Pricing case

Hi there,

It's really important to adapt your framework to the clues in the case.

Right now they're telling us that there are competitors/other drugs…which affects our pricing.

They're telling us the drug is a breakthrough and adds more value than the current one.

Therefore, you need to consider:

1. Current drug pricing (of current asthma drugs)
2. Added value of our drug (added WTP from customer)
3. Our current client's drug portfolio and implications for our pricing
4. Profit dynamic between our drug price minus cost times volumes expected

Remember the following for Pricing:

Question #1: Are there competitors (or is this a new market)?

Q1A: If yes, can I differentiate my product?

If yes, value-based

If no, competitor pricing/benchmarking is eliminated.

Q1B: If no, can I determine the value-add of my product (i.e. if saves x costs or a survey says people will pay x)?

If yes, value-based

If no, cost-based

Summary: If you can, you always want to do value-based. This is the most effective form of pricing. If you have "something" to go off of, you use it, else you use cost-based because you have no other choice.

Value-based occurs if:

1) You are a monopoly

2) You are the first entrant into a market

3) You can differentiate your product from other (I.e. monopolistic competition)

Hi there, 

I am pricing expert at BCG and I would not overcomplicate the approach, despite that you have to take into consideration some of the specifics of the industry. 

I would be addressing price from perspective of:

1. Value vs. current options in the market (including competition)

2. Willingness to pay for the drug: here you may need to split your customers B2C (not covered by insurance must be paid from an own pocket  or B2B (e.g. government cover it)

3. Cost to deliver and to produce (there may be 2 phases approaches: higher price as it is new to quickly return the cost and then 2nd phase with slight decline with competition is catching up, client cost is covered, etc.)

4. Substitutes and its pricing

5. Last but not least the life cycle of a customer, you may have one off pricing (higher) and subscription type pricing for repeating customers. 

Considering the note they want to go for profit then in your equitation on driving profit and revenue through volume or price, this indicates they would likely go for higher price rather than high volume. 

Feel free to reach out directly.

Lucie

Was this answer helpful?

Hello,

I would approach any pricing question as narrowing down from certain starting points:

1- Highest price - Customer's willingness to Pay

2- Lowest price - Cost of producing the drug

After having this range in mind, we need to further narrow it down. This can be done by:

3- Internal factors:

a. Price of other products in the company's portfolio - there should be an alignment between the company's existing and future intended pricing policy i.e. selling at value vs selling at high markups

b. How much money does the company want to make from this product

4- External factors

a. Competitor's prices

b. Industry price trends

All the best!

Rushabh

Hello,

You will find here a quite exhaustive list of pricing methods for your reference. 

In the specific case of a pharmaceutical drug, you should focus on comparing the potential profits with:

1. The target return pricing that considers the minimum return that the pharma would go with. This method is better than other cost-oriented pricing because you can factor in the drug development cost.
2. The going-rate pricing. Asthma is a chronic disease and its treatment is generally covered by health insurance. You need to keep your price more or less in line with other drugs or insurers might not cover it impacting your volumes.
3. The perceived-value pricing. You will need to convince the Canadian drug authority of the benefit of this drug over other drugs available, that way you could justify a price premium. 
4. You might need to consider cost-plus as well since in some countries (I don't know about Canada) insurers reimburse based on a cost-plus calculation, any premium will be paid out of pocket.

Feel free to DM me if you have more questions 

I've done a case quite similar while at Bain.
Feel free to reach out for a coaching session to discuss how to approach this case.