Pricing strategies in the pharmaceutical industry often go unregulated. However, the ongoing decisions about drug pricing, the media, and the reactions of customers towards pricing call for changes. Pharma companies need to design and implement pricing strategies that not only communicate value to stakeholders but also justify their offerings within the healthcare industry.
The pricing of drugs has unarguably been a point of debate in the pharmaceutical industry. Seeing that drug research, clinical trials, regulatory approvals, and making the new product accessible to the public take a huge chunk out of the total investment. And keeping the price value to earn reasonable revenue may get challenging. Therefore, setting up a price strategy that accounts for different factors, such as value worth, market access, price-volume ratio, and consumer’s emotional reaction to price, becomes crucial.
When it comes to developing price strategies, the pharma industry requires a nuanced approach. It should be more about striking a balance between affordability and sustainability. But before we get to understand the strategies, let us first look at the importance of pricing strategies in pharma.
Affordability & Innovation
One of the biggest challenges that pharma companies face is striking a balance between groundbreaking discoveries, making them accessible to patients, and ensuring their business sustainability. A well-crafted price strategy considers both the market value of the product, the cost of research and the customer's need for reasonable pricing.
Competitive Edge
A well-thought-out pricing strategy can be a game-changer for pharmaceutical companies. Those who can articulate a unique value-price proposition of their products and communicate its cost-effectiveness to stakeholders, payers, and third parties (insurance companies) are better positioned to differentiate themselves from the competition.
Improved ROI
Mostly, it is difficult to set pricing that healthcare providers, consumers, and insurers consider fair. Setting up a price strategy becomes essential as it executes fairness in terms of value to customers and keeps a reasonable return on investment at the same time. Pharma companies need to navigate the complexities of the healthcare system and the pricing structure placed by others and demonstrate the value of their products and services. It means pricing is a critical component for market acceptance.
Developing a price strategy is not simply a financial consideration; it is more of a strategic imperative that also influences Healthtech. Therefore, re-evaluating and improving the pricing structure coupled with qualitative and quantitative data becomes essential. These methodologies help address both price-volume trade-offs and the customer’s emotional reaction to price, so it is easy to convey the true value of your offerings.
Types of Pricing
Cost-Based Pricing
Cost-based pricing typically depends on the amount of money that goes into research, development, clinical trials, regulatory processes, and all the expenses incurred to bring the product and services to the market. It is the most common pricing strategy where companies add a markup price to these additional costs, thus increasing the cost of the drug when it is available in the market.
Value-Based Pricing
Value-driven pharmaceutical pricing strategy companies depends on the efficiency, safety, and benefits of the product. Often used after innovative drug trials and for new and unique discoveries, companies set a price based on the drug’s perceived value to the key stakeholders, insurance companies, and patients. The main objective of value-based pricing is to provide a balance between product attributes, costs, profit margin, and a price that satisfies the payer.
Market-Based Pricing
Market pricing strategy is when companies consider the market price of the drugs and analyze the competitiveness. This strategy is used to price generic drugs and is often used by small and medium-sized pharma companies. Market-based pricing is also a useful component of value-based pricing.
Volume-Based Pricing
Volume price strategy is based on the total number of units the pharma company sells. It is placed on generic drugs and used by large pharma companies that manufacture units in large volumes.
However, to ensure a product is easily accessible to patients and fulfills the business objective of the pharma company, formulating an efficient pricing strategy requires a smart approach.
- Identify key value drivers, decision-makers, and expanding value communications to justify the price of the product. Developing a communication plan can go beyond the superficial, helping convey the value of the offering.
- Leverage the qualitative research data and real-world evidence to support negotiations with key stakeholders.
- Design effective value propositions, addressing the needs of customers and clients based on cost-effectiveness and drug value.
As the healthcare industry grows, pharma companies need to set their prices based on what best suits their business goals. It is important to understand that no one size fits all, and a strategy that has worked for one company may not work for another.
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