging very
low prices
○ It may not help a
company’s cause if it
charges low prices when
its major competitors are
charging much higher
prices
○ If a company introduces
very low prices, customers
suspect its quality and do
not buy the product in
spite of the low price.
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 FACTORS
AFFECTING PRICING
DECISIONS
𝖣 Internal Factors
○ 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

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 FACTORS
AFFECTING PRICING
DECISIONS
𝖣 External Factors
○ 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

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 When is pricing a
problem to drug
companies?
𝖣 1. When a company sets a
price for the first time
○ 1.1 Acquires a new drug product
from an existing company locally or
abroad.
○ 1.2. Develops a new drug product
out of research or innovation of an
existing drug product.
○ 1.3. Launch or introduce present
drug products into new distribution

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 When is pricing a
problem to drug
companies?
𝖣 2. When inevitable
circumstances lead a company
to consider initiating a price
change
○ 2.1. Repricing as a result of inflation,
raw materials shortage, peso
devaluation, excess inventories, fuel
and power rate increases.
○ 2.2. Total review of pricing in relation
to its demand, costs and competitor’s
prices
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 When is pricing a
problem to drug
companies?
𝖣 3. When direct competitors
initiate a price change:
○ 3.1. the company decides to change
own price upwards or downwards
and deciding by how much and for
how long.
○ 3.2. The company initiates to
maintain old price for a while to
gain a strong foothold in the
market.

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 Methods and Strategies of
pricing

𝖣 Setting the price

range
Company
Financial Other
Objectives
Setting a Price
Customer Product related
Perceived
Value Service related

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 Sensitize
Customers

Satisfy Fight
Intermediaries Competition

Pricing
Objectives
Satisfy Establish
Regulation Image

Increase
Increase Sales
Income

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Basic Pharmaceutical Pricing
Policies

𝖣 Differential Pricing
𝖣 Competitive Pricing
𝖣 Product-line Pricing
𝖣 Psychological/ Image
Pricing
𝖣 Distribution-Based Pricing

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 Differential
Pricing
𝖣 Variable pricing
○ Set different prices in different
markets,
due to local regulations.
𝖣 Second market discounting
○ If primary market covers fixed/
variable costs, enter second market
with lower price
𝖣 Skimming
○ Set initial prices high, then lower
gradually

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Differential
Pricing
𝖣 Periodic discounting
○ Lower prices at periodic intervals
(e.g. seasonally)
𝖣 Random discounting
○ Lower prices unpredictably
and infrequently

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Competitive
Pricing
𝖣 Competition-meeting pricing
○ Offer products priced at the same
level with competition. Avoid price
wars.
𝖣 Competition-undercutting
pricing
○ Offer prices lower than competitors
to try to gain market share.

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Competitive
Pricing
𝖣 Price leadership
○ Capitalize on competitive
advantage (e.g. unique formulation
to set high prices)
𝖣 Following the leader pricing
○ Adjust prices according to the
market
leader’s pricing moves.

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Competitive
Pricing
𝖣 Penetration pricing
○ Offer initial prices below cost,
planning to capitalize as experience
curve rises
𝖣 Predatory pricing
○ Set initial prices low to
eliminate competitors, then
raise them.

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Competitive
Pricing
𝖣 Traditional pricing
○ Set according to historic price of
“reference” drug (e.g. the first
NSAID)
𝖣 Inflationary pricing
○ Adjust prices downward if inflation
rises (lower purchasing power)

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Product-line Pricing

𝖣 Total-profit pricing
○ Sacrificing an item’s price so that
store
traffic and, thus, total profit increase.
𝖣 Captive pricing
○ Price a basic unit low, which
its necessary supplies high.
𝖣 Leader pricing
○ If the market leader, add a
price premium on preferred
product.
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Product-line Pricing

𝖣 Value pricing
○ Set prices according to
customer perceived value.
𝖣 Bait Pricing
○ Offer an OTC priced low, planning
to switch the customer to
something higher.

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 Product-line Pricing

𝖣 Price lining
○ Instead of a wide range, offer three
product classes at $5, $20, and $100
per unit.
𝖣 Price bundling
○ Offer discounts for buying a product
package.
𝖣 Multiple-unit pricing
○ Bundle products in large quantities
and
low prices (economies of scale)
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Psychological/Image
Pricing
𝖣 Reference pricing
○ Offering low priced generic next to
expensive “reference-priced”
original.
𝖣 Odd and even pricing
○ Odd prices indicate low price,
while even prices indicate
prestige.
𝖣 Prestige pricing
○ Set very high to match a luxury
item’s
prestigious image. 37
Distribution-based Pricing

𝖣 FOB pricing
○ “Free on Board” means an all-
inclusive price up to a destination
point.
𝖣 Delivered pricing
○ Price of a product delivered at the
customer’s warehouse (e.g.
hospital pharmacy)

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 Distribution-based Pricing

𝖣 Zone pricing
○ Prices set according to regional zones
(e.g. north, south, central).
𝖣 Uniform- delivered pricing
○ M ail order pharmacies charge a
uniform
price across the country.

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Distribution-based Pricing

𝖣 Basing-point pricing
○ A manufacturer sells to a wholesale
in Paris, with a London delivery-
based price.

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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
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The marketing mix-
pricing
https://www.youtube.com/365car
ee rs

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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 43
POP QUIZ

1. Give 5 external factors

affecting pricing decisions?
2. What are the basic
pharmaceutical pricing
policies?

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References
:
https://ventureline.com
https://businessmanagementideas.com

https://yourarticlelibrary .com

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Thanks!
Any
questions?
You can find me
at: @username
user@mail.me

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