Pharmaceutical Pricing Research In Emerging Markets: It’s Not Just About The Numbers
Pricing is a high-stakes game.
Small margins in price can make a big difference in profit. Price a drug or a device too low and leave money on the table, price too high and discourage funding and / or uptake. Given the risks involved, companies rely heavily on pricing research to inform their decision-making.
[quote]It is always worth bearing in mind that most research techniques used in pharmaceutical pricing research originated in the world of fast-moving consumer goods (FMCG).[/quote]
In the case of the FMCG market, the consumer is the decision-maker and the payer. But in the case of a pharmaceutical therapy, the physician decides if a therapy will be used (perhaps in discussion with the patient), while the payer is someone else (government budget holder, private insurer or patient). In addition, it is unrealistic to assume that a single technique – even a sophisticated one such as conjoint analysis, delivered with a robust sample size – can accurately reflect the complexity of real-world payer decision-making.
Over and beyond the vagaries of applying conventional quantitative techniques to pharmaceutical markets in general, there are specific challenges to applying these to emerging markets:
- Traditional pricing research methodologies are inadequate for considering the invariable, and often critical, cross-segment implications of pricing and access between different payer segments
- Quantitative techniques measure willingness to pay, but not ability to pay, which is critical in self-pay segments
- Using physicians as proxies for patients does not always work because often the physicians are not aware of drug prices
- Access and risk avoidance are important pricing objectives in emerging markets
Blindly applying results of a quantitative pricing research to arrive at a price recommendation disregards these important objectives.
In our work, both with and as clients, we have witnessed and participated in a lot of emerging markets pricing research. The most important lesson we have learned is that emerging markets require their own approach.
[quote]In this post, we’ll give our recommendations for how to avoid the pitfalls and get it right.[/quote]
Conducting pricing research in emerging markets always involves a trade-off between the approach that will generate the best decision support and what is feasible given budgetary constraints. There is no single approach that works every time, in every setting. But here is a set of considerations that can help you ensure your research objectives are achieved:
#1: Be clear about the market segments that you will be researching
This is obvious but important to state nonetheless.
The target stakeholders for the research, and the preferred methodology, will vary by market segment. So it is important to be clear, from the outset, which payer segments are of interest in each of the markets.
#2: Use comparator / analogue analyses to generate hypotheses and to prioritise segments
Primary research should not be a tick-box exercise conducted for the sake of it. Nor should the robustness in recommendations be thought of as a function of the volume of interviews conducted.
A thorough analysis of how decision-makers have treated similar products in the past is an important step in informing how primary pricing research is then conducted. For the more transparent systems where there are good data, such analyses can replace the need for primary research for de-prioritised market segments altogether. This can free up primary research resources to focus on the more intractable strategic challenges in other segments of the market.
#3: Where possible, triangulate the research
The best way of ensuring all angles are covered is by considering the question from several perspectives. Do not rely on one source of information to make your decision: no single pricing research methodology can address all the questions that must be considered in emerging markets pricing decision-making. Bear in mind that you will always need to factor in not just the commercial opportunity, but also the access objectives, risk from government intervention and spillover risk to other markets.
#4: Maximize the depth of interaction with decision-makers and decision-influencers in the government segment
There are two critical success factors for obtaining the insights you need to identify the optimal price for the government sector:
1. Speaking with the right stakeholders (ie those involved in or close to the decision-making process)
2. The depth of the interaction with them
In-depth qualitative research or advisory boards are the most effective means of achieving the high-grade interactions required to deliver the desired insights in the government sector.
#5: For high-cost therapies, in the self-pay segment, triangulate physician WTP testing with affordability modelling
The orthodox pricing research method for the self-pay market is to conduct large numbers of physician interviews, with the assumption that physician willingness to prescribe is a proxy for patient willingness to pay.
We recommend conducting affordability modeling to segment the population by ability to pay and to identify the impact of price points on the total market potential. This approach works best for high cost chronic care therapies whose monthly treatment costs represent a significant share of disposable household income. Assumptions on willingness to pay, generated by physician research, can add robustness to the affordability model.
#6: Understand provider incentives
In self-pay segments, in addition to the value of the product and the patient’s ability to pay, provider financial flows and incentives may also influence prescribing and purchasing decisions. In the case of a physician-administered injectable drug, for example, the patient is actually paying for an overall service rather than just for the drug. This complicates the task of identifying the impact of price on volume. Standard quantitative physician research do not capture the impact of such incentives on the price-volume relationship.
Smart qualitative primary research is required to understand the implications of provider incentives on pricing and access strategy.
#7: Test possible means of providing effective discounts at the time of price testing
It is critical to test physician willingness to prescribe in the context of the programmes being considered to achieve the net price.
Physicians may respond differently to straight discounts, pharmacy rebates schemes or named-patient assistance programmes. These techniques must be tested with physicians as part of willingness to prescribe testing.
Including such questions in the primary research programme requires generation of hypotheses and scenarios through case studies the respondents will be aware of.