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MARKETING AND PRICING PROBLEMS.
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Analyzes pricing as a major priority of the marketing mix.... More...
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Paper Abstract:
Analyzes pricing as a major priority of the marketing mix. End price of the product. Issue of consumer affordability & company profits. Pricing policies of the pharmaceutical industry. AIDS medication high pricing. Drug company lobbying. Fair pricing concept. Altenative pricing strategies such as tier pricing. Role of government regarding subsidies, provision of drugs & medication to the elderly.
Paper Introduction:
PRICING IN THE MARKETING MIX
Executive Summary
Production, distribution, and marketing all add up to the desire for consumer acceptance of a product or service. But, within that marketing mix pricing is a major priority. The reason is simple: the product has to be worth the end price.
Pricing is a component of the marketing mix and thereby is not treated in isolation from the broad objectives…developed…which might include high return on investment or high market share (Paley 273).
The customer has to be able to afford to buy at various price points. The pricing has to be established so the company can earn a fair return on its investment in facilities, raw material, marketing expenses and other overhead.
There are a
Text of the Paper:
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The major problem is not merely the spread of the disease,but the inability of its victims to pay for expensive medicines and drugs. Except that every sale generates a third less revenue (Taylor 147).The consumer benefits, of course. It is especially disconcerting tosee Merck, rated (Evans 468) as one of the best institutional images, fallon its sword when it comes to consumer confidence in its drug pricingstrategies. If seniors do nothave their own computers, there are always computers available in librariesand most senior centers. And yet, there is still no viable reply from thepharmaceutical company why the same drugs cost less in Canada and Mexico(even in Europe) than they do in the U.S. spending on drugs is done by those over the age of 65. Nevertheless, perhaps the most effective means of apricing policy in the pharmaceutical industry would be to balance publicneed with shareholder need and corporate responsibility with consumer lifeenhancement. It is only their pricing policies which is oftencondemned, and is at risk. There is really only one marketing strategy for Merck and itscompetitors. Pricing should neverhave become the overriding issue. What is somewhat alarming is a financial analyst's statement that"In terms of total dosage, Africa is not significant, because people can'tafford it" (Gellene C-3). For one thing, they cannot understand why, when they take achartered bus to Canada to buy prescriptions, Canadian pricing for theselfsame drugs is as much as 7 % less. New drugs, of course, have years of patentprotection, and there are seldom competitors to take away market share.When competition does appear (for example, Lipitor is now taking marketshare from the older Zocor in hypertension medications) usually the olderproduct ends up with a reduced price. It is obvious,however that the AIDS epidemic in parts of Africa DOES deserve a greaterrespect for the inability of the people or their governments to pay. No one disputes the quality of the products in the case of thepharmaceutical companies. said it would sell two AIDS drugs there at cost. The fact is that companies are in businessto make a profit. Thepricing has to be established so the company can earn a fair return on itsinvestment in facilities, raw material, marketing expenses and otheroverhead. Price cutting is seldom the answer, in terms of bottom lineprofitability, however. On the plus side, pricing might (as suggested in the alternativesabove) be adjusted for certain segments of the population. Motrin is demonstrably effective for arthritis sufferers....The basic patents on it were set to expire...(so) Upjohn cut the catalog price by 3 to 35% to build share. The reason is simple: the product has to beworth the end price. There are a number of industries in the headlines lately wherepricing has become a dominant, perhaps overly dominant issue. In orderto maintain the same income, the salesmen would have to increase theirsales volume. Pharmaceutical companies, such as Merckand Abbott Labs which produce the new drugs to combat the disease are underextreme pressure to either lower prices, or literally offer the drugs atcost to people, and entire nations, that cannot afford the high drugprices. The author also lists pricing structure(55) as one of the key factors, along with sales force and distributionmanagement, that could go awry and cause severe problems. Pluses and minuses If this were strictly an industry-oriented report it would be easy tolook at the pricing strategies and respond that the corporation deservesnot merely to make a profit, and to add profits all along the distributionline, but that it needs the money to increase its research and developmentcosts, which run into the billions of dollars. Price elasticities may range from close to zero for a life-saving drug to near infinite values for common commodities where a slight price difference can induce the customer to switch (Dolan 74).And there you have the dilemma for many who depend on life-saving drugs,and are at the mercy of the drug companies' pricing policies, whichgenerally relate to the expense of research and development, costs thathave to be recouped somehow. More than anyother strategy, pricing will hound the pharmaceutical company for manyyears to come, unless some price accommodations are made. That is, the companies knowwe need the drugs and they are holding us ransom. Nevertheless, those costs need to berecouped, adding serious dollar amounts to the price of the products. That isthe price at which these drugs would be resold to the consumers (withprescriptions, where necessary). No pricing policy is ever chiseled in stone. Conclusion Unlike most consumer products, the pharmaceutical industry is notbothered by discretionary spending for their products. For any other industry, thisis certainly very logical. News 1). Seniors could be given instructions about howto reach the website, and asked to submit a password. Yet, timeand time again, when the patents expire on branded drugs, the company'sstock tends to go down, knowing that income in sales of that particularproduct will lessen. The next few years, as America continues to age, will be difficultones for the struggle between the needy consumer and the wealthypharmaceutical companies. But, people perceive the pharmaceutical industryto be, somehow, "different" because unlike toothpaste or soap powders, TVsets or shampoos, medicines mean life-or-death, cure-and-relief, and abetter quality of life. There willcontinue to be a tug of war between shareholders and consumers. It is the most widely used and cost-effective protease inhibitor for the treatment of HIV-AIDS throughout theworld. But Any plan affecting seniors is highly important to the drug industry. Merck produces Crixivan, which is nowavailable in more than 8 countries. But, if you need a specific drug and it ispriced too high, you have little alternative. In the case of thepharmaceutical companies, the key is to make a decision on whether theobjective should be sales- or profit-based. As Theodore Levitt, the marketing guru, wrote in his 1962landmark book, Innovations in Marketing: "The primary business of anybusiness is to stay in business" (Levitt 1). The industry has come under pressure to lower the cost of AIDS drugs in Africa where 7 % of the worlds HIV-positive people live....In announcing the price cuts,(the company said it) hopes governments and international agencies will step forward to fund AIDS treatment (Gellene C-3).AIDS activists complained that this price cut was a PR ploy and that pricecuts were long overdue. The only competition is among very few drugcompanies developing or marketing a similar drug. Government Distribution Through the Department of Health, Education, and Welfare, specificdrugs intended for senior citizens (this is the group complaining the mostand for whom government legislation is now aimed) would be purchased fromthe drug companies at a COST-PLUS basis. Pricing is a component of the marketing mix and thereby is not treated in isolation from the broad objectives...developed...which might include high return on investment or high market share (Paley 273).The customer has to be able to afford to buy at various price points. "There are almost no examples where price implementation isn't done bysheer assumption" (Bonama 54). 664/S.731, a jointHouse-Senate bill is attempting to target "unfair pricing". Yes, it would increase the governmentbureaucracy, but in the long run, the consumer would benefit tremendously,and the drug companies would not be losing money, making up in publicrelations what they might otherwise fail to achieve. Granted, there is not much competition in some of the specifics of thedrug business (i.e., unlike toothpaste, there are not dozens of brands tochoose from). In their favor, companies use billions of dollars to develop new,innovative efficacious drugs that enhance life style and lengthen lifeexpectancy and reduce disease. The death rate from HIV-related infections dropped 47% from 1996 to1997, primarily due to the highly effective new protease inhibitors, suchas Crixivan. "There are five stages in developing apricing strategy: objectives, broad policy, strategy, implementation, andadjustments" (Evans 58 ). It is an arcane argument, atbest, when the companies use quality control and "efficacy" as excuses. But, the medication is expensive, and Africans are unable toafford it, even if the governments subsidize some of the cost. The industry feels thatwith Bush in the White House the pressure will be pro-business. Merrill Lynch's research points out that Merck, for example, based on1998 sales figures listed in its annual report: "Actual sales (would be)$26,896, , ...(with the Seniors Act in force would be) $26, 2, , "(Citizen 2). Its major competitor...immediately matched the price cuts and everything is as it was before the price cuts. But,here is ONE alternative: Tier Pricing Provide certain drugs to seniors (showing ID) at a lower price thanfor regular customers. News and World Report, Feb. As a result, H.R. The majority of consumer complaintsabout the pharmaceutical pricing policies come from American seniorcitizens. Statement of Marketing (pricing) problem There is no better example of how pricing affects the marketing mix,and public perception of the company setting the price than the currentAIDS crisis, especially in Africa. They are necessary.They MUST be purchased. There seldom is an alternative. Merck, unlike some of its competitors did not stopwith price cuts in South Africa, but also offered them to other emergingnations. On the other hand, unless prices are adjusted, the governmentmay step in with price legislation. This falls under the headingof "price elasticity". They have to answerthe proverbial question: To whom do we (the industry) owe allegiance- theshareholders or the consumers? There are generic drugs, of course, but the pharmaceutical industryis doing everything possible to try to convince the public (wrongly) thatgeneric drugs do not have the same quality as their branded ones. Then again, this means that there is little if any pricecompetition. Yet, only two-thirds of seniors have help with those costs, even as the industry continues to introduce innovative, expensive medicines to treat diseases that afflict seniors (U.S. Do whatever is necessary, at cost if needed, to help stem theAIDS epidemic. However, there are some indications that thepricing policy is inadequate, not working, or simply wrong: For example"prices changed too frequently, pricing policy is difficult to explain toconsumers...to high a proportion of customers are price-sensitive...thefirm has major problems conforming with pricing legislation" (Evans 58 ). HEW would then make the drugsavailable at no additional cost to the consumers. From astrictly humanitarian point of view, any other pricing policy must fall bythe wayside here. It can become a Public Relations war, which does the companiesabsolutely no good, and does not solve the pricing problems. This is thepolicy that Merck also needs to follow. But, within that marketing mixpricing is a major priority. Finally, after some pressure, the announcement was made on March 28that Merck & Co. Pricing strategies must be upgraded and adjustedon a far more frequent basis than almost any other industry. There are those "pricing experts" who even suggest raising prices andaccepting market share loss (Dolan 32). PRICING IN THE MARKETING MIX Executive Summary Production, distribution, and marketing all add up to the desire forconsumer acceptance of a product or service. On the one hand, companies may want to adjust their percent ofprofitability and examine any duplication of distribution efforts to holddown costs. Given these parameters, there is a pricing problem within thepharmaceutical industry's marketing mix. There will be an overview that will analyze the current pricingproblems, and provide some alternatives, as well as suggest the pluses andminuses of alternative pricing methods. About forty percent of all U.S. thepharmacist with his mark-up). Lucie Press.Taylor, James W. This is to indicate that there is more at stake than merely public, orcompetitive, pressures when it comes to a pricing policy that might beconsidered "fair". TheyNEED the product, whatever the price. It isconsidered one of the only hopes for the alarming AIDS epidemic throughoutAfrica. Tier pricing could also be established through themail, with special advantages for certain medications depending on the agegroup for which these drugs are intended. There would also be an opportunity to develop thisstrategy through internet sources, eliminating the "middle man" (i.e. Competitive Marketing Strategies (1986) Radnor PA: Chilton Book Company.No author listed: "Summary of 'Prescription Drug Fairness for Seniors Act' H.R.664/S/731' www.citizen.org/congress/drugs/factshts/drugp[ricing/prescriptionsummar y.htmNo author listed: "Drug Dilemma" U.S. Taylor gives an example: Roughly 3 to 4 percent of Upjohn's earnings came from the prescription drug, Motrin. As of May 25, 2 , 153 House members and 12 Senators have co-sponsored the bill (no auth. And, if a competitor, say, Abbott Labs, lowers its price evenfurther, then Merck either has to respond and, perhaps, face a difficultcultural problem with its sales force. The degree of price elasticity is an empirical question that has to be investigated in each specific case. Of course, pricing has now caused Congress to attempt to take someaction, even if it seems remedial. Of course, companies are not inbusiness for altruism. For example, if a month'ssupply of drugs now retails for $1 (including profits along thedistribution channel) but the actual manufacturing cost is $3 , HEW wouldbuy the drugs in quantity at, say $3 plus 15 percent, or $34.5 . Assume,therefore, that the sales force is compensated on the dollar volume theyproduce- a sort of salary-plus-commission, which is not rare (except in thecases of what are known as "detail men" who receive a generous salary plusallowances for product placement in doctors' offices and hospitals).Suppose, Merck, as an example, were to institute a 1 percent cut in itsdrug pricing, 3 % for those drugs which are applicable to seniors. 5, 2 1No author listed (Public Citizen web site) "Merrill Lynch Finds the Prescription Drug Fairness to Seniors Act Would Cut Drug Company Revenues by only 3.3%, www.citizen.org/congress/merrill.htm From the consumers' side, ofcourse, there is the feeling of price gouging. This would be limited to those drugs that are mainlyused by the elderly, and therefore no consumer can cry "agediscrimination". Pricing is a hurdle consumers have to pass. It has skewed the entire marketing program,and has put legislative pressure on the manufacturers. The 'Prescription Drug Fairness for Seniors Act'...would allow 39 million Medicare beneficiaries to buy prescription drugs at up to 4 % off current retail prices. While this seems to be sensible, the pharmaceutical company maybe far different from "ordinary" industries. As we will see, pricing has become too big an issue in the overallpharmaceutical marketing mix. Secondly, Merck needs to find a means of dialogue or opencommunication with AIDS activists, who blame the company for not providingits medicines free or at cost. Abbott, one of Merck's competitors, said that itwould price its AIDS drugs, varying from country to country. On the negativeside, this may well impact the bottom line and create concern by securityanalysts and shareholders about the continuing profitability of thecompany. 1).The Drug industry is spending millions in lobbying techniques and frontalassaults to stop any sort of pricing legislation. Looking at some alternatives. This seems based on a fairlycommon perception in almost any industry: "You can increase market share oryou can increase the profit, but it's tough to do both at the same time"(Dolan 33). The company does not. Merck, one of the pharmaceutical companies that is producing AIDSmedications, has been under extreme pressure -- along with its rival,Abbott Labs -- to provide AIDS relief for the poor nations in Africa. What would be some alternative pricing strategies? In fact, "it is possiblefor different firms in the same industry to have dissimilar objectives and,therefore, different pricing strategies" (Evans 58 ). WORKS CITEDBonoma, Thomas V.: The Marketing Edge (1985) New York: The Free Press.Dolan, Robert J., and Simon, Herman: Power Pricing (1996) New York: The Free Press.Evans, Joel R., and Berman, Barry: Marketing (199 ) New York: MacMillan {Publishing Company.Gellene, Denise: "Companies Reduce Prices on 2 AIDS Drugs, Test in Africa" Los Angeles TIMES, March 28, 2 1.Levitt, Theodore: Innovations in Marketing (1962) New York: McGraw-Hill Book Co.Karon, Tony: "When the President is a Dissident" TIME Magazine, July 24, 2 www.mg.co./za/mg/news/97march1/7mar-illiteracy.htmlMerck website: www.merck.co/za/corporate.main.aspPaley, Norton: How to Develop a Strategic Marketing Plan (2 ) Boca Raton FL: St. Among them isthe pharmaceutical industry, whose pricing policies- for better or worse-are coming under scrutiny not merely by consumer advocates, but bygovernmental agencies world-wide. So, the real key topricing may well be consumer anger and frustration about pricing- an angerand frustration that is reaching the halls of Congress. If you feel a Ford is pricedtoo high, you can buy a Honda.
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