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Medicine firms need flexible pricing approach

By Liu Jie (China Daily)
Updated: 2009-04-13 07:48

Pharmaceutical companies have to adopt a target-market and flexible pricing approach to increase their revenue as emerging economies grow, according to a report from financial consulting firm PricewaterhouseCoopers (PwC).

PwC said that medicine producers need to differentiate their prices in order to capture rising opportunities in developing countries such as China, in its report Pharma 2020: Marketing the future.

The population of high-net worth individuals in the BRIC economies (Brazil, Russia, India and China) rose by 19.4 percent between 2006 and 2007, compared with an increase of just 3.7 percent in Europe and 4.2 percent in the US.

"Much of the explosive growth in the middle class will come from China and other emerging economies. It is estimated that over 200 million households in China will earn over 40,000 yuan a year by 2025," said PwC Hong Kong consumer and industrial products leader Richard Sun.

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He added that China's urban consumer market will then be worth almost as much as the Japanese consumer market is worth today.

"Expenditure on private healthcare and medicine by urban Chinese consumers, as a result, is expected to record double digit growth a year for the coming 20 years," said Sun.

Pharmaceutical companies have been cautious about using differential pricing, fearing that it encourages arbitrage between countries with higher and lower prices for the same medicines. But any organization that wants to benefit from the increase in mass affluence will have to tailor its products, services and prices to the needs of the new consumers from the emerging economies, said the report.

"We predict that, by 2020, most pharmaceutical companies will use differential pricing, based on variations in income, to increase sales in developing countries. They will minimize the risk of parallel trading by branding and packaging the same medicines differently for rich and poor markets, and tracking them using e-tagging technologies," Sun said.

PwC also said in its report that, apart from the pricing strategy, the pharmaceutical industry's sales force of the future will be dramatically smaller, more agile and will require new skills, including an education in science or health, greater understanding of specific complex diseases and the ability to negotiate with powerful firms and medical specialists.

Salespeople will no longer focus just on selling products but also on better management of health outcomes through a full complement of services, including health screenings, compliance programs and nutritional advice.

"The pharmaceutical companies that succeed in demonstrating value will be rewarded with a longer period of exclusivity, stronger financial health and greater loyalty to their brands," Sun said.

He added that they will need to restructure their marketing functions accordingly, by appointing key account managers who will be responsible for collaborating with healthcare stakeholders to shape the information doctors receive and to provide hard proof that a product really is safer, more effective or more economical than its rivals before they add it to the formulary.