Chapter 13 pricing pharmacist services

David Holdford, RPh, MS, PhD

PRICING PHARMACIST SERVICES

How to sustain your business model

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Slides to Accompany Chapter 13 of “Pricing Pharmacist Services”

Learning ObjectivesExplain importance of pricing

Discuss relationship to other elements of marketing mix

Discuss influences on pricing decisions

Calculate the cost of providing a pharmacist service

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

Describe potential steps for pricing pharmacist services

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Organization's Operation - Specific background about the organization

where the product/service will

be provided

Strengths, Weaknesses - Your capabilities to serve targeted customers

Service/Product – Features and details about your program or service

Secondary Customers - all

other people you may serve

Partners - People or businesses who can

help you serve customers

Value Proposition - The case you make to customers

Opportunities, Threats - Potential

for success or failure in the market

Competitors – Alternatives for your

value propositionPrimary Customers - People or businesses you

want to serve

Costs - Financial and nonfinancial inputs needed to serve customers

Pricing & Reimbursement - Sources of revenue to sustain your value proposition

Communication Plan - How value proposition is communicated

Implementation - Details about critical factors for success of business

Source: (adapted) Osterwalder A, Pigneur Y. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Hoboken, NJ.: John Wiley and Sons; 2010.

Business Model Canvas for Pharmacy Services

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PROFIT FORMULA

10. COSTS

What are the major costs of the service being provided?

Startup Costs

Operating Costs

Fixed

Variable

11. PRICING & REIMBURSEMENT

How does the business receive revenue for the service being provided?

What will be the price for each unit of service provided?

Who will pay for the service?

SCIENCE & ART OF PRICING

Science

Economics, consumer psychology

Art

experience, hunches

Pharmacists must walk a tightrope of:

charging enough….but not too much

Definitions

Price Compensation

Reimbursement

A charge A cost Revenue

Non-monetary costs

Segmentation & Pricing

What is a bargain shopper?

Types of Bargain ShoppersOffline deal-seekers. Typically over age 55 and love to find deals in stores. Online and digital are less important

Deal thrillers. Deal thrillers love getting a deal but are also loyal to specific brands.

Deal takers. Highly educated and affluent consumers who do not seek deals but will accept one if offered.

Deal indifferents. Largest segment of the population, and they do not respond to deals. Most only shop when they have a specific need, and coupons are wasted on them.

Deal-seeker influentials. Constantly look for the best online, offline and mobile deals. Tend to be young, highly educated, socially active consumers who love shopping but think paying full price is for suckers.

Deal rejectors. Hate shopping, preferring convenience over everything. They tend to be male, older, and willing to pay more for convenience.

Source: Brooks C. 6 Kinds of Deal Seekers and What They Mean to Your Business. 1-9-2014. Business News Daily.

CONSIDERATIONS IN PRICING

PERSPECTIVE

• customers/stakeholders

MARKET

• B2C, B2B, and/or B2G

PRODUCT

• non-durable goods, durable goods, services

BUYER’S POWER

• Intensity of competition, ease of market entry, availability of substitutes

PRICING AND STRATEGYPricing is driven by business strategy

Low cost strategies require prices that undercut competitors

Luxury strategies allow prices above the competition

Reframing the low cost argument

Making a business case to payers (B2B) that pharmacists add value by:

• improving medication adherence,

• coordinating care,

• promoting health, and

• reducing avoidable emergency department visits, doctors visits, hospitalizations, and nursing home admissions

PRICE AND BRANDING A strong brand can yield a higher price. The brand is a promise that tells buyers that "if you buy this brand, it will be worth the extra you pay for it."

Pharmacists can garner higher prices by communicating a strong story about their brand and its value.

Step 1. Set price objectives

Step 2.Estimate costs

Step 3. Estimate Demand

Step 4. Set a Price

Step 5. Change the Price as Needed

HOW TO PRICE PHARMACIST

SERVICES

Step 1: Set Price Objectives

Portfolio pricing

Penetration pricing

Loss leader strategy

Freemium strategy

Price skimming strategy

Competitive pricing

Cost-plus pricing

Variable cost pricing

Value-based pricing

Step 2: Estimate CostsService costs, product costs, & net profit.

Startup & operating costs

Fixed & variable costs

Direct & indirect costs

Step 3: Estimate DemandDetermined by consumers’:

• needs/wants

• perception of the pharmacist and pharmacy

• perceptions of price and value

• availability of competing services

• ability to compare competing services

• price sensitivity (described as elasticity of demand)

• switching costs

Step 4: Set a PricePrice as a Signal of Quality

Step 5: Change Price PRNAdapt to dynamics of market

Pay for Coordination

Pay for Performance (P4P)

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Episode or Bundled Payments 3

NEW PAYMENT MODELS FOR PHARMACIST SERVICES

Building a Business Case for PharmacyServices

Business CaseDefined as a document or presentation that justifies an initiative

Typically an economic value proposition to an audience of decision makers that makes a case that an initiative will generate greater benefit than what the initiative costs

A return on investment (ROI) calculation is usually expected by institutional decision makers to guide their decisions

Gain from Investment – CostCostROI =

ConclusionsPricing is an art & science

It is key to sustainable pharmacist services

Pharmacies with strong brands can set command higher prices