Pharmaceutical Manufacturer

I: Your client is a pharmaceutical company that has discovered a baldness cure. Help them decide on the pricing of the drug to maximize profit

C: I would like to know about the cure. How does it work? Do you need a continued dose for it to work, or is it a one-time dose?

I: You have to take a one-year medicine course for it to work. Focus on deciding the price for one year's worth of supply.

C: Are there any comparable products available in the market?

I: No, this is a first-of-its-kind medicine.

C: Okay, do we know the target market for this medicine? Are we selling it in India or some other country?

I: Assume we are selling it in India. Assume that the target market size is 50 million people.

C: Do we know about the cost of manufacturing and the R&D cost involved in developing the medicine?

I: Consider the cost of manufacturing to be $10 for a year's worth of supply. The cost can be considered minimal compared to the price we are expecting. Consider there is no R&D cost; it was discovered by accident.

C: Okay, so I think one way we can go about the pricing strategy can be through the willingness to pay of different sections of the target customers. If we price too high, our volumes will be low, and we will lose on profit. If we price too low, our margins will be low, and we won't be able to get as much profit. I would like to divide the 50 million population based on their income levels, assuming that the willingness to pay will depend on the income level of the population.

I: Okay, go ahead.

C: I would also assume that the target customers have a distribution similar to the overall distribution of income groups in India. Would that be a fair assumption to make?

I: Yes, you can go ahead with that assumption.

C: Thanks for the go ahead. So, I would demarcate the segments as follows; Low Income: 10 million, Middle Income: 22.5 million, High Income: 5,Super Rich: 2.5 million

I: Okay, that seems fine.

C: So now I want to see at different prices the revenue and profit generated.

I: What is the price that you want to start with?

C: I will start with $1000 and go down from there.

I: Can you please elaborate on why $1000?

C: The closest alternative to a baldness cure medicine will be a hair transplant. I think hair transplant usually starts at $1500-2000 USD, so I am pricing it lower than a hair transplant as the medicine is new, and I assume a hair transplant is a much faster method.

: Then, finally what is your recommendation?

: The client should price it at $500.

: Good job, that was well done. With that we can close the case.