Chapter 12 pricing pharmacist services
This presentation is the property of its rightful owner.
Sponsored Links
1 / 28

Chapter 12 Pricing Pharmacist Services PowerPoint PPT Presentation


  • 46 Views
  • Uploaded on
  • Presentation posted in: General

Chapter 12 Pricing Pharmacist Services. Norman V. Carroll, PhD Professor of Pharmacy Administration Virginia Commonwealth University School of Pharmacy Chapter 12 slides for Marketing for Pharmacists, 2nd edition.

Download Presentation

Chapter 12 Pricing Pharmacist Services

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Chapter 12 pricing pharmacist services

Chapter 12Pricing Pharmacist Services

Norman V. Carroll, PhD

Professor of Pharmacy Administration

Virginia Commonwealth University School of Pharmacy

Chapter 12 slides for

Marketing for Pharmacists, 2nd edition

Based on Carroll, N.V., “Pricing Pharmaceutical Products and Services,” in Financial Management for Pharmacists: A Decision-Making Approach, Third Edition,” Baltimore: Lippincott Williams and Wilkins; 2007.


Learning objectives

Learning Objectives

  • Explain why pricing is an important part of marketing pharmacy products and services.

  • Discuss how pricing relates to other elements of the marketing mix.

  • List and discuss the effects of consumer-related factors, competition, pharmacy objectives, and costs on pricing decisions.

  • Calculate the cost of providing a pharmacist service.


Learning objectives continued

Learning Objectives (continued)

  • Explain the relationships among price, cost, and demand for a pharmacist service.

  • List and explain the steps involved in one strategy for pricing pharmacist services.

  • List and explain methods of presenting service prices to consumers.


Chapter 12 pricing pharmacist services

Components of price

PRICE = INGREDIENT COST +

SERVICE COST + PROFIT

DISPENSING FEE


Measures of rx ingredient cost

Measures of Rx ingredient cost

AAC -- Actual acquisition cost

AWP -- Average wholesale price

(it’s really not)

EAC -- Estimated acquisition cost

MAC -- Maximum allowable cost

-- multisource / generics

AMP -- Average manufacturer’s price


Average per rx profit

Average per Rx profit

  • Based on required return on assets

  • Ex: $100,000 in Rx-related assets

    12% required ROA

    60,000 Rxs per year

    ROA = Net income / Assets

    NI = 12% x $100,000 = $12,000

    NI / Rx = $12,000/ 60,000 = $0.20


Pricing

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.


Pricing1

Pricing

  • Consider value to consumer

  • Set price to provide value

  • Cost affects pricing primarily as it affects value

  • Noncost factors equally important


Demand

Demand

  • Quantity that consumers will buy at a given price

  • Different from need

  • Can be affected by marketing mix

  • Is a function of price


Chapter 12 pricing pharmacist services

Demand Curves

inelastic

elastic


Price elasticity of demand

Price Elasticity of Demand

  • % by which quantity demanded changes when there is a 1% change in price

  • Elastic – greater than 1% change in quantity

  • Inelastic – less than 1% change in quantity

  • Price elasticity of demand = consumer sensitivity to price


Consumers more sensitive to price when

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


Competition

Competition

  • Prices must be in line

  • Distinct advantage

  • That consumer recognizes

    and values

  • Reference prices


Pharmacy image

Pharmacy Image

  • Price consistent with image

  • Consumers choose based on perceptions


Price as a signal of quality

Price as a Signal of Quality

  • High price = high quality

  • When hard to judge quality

  • When quality is variable and risk high


Pharmacy goals

Pharmacy Goals

  • Maximize long-run profit

  • Increase sales or market share – penetration pricing

  • Increase sales of other products – loss leader pricing

  • Attract only customers willing to pay for better service – price skimming

  • Maintain status quo – match competitors’ prices


Nonmonetary costs

Nonmonetary Costs

  • Time costs

  • Search costs

  • Psychic costs


Demand backward pricing

Demand Backward Pricing

3rd party payers cover 85+% of Rxs.

3rd party payers set prices.

Pharmacy’s goal is to profitably provide services at given price.


Suggested pricing strategy

Suggested Pricing Strategy

  • Estimate demand

  • Calculate full service cost (SC)

  • Determine avg. net income (NI) – consider goals

  • Set price = SC + avg. NI + product cost

  • Compare demand and price – re-evaluate if necessary

  • Consider competitors’ responses

  • Implement price

  • Monitor patient and competitor response

  • Re-evaluate price periodically


Estimated demand for diabetic counseling

Estimated Demand for Diabetic Counseling

PriceQuantity Demanded

$201,000

$25 750

$35 500

$45 250


Service cost for diabetic counseling

Service Cost for Diabetic Counseling

Volume Service Cost

1,000$25

750$33

500$49

250$98


Estimate net income

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


Set price

Set Price

Volume SC Avg. NIPCPrice

1,000$251.800$26.80

750$332.400$35.40

500$493.600$52.60

250$987.200105.20


Compare

Compare

Volume PriceDemand

Assumedat that price

1,000$26.80< 750

750$35.40 500

500$52.60< 250

250105.20<< 250


Re evaluate

Re-evaluate

  • Problem: prices will not generate enough demand

  • Solutions

    • Cut costs

    • Increase demand

    • Do not offer service


Pricing strategy

Pricing Strategy

1. Consider competitors’ responses – re-evaluate as needed

2. Implement price

3. Monitor patient and competitor response – re-evaluate as needed

4. Re-evaluate price periodically


Pricing strategy1

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% volume

    3.Premium – charge high margin

    - the rest of products


Pricing strategy2

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 ?


  • Login