PRICING STRATEGIES

Introduction

Coming up with the correct price tag for a medical or biotech product can be one of the hardest decisions a company will ever make in the process of developing a new product. The price placed on this product sends a message to major stakeholders about the value of an innovation. Stakeholders include private and aggregate investors, organizational workers, public and private health insurance companies, company clients (hospitals and pharmaceuticals), health practitioners, and final patients.  The managers’ dilemma will always be that each of the above individuals has different price suggestions, which of course are in constant conflict.

Pricing Challenges and Alternative Considerations

Medi-Cults’ Chief Executive Henrik Krogen (Rogers, 1999) found himself in such a situation when scouting for the right price for In Vitro Maturation.  In Vitro Maturation is a new medium the company had developed aimed at significantly reducing ova maturation period by 93 percent. He had to put into consideration a number of stakeholders laying in wait for his quotation. First, private and public investors (such as Amdex A/S) would view IVM as the solution to Medi-Cults’ profitability and overall returns. They looked forward to a pricing policy huge enough to facilitate future IVMs’ development, trials, constant production and still make a sales killing just in time to execute product market exit. He knew that for them to value his company, they would go for the price of IVM and the expected company position as an industry leader in biotechnology.

Medi-Cult also had marketing agencies such as pharmaceuticals and independent distribution stores who saw IVM as a gold mine for their businesses.  Prices too high (Rogers, 1999) would have a threat of scaring away customers, suffocating the existence of a rather positive business environment. Lowly quoted prices would, on the other hand, not only put into question product quality but also limit their sales returns relative to cost incurred during transportation and marketing .  As brains behind the nurturing, development, and production of IVM, Medi-Cult workers wanted this medium to take the market by storm.  Positive product reception (Rogers, 1999) by the target market would mean handsome pay rises, career security and better working environments. One common characteristic about the above mentioned groups of individuals was anticipation for high price and huge sales volume for IVM.

Contrastingly, unfertile couples, public and private health insurers, and involved governments (the US, Denmark, the UK and France) wanted prices so low to be able to finance health care costs.  Not single responsible government (Rogers, 1999) wanted to spend more on a new expensive technology whose acquisition would involve a number of heavy decision making.  Other users of IVM, basically health care facilities and medical practitioners, found low prices attractive enough for profit generation.  Were it that IVM would sale at high prices, they would have no incentive to make purchases for fear of a reduction in their profit margins over time. This challenge was particularly applicable to public health institutions which rigid financial departments and tight budgets.

Solutions

To be able to overcome the above challenges, here are some tips for Henrik Krogen regarding pricing.  First, his sales and marketing division should have practiced value based pricing to take care of contrasting stakeholder expectations. As a new technology, IVM tested positive for both efficiency and consistency. When hit with a pricing question from a stakeholder, the marketing team should choose to create space for feature attractiveness and benefits in response. Since IVM (Rogers, 1999)was a first one of its kind, Medi-cult had an upper hand over her competitors, and therefore should have been able to develop a pricing structure aimed at price reduction should competitors develop an equally rival medium.  Lastly, due to rising cases of infertility among couples, IVM was bound to create strong waves of product demand. In even, insurance companies and other care givers would respond by charging higher premiums and hospital prices respectively. With time, the Medi –Cult family, investors, governments, couples with their babies, insurance companies, and hospitals would all be happy for obvious reason.

Reference

Rogers, B. (1999). Medi-Cult: Pricing a Radical Innovation. Lausanne: International Institute of      Management Development.

LIONEL INZAHULI SAVAGE