Price is one of the key elements of the marketing mix concept. Sales results and, consequently, the financial situation of a company depend to a large extent on its level. This holds true for products offered by pharmaceutical entities, including over-the-counter (OTC) drugs, dietary supplements, and cosmetics. However, does this mean that one should engage in price wars by lowering price thresholds? You will find out from the content of our article.
What elements influence pricing?
The price of pharmaceutical products depends primarily on the following factors:
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Medical costs – expenses incurred in the production stage of the preparation and those allocated to its patent protection;
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Economic factors – conditions related to the producer's position in the market and the expected return on investment;
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Political factors – arising from international and national legal agreements and amendments (e.g., drug reimbursement laws).
When determining the final price, it is essential to seek a middle ground. It should not be too low, as this often leads to the association of the product with insufficient quality—except in the case of promotional offers. Competing by excessively lowering prices can also be viewed as unfair price undercutting, resulting in a loss of reputation. On the other hand, setting a significantly higher price compared to the competition (considering similar preparations) will discourage customers from incurring unnecessary expenses.
Moderate price increases in some cases, however, may be justified. This situation occurs especially when introducing innovations to the market or products enriched with "added value" for the customer - such as a free sample, an attractive drug form, or practical packaging.
Price elasticity of demand
Before setting the price of a product, it is worthwhile to verify the so-called elasticity of demand. This is an indicator indicating the degree to which customers will be willing to make purchases of products at a specified price, at a specified time, and in a specified place. The following types of demand elasticity can be distinguished:
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Price elasticity - measures the change in demand depending on the manipulation of the product's price;
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Income elasticity - concerns fluctuations in demand considering changes in buyers' incomes;
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Cross elasticity - verifies the impact on demand of changes in the prices of other products or services.
How to determine price elasticity?
To verify price elasticity in relation to changes in price, analyses such as BPTO, PSM, and DPA are typically used.
DPA (Direct Price Acceptance) is an analysis known as the ladder method, conducted in target customer groups. They are presented with a list of price ranges and variations, indicating the probability of them deciding to make a purchase at the specified price.
PSM (Price Sensitivity Meter) is a variant of Conjoint analysis. The inclination to accept a product of a specific brand at a specified price is examined, considering factors such as anticipated quality, usefulness, etc. The result of the test answers four questions:
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For what price do you think the product is expensive, but still worth buying?
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What price is, in your perception, too low for the product to be considered attractive?
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At what price would the product be excessively expensive and uneconomical?
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What price would be low for the product, yet you would still be willing to choose it?
Utilized Research Methods
Price elasticity can be studied using various methods and research techniques, both quantitative and qualitative. These include, especially:
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Paper surveys (PAPI);
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Online surveys (CAWI);
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In-depth individual interviews (IDI);
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Field interviews using mobile devices (CAPI);
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Group focus interviews (FGI).
To consider the research results reliable, the condition of representativeness must be met. It can relate to both the general population of consumers and the target buyers of a product from a specific segment.
Check out: Techniques and Tools in Marketing Research
Summary
When determining the price of a product, it is advisable to be guided not only by the costs of its market introduction but, above all, by the expectations of target customers. To increase demand for your products, consider the possibility of outsourcing services to a company specializing in marketing research. Marketing research is the first step toward changing marketing strategy.
- The price of a medicinal product is influenced by a number of factors, in addition to the production costs themselves, consumer opinion is important. The patient considers, among other things, the need, the benefits of the product, the price of competing products, the perception of the brand and his or her financial possibilities - explains Dr Monika Jaremków - R&D Director at Biostat Research and Development Centre.
