Pfizer’s Logical Approach to Price Increases | Strategic Pricing Solutions

Last week Pfizer announced increases in the list prices of more than 40 drugs for the second time within the year.  The increases average 9.4%.  Although there could be some political backlash, the pricing strategy is logical.  Pfizer is recognizing their pricing power, they are incorporating buyer psychology into their process, and they are taking steps to avoid shocking or angering their customers.

Pricing power is the ability to raise prices without significantly affecting the demand for a product.  In Pfizer’s case, they have data that show patients clearly want their drugs, and they know modest increases will not reduce demand.  Although nearly all the drugs involved in this latest round of increases have competitors, people prefer to stick with something that works for them.  There is value in continuing to use something that is effective, rather than testing alternative drugs.

There are multiple layers to the buyer psychology.  The customers with whom Pfizer and other pharmaceutical companies deal are primarily insurers and PBMs (Pharmacy Benefit Managers).  As they compete for their own customers, one of the main selling points of insurers and PBMs is how large a discount they obtain from healthcare providers.  Their sales pitches do not tout the net price per pill or per service; they claim to save customers money by obtaining bigger discounts.  Pfizer and others know that when their customers are focused on the discounts, there is much less focus on the list prices.

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Pfizer’s Logical Approach to Price Increases.