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Pricing Pharmacist Services
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Learning Objectives
Explain why pricing is an important part of marketing pharmacy products and services.
Discuss how pricing relates to other elementsof the marketing mix.
List and discuss the effects of consumer-related factors, competition, pharmacyobjectives, and costs on pricing decisions.
Calculate the cost of providing a pharmacistservice.
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Learning Objectives (continued)
Explain the relationships among price, cost,and demand for a pharmacist service.
List and explain the steps involved in onestrategy for pricing pharmacist services. List and explain methods of presenting
service prices to consumers.
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PRICE = INGREDIENT COST +SERVICE COST + PROFIT
DISPENSING FEE
Components of price
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Measures of Rx ingredient cost
AAC -- Actual acquisition costAWP -- Average wholesale price
(its really not) EAC -- Estimated acquisition costMAC -- Maximum allowable cost
-- multisource / genericsAMP -- Average manufacturers price
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Average per Rx profit
Based on required return on assets Ex: $100,000 in Rx-related assets
12% required ROA60,000 Rxs per year
ROA = Net income / AssetsNI = 12% x $100,000 = $12,000NI / Rx = $12,000/ 60,000 = $0.20
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Pricing
Focus on value what is product or service worth to consumer
Value depends on Consumer perceptions How well service is provided How convenient service is
How well benefits are explained Value depends on all elements of
marketing mix.
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Pricing
Consider value to consumer Set price to provide value Cost affects pricing primarily
as it affects value
Noncost factors equallyimportant
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Quantity
Price
0
20
40
60
80
100
120
140
160180
200
0 10 20 30 40 50 60 70 80
Demand Curves
inelastic
elastic
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Price Elasticity of Demand
% by which quantity demandedchanges when there is a 1% changein price
Elastic greater than 1% change inquantity
Inelastic less than 1% change inquantity
Price elasticity of demand =consumer sensitivity to price
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Consumers more sensitive to price when
Cost of product is large part of total cost
Minimal differences among products- Consumer can judge quality- Comparisons are easy to make
Switching costs are small
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Competition
Prices must be in line
Distinct advantage
That consumer recognizesand values
Reference prices
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Pharmacy Image
Price consistent with image
Consumers choose based onperceptions
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Price as a Signal of Quality
High price = high quality
When hard to judge quality
When quality is variable andrisk high
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Pharmacy Goals
Maximize long-run profit Increase sales or market share penetra t ion
p r i c ing
Increase sales of other products los s leader pr ic ing Attract only customers willing to pay for
better service pr i ce sk im m ing
Maintain status quo match competitorsprices
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Nonmonetary Costs
Time costs Search costs Psychic costs
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Demand Backward Pricing
3rd party payers cover 85+% of Rxs.
3rd party payers set prices.
Pharmacys goal is to profitably provideservices at given price.
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Suggested Pricing Strategy
1. Estimate demand2. Calculate full service cost (SC)3. Determine avg. net income (NI) consider
goals4. Set price = SC + avg. NI + product cost5. Compare demand and price re-evaluate if
necessary
6. Consider competitors responses 7. Implement price8. Monitor patient and competitor response9. Re-evaluate price periodically
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Estimated Demand for Diabetic
Counseling
Price Quantity Demanded
$20 1,000$25 750$35 500
$45 250
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Service Cost for Diabetic
CounselingVolume Service Cost
1,000 $25750 $33500 $49
250 $98
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Estimate Net Income
$15,000 in assets for DCC Want a 12% ROA $15,000 x 0.12 = $1,800 Need $1,800 in annual profit to get
12% return
At volume of 500 sessions,average profit = 1,800/500 = $3.60 Assumes goal of long-run profit
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Set Price
Volume SC Avg. NI PC Price 1,000 $25 1.80 0 $26.80
750 $33 2.40 0 $35.40500 $49 3.60 0 $52.60250 $98 7.20 0 105.20
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Compare
Volume Price DemandAssumed at that price 1,000 $26.80 < 750
750 $35.40 500
500 $52.60 < 250250 105.20
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Re-evaluate
Problem: prices will not generateenough demand
Solutions Cut costs Increase demand Do not offer service
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Pricing Strategy
1. Consider competitors responses re-evaluate as needed
2. Implement price3. Monitor patient and competitor response re-evaluate as needed
4. Re-evaluate price periodically
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Pricing Strategy
Set profit margins based on product demand Focuses on consumer perceptions
1. Market priced charge low margin- 10-25 Rxs / 30% volume
2. Staple charge avg. margin
- 75 Rx products / 25% volume3. Premium charge high margin- the rest of products
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Pricing Strategy
Consistent with focus on ROA
ROA = NI/Sales x Sales/Assets
NI/Sales measures profit per unit
Sales/assets measures turnover or speed of sales
So, you increase return by ?
