How does competitive pricing affect pharmaceutical sales?

For many years, pharmaceutical companies have been competing to get their products in the hands of as many customers as possible. Pricing strategies have played a significant role in driving sales in this industry, with competitive pricing being one of the most popular methods. In this article, we will examine how competitive pricing affects pharmaceutical sales, using real-world examples to illustrate our points.

What is Competitive Pricing?

Competitive pricing is a pricing strategy in which a company sets its prices based on what its competitors are charging for similar products. The goal is to match or beat the price of the competition, making the product more attractive to potential customers. This strategy is common in industries where there are many competitors, and prices are a significant factor in purchasing decisions.

How Does Competitive Pricing Affect Pharmaceutical Sales?

Competitive pricing can have various effects on pharmaceutical sales, depending on the situation. Here are some of the effects that pharmaceutical companies can expect when they use competitive pricing.

Increases Market Share

When a company adopts competitive pricing, it can increase its market share by attracting customers who would typically buy from its competitors. This increase can create an excellent domino effect where the higher market share means more exposure, which leads to more sales, and so on.

For example, both Pfizer and BioNTech lowered their prices for Covid-19 vaccines to encourage more customers to buy from them. This strategy worked, and both companies saw a massive increase in market share. Pfizer’s vaccine, which was initially priced in the U.S. at $19.50 per dose, has earned the company an estimated $7.8 billion in revenue from vaccine sales in the first quarter of 2021. On the other hand, Moderna, whose vaccine was initially priced at $32-37 per dose for smaller volumes, saw a much smaller market share, reporting revenue of roughly $1.7 billion in the first quarter of 2021.

This example shows the vast impact of competitive pricing, which can give a company a significant advantage over its competitors.

Increase Revenue

When a company has a larger market share, it can lead to increased revenue. The more customers a company attracts, the more sales it is likely to make, which will lead to more revenue. As the Covid-19 vaccine example above highlights, competitive pricing can also reduce the price points for pharmaceutical products, resulting in more significant revenue.

However, it is important to note that competitive pricing should be used carefully. Too aggressive price cuts can erode profits, which may result in long-term damage to the company.

Reduce Margins

As much as competitive pricing can increase sales revenue, it can also reduce margins – the money left over from sales revenue after considering the cost of goods sold. While companies set their prices based on what their competitors are charging, reducing prices too much can reduce their margins.

To keep their profit margins in check, companies must evaluate their pricing strategy against their cost structure. If they cannot produce and distribute their products at a lower cost or maintain their profits, then competitive pricing might not be a suitable strategy for the company.

Conversely, when a company’s production costs are low, competitive pricing becomes a strategic advantage, allowing them to attract the price-sensitive consumer.

Create Competitive Pressure

When one company adopts a competitive pricing strategy, other companies are likely to follow. The competition to match or beat each other’s prices fosters an environment of price cuts, which could benefit consumers, but affect company revenues.

If state regulators do not strictly monitor the prices to prevent companies from undercutting the competition with harmful price cuts, then this pricing environment could end up hurting smaller pharmaceutical companies. Similarly, lowering prices could have a knock-on effect on the overhead expenditure for the said companies – this could result in reduced funds for research and staff, ultimately affecting their reputation.

Conclusion

Pharmaceutical sales stand to benefit significantly from competitive pricing. While it can be used to increase market share and revenue, companies should be cautious not to price themselves out of business. Competitive pricing can apply pressure on other companies to lower their prices, ultimately benefiting consumers.

Companies should evaluate their cost structures to ensure they can still make a profit while pricing competitively. The government’s active role will also be vital in creating guidelines and preventing companies from using monopoly pricing.

Companies should balance market share, margins, and competition to create a sustainable pricing equilibrium. The Covid-19 vaccine has exemplified that competitive pricing can be the push a product needs to launch itself to high revenue generation in the short run, but companies need to continually evaluate and re-evaluate their pricing strategy to keep evolving.