Amity Institute of Pharmacy
Amity Institute of Pharmacy
[Link], VIII Sem
Pharmaceutical Marketing Management (Theory)
(Elective Course)
Module V
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Introduction to Pharmaceutical Marketing Management
MODULE V
Pricing:
Meaning, importance, objectives, Determinants of price; pricing
methods and strategies, Issues in price management in
pharmaceutical industry. An overview of DPCO (Drug Price
Control Order) and NPPA (National Pharmaceutical Pricing
Authority). Emerging concepts in marketing: Vertical & Horizontal
Marketing; Rural Marketing; Consumerism; Industrial Marketing;
Global Marketing.
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Contents Amity Institute of Pharmacy
• Meaning and importance of pricing,
• Objectives & Determinants of price;
• Pricing methods and strategies,
• Issues in price management in pharmaceutical industry.
• An overview of DPCO (Drug Price Control Order) and NPPA
(National Pharmaceutical Pricing Authority).
• Emerging concepts in marketing:
– Vertical & Horizontal Marketing;
– Rural Marketing;
– Consumerism;
– Industrial Marketing;
– Global Marketing
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Pricing Amity Institute of Pharmacy
• Price is the value that customers give up or exchange to obtain
a desired product.
• It is a managerial task that involves establishing pricing
objectives, identifying the factors governing the price,
ascertaining their relevance and significance, determining
product value in monetary terms and formulation of price
policies and the strategies, implementing and controlling them
for the best results.
• Payment may be in the form of money, goods, services,
favors, votes or anything else that has value to the other party.
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Opportunity Costs
•The value of something that is given up to obtain something else
also affects the “price” of a decision
•Example: the cost of going to college is charged in tuition and
fees but also includes the opportunity cost of what a student
cannot earn by working instead
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The Importance of Pricing Decisions
• Price is the only P which represents revenue rather than
an expense
• Pricing and the Marketing Mix
– Price and Place
– Price and Product
– Price and Promotion
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Objectives of Pricing Amity Institute of Pharmacy
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Survival:
•The foremost Pricing Objective of any firm is to set the price that is
optimum and help the product or service to survive in the market.
•Each firm faces the danger of getting ruled out from the market
because of the intense competition, a mature market or change in
customer’s tastes and preferences, etc.
•Thus, a firm must set the price covering the fixed and variable
cost incurred without adding any profit margin to it.
•The survival should be the short-term objective once the firm gets a
hold in the market it must strive for the additional profits.
•The New Firms entering into the market adopts this type of pricing
objective.
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Maximizing the current profits:
•Many firms try to maximize their current profits by
estimating the Demand and Supply of goods and services
in the market.
•Pricing is done in line with the product’s demand in the
customers and the substitutes available to fulfill that
demand.
•Higher the demand higher will be the price charged.
•Seasonal supply and demand of goods and services are
the best examples that can be quoted here.
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Capturing huge market share:
•Many firms charge low prices for their offerings to capture
greater market share.
•The reason for keeping the price low is to have an increased
sales resulting from the Economies of Scale.
•Higher sales volume led to lower production cost and
increased profits in the long run.
•This strategy of keeping the price low is also known
as Market Penetration Pricing.
•This pricing method is generally used when competition is
intense, and customers are price sensitive.
•FMCG industry is the best example to supplement this.
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Market Skimming:
•Market skimming means charging a high price for the
product and services offered by the firms which are
innovative and uses modern technology.
•The prices are comparatively kept high due to the high cost
of production incurred because of modern technology.
•Mobile phones, Electronic Gadgets are the best examples
of skimming pricing that are launched at a very high cost
and gets cheaper with the span of time.
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Product-Quality Leadership:
•Many firms keep the price of their goods and services in
accordance with the Quality Perceived by the customers.
•Generally, the luxury goods create their high quality, taste,
and status image in the minds of customers for which they
are willing to pay high prices.
•Luxury cars such as BMW, Mercedes, Jaguar, etc. create
the high quality with high-status image among the
customers.
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Importance of Pricing
Pricing is an important decision-making aspect after the
product is manufactured. Price determines the future of the
product, acceptability of the product to the customers and
return and profitability from the product. It is a tool of
competition.
1. Helps in Determining Return:
The primary motive of all firms is to earn profit. Firms aim at
maximizing profit. When the product is manufactured the
manufacturer determines the price of the product. Price
includes the return or profits that the manufacturer or marketer
intends to earn. Price is fixed by the marketer by adding a
certain percentage of profit on cost.
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[Link] Demand, Sales Volume and Market Share:
•Price is the most flexible tool in the marketing mix.
•A marketer can regulate the demand for a product by
increasing or decreasing the price.
•Price is an important factor influencing consumer buying
behavior.
•Most of the time consumer put importance on price of the
product rather than on value, at the time of purchase.
•Thus, a change in price influences the demand, sales
volume and market share.
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3. Countering Competition:
•Companies regularly revise their pricing strategies to
counter the competition.
•A market leader who dominates the market designs the
pricing strategy to prevent new competitors entering the
market.
•While a price follower sets their price in accordance with
the competitor’s price and market leader’s price.
•A marketer’s pricing strategy mostly depends upon
competitor’s pricing policy.
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4. Builds Product Image:
•Price often builds an image of the product. Consumers
often believe that high priced products are of high value and
benefit than low priced product.
•Marketers also use price to position their products superior
in the minds of the consumer.
5. A Tool of Sales Promotion:
•Price is an important tool of sales promotion.
•Companies often resort to short term price reduction like
offering discounts to increase sales during a short time
period.
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Determinants of Price Amity Institute of Pharmacy
A. Cost of the Product
• The most important factor affecting the price of a
product is the product cost. The same principle also
applies in case of services.
• The product cost will be inclusive of the cost of
production, the distribution costs and the selling and
promotion costs. This cost will act as a benchmark for
setting the price.
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The three types of costs of a company:
•Fixed Cost: These costs are fixed. They have no relation to the
level of activity or production of the company. Even if there is
no production of goods these costs will occur. For example, the
rent of the factory is a fixed cost.
•Variable Cost: These are the costs that vary in direct
proportion to the production levels of an entity. Higher the
production, higher the cost and vice versa. The raw material is a
classic example of a variable cost
•Semi-Variable Costs: These costs also vary with the
production levels. But they are not directly proportional. Say
for example the salary of a manager is 10,000/- a month fixed
and then 10% of his sales. This is a semi-variable cost.
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B. The Demand for the Product
• The cost of the product (seller’s concern) will only give
you a benchmark to determine the price. The upper limit of
the price range will depend on the utility the product has and
hence its demand in the market.
•The buyer’s concern is the utility of the product. The law of
demands states that lower the price higher the demand.
•Another factor to consider when determining the price is
the elasticity of demand. This means the corresponding
change in demand to the change in the price of a product. If
the demand is inelastic then the company can charge a
higher price for their products.
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C. Price of Competitors
•One factor that affects price termination is the price the
competition charges for their product. Not only their price
but their products, its features and other factors
like distribution channel, promotions etc. should also be
studied.
•In a market, with free competition, the prices must be very
competitive. You cannot risk pricing yourself out of the
market.
•But on the other hand, if your products have special
additional features this must be reflected in the price.
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D. Government Regulation
•The government has a duty to protect its citizens from unfair
practices and pricing. So, it may impose certain laws and
regulations with regards to the pricing of a product.
•It can even regulate the prices of goods that it considers
essential goods.
•Manufacturers charge exuberant prices for life-saving drugs
and the buyers have no choice but to pay. In such cases, the
government may step in and regulate the prices of these
essential medicines.
•There are other factors also which help a company in their
pricing aspect of the marketing mix.
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References Amity Institute of Pharmacy
• Philip Kotler and Kevin Lane Keller: Marketing
Management, Prentice Hall of India, New Delhi
• Walker, Boyd and Larreche : Marketing Strategy- Planning
and Implementation, Tata MC GrawHill, New Delhi.
• Dhruv Grewal and Michael Levy: Marketing, Tata MC
Graw Hill
• Arun Kumar and N Menakshi: Marketing Management,
Vikas Publishing, India
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THANK YOU
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