Summarily, this paper investigates the marketing dynamics that can apply in the European Union pharmaceutical sector in promoting a new medicine. The competition in the pharmaceutical industry in the European Union is intense; hence different companies have to develop unique methods of marketing their products. It is critical to employ the best model to ensure competitiveness in an industry that sees new entrants every time. Notably, it has been identified that pricing strategies are instrumental in ensuring survival of the product in the marketing despite intensive completion from existing medicine. Understanding the best pricing model is critical to the success of a company since many customers will tend to purchase products from companies that have lower rates. Additionally, this research paper discussed the trend in the EU pharmaceutical industry and how it affects companies` intentions to invest in research and development for innovation. The research indicates that companies that are focused on research and development have a better opportunity to have competitive pricing strategies as opposed to other actors in the industry. Other important aspects of this explorative research undertaking are the patent debate and reimbursement and how it impacts pricing strategies adopted by firms as a marketing tool. Companies that can successfully ensure they patent their products develop the best pricing model, which is vital in enhancing increased sales. Moreover, the research recommendations derive important insights on marketing that can assist a manager to apply pricing strategies and innovation as the best weapon to ensure survival in the highly competitive EU pharmaceutical market. The information is critical for new entrants in the industry since they will get a better understanding of the best marketing strategies they can use to attract a substantive customer base.
II. Introduction
The accessibility of health services is a human right issue within the European Union and hence, access to the necessary medicines is a government priority. The pricing system of the pharmaceuticals and the models of supply systems are critical elements in the achievement of the healthcare goals. The current initiatives by WHO on health systems aim at improving access, appropriate use and accessibility of medicine (Bigdeli et al., 2014). European countries in particular, have adopted policies on pricing and funding that are uniform so as to deliver quality medicine to their citizens. The pharmaceutical sector in the European market is regulated intensively as it is viewed to be a health, industrial and budgetary matter that is worthy of attention by all the stakeholders.
The self-medication market has experienced great sales in the EU market causing an alarm, hence necessitating the governments to introduce regulations that are based on the benefits and the possible risks that consumers derive from the medicines. Essentially, increase in the cases of self-medication has led to accessibility of healthcare to a lot of people in the EU but there are legitimate concerns over the misuse of the drugs.
Governmental control on pharmaceutical economics is influenced by factors that are crucial to the wellbeing of the population. Interestingly, the purchase model is not uniform, and the government has to strengthen the moral complexity regarding the right to access healthcare for the European populations. Pharmaceutical marketing has a life cycle in the European market that involves scanning to ensure that it is safe for use and further, an authorization is done for pricing and reimbursement. Additionally, the final stage in the cycle ensures responsible use of the pharmaceuticals to guarantee effectiveness of medicinal products in the long haul.
Nature and Scope of the Problem
The pharmaceutical industry in the EU region has an influential wave that shapes the government policy because of its impact in the achievement of healthcare objectives. Notably, this industry exhibits high levels of competition due to the pressure from various stakeholders on the discovery of new and better medicine. Pharmaceutical sector has over time been identified to have the greatest return on investment around the world.
Pharmaceuticals can be sold over the counter or as prescription drugs which necessitates for the application of an appropriate marketing strategy. The market that should be targeted as a result of the different end users could be medical professionals or the end consumers. The pricing strategy is a common challenge that faces the players in the pharmaceutical industry, especially, during marketing campaigns. The EU and individual governments are critical players in the overall architecture of marketing and authorization of new drugs in this market niche. Normally, EMA has a history of rejecting new medicines which leads to a lot of losses on new entrants in this industry.
This paper will delve on to the methods that are applied by the pharmaceuticals companies in developing pricing systems in a highly competitive environment. The pricing models adopted by the companies have an impact on the brand image, the company`s positioning and the reception by the customers. Information used in this research will be an explorative discussion about academic writings that are relevant to the topic of inquiry. In essence, the best pricing model exploits that balance that is established as a result of forces of demand and supply.
III. Background Information
The pharmaceutical industry in Europe has a great reputation around the world because of the existing track record that emanates from scientific innovation that contributes to discovery of new medicine. This topic was selected for dissertation because of the relevance of the pharmaceutical industry to economic growth of the European countries. A transformative and active drug manufacturing industry has a fundamental influence on trade, healthcare and development of science. Essentially, pharmaceuticals production is promoted by an economy that is knowledge-based.
A manager overseeing a marketing department with plans to introduce new pharmaceutical products in EU region must take into considerations the current dynamics of this industry to adopt the appropriate tools for successful launch. Concerns over investment on a new medicine have been raised by the major players in the industry due to the rising costs on research. Moreover, the regulatory authorities are adopting price austerity measures, while the authorizing agencies are introducing stringent regulations on quality and achievement of health objectives.
Research Objectives
Providing an understanding of the strategic pricing of new pharmaceutical products in the EU.
Providing recommendations to the new entrants about the pricing strategy of products.
Determining how patents influence the pricing of pharmaceuticals in the EU.
IV. Analysis of Trends in the Industry
New drugs are subjected to the rules that regulate the pharmaceutical industry in EU and at the national levels of the respective member states. Under the national competencies there are provisions that relate to allocation of resources, pricing of drugs and medicinal products reimbursement. The issue of ethics in the medicinal drugs corporations has gained a public momentum because many payments are made from the exchequer. The impact of globalization on the pharmaceutical market in EU has led to increased competition, as well as introduction of new opportunities. The manager of new entrants in the EU market should maneuver the rigid regulations to secure the most appropriate price for the product. Noteworthy, medicinal products face unwarranted trade barriers that create uncertainties over the authorization of marketing and pricing of new pharmaceutical products.
Source: Pharmaceutical industry regulators
Essentially, this figure shows in percentages the commitment of various countries to research and development in the pharmaceutical industry.
The pharmaceutical industry has evolved in contemporary times because of intervention by the EU through legislative and non-legislative rules with the ultimate aim of addressing the challenges that make it difficult for industry players to invest in research and innovation. Furthermore, there are major trends in the sector initiated by the governmental agencies to improve the competition policy so as to maintain the integrity of the pharmaceuticals market. ”Transparency Directive” frameworks have been developed with the objective of making the national pricing models better and open to public scrutiny (Babar, 2015). Understandably, the regulations by the various agencies are a trend that is necessary so as to ensure that drugs are viable economically and by adding of therapeutic gains to the users.
Analysis of Industry Trends from a Governmental Perspective
The issue of drug prices and reimbursement is a dicey matter in EU member states because it influences accessibility of medicine to patients due to factors such as affordability and availability. The appraisals for new drugs that are in line for launching have to comply with the different national regulations of the EU member states. The adoption of an external price referencing is not desirable as an industry trend because pharmaceutical companies introduce their product at a lower price in a particular market segment with the hope that they will increase it in another market.
Figure 1
Figure 1 above illustrates the major regions that engage in the pharmaceutical industry in the region. It is evident that Germany has a wider share as manufacturers; hence, they are at an upper hand in creating pricing strategies in the industry.
Policy changes that have been introduced via Lisbon Treaty gave EU a mandate to monitor the health systems of the member countries. Noteworthy, the EU policy instrument that have been adopted as a trend for the pharmaceutical market have made it attractive for patients to buy alternative generics so as to save costs. Healthcare in EU countries is usually a governmental responsibility that is implemented through a partnership with the insurance companies and any action taken at the regional level is meant to complement the national policies of respective countries. However, the issue of brexit has had a significant impact in the manner in which the EU countries relate in the pharmaceutical industry. It is difficult to develop policies that suit all countries in the European Union. The United Kingdom, for instance, is not part of the policies made by the EU (Lorgelly, 2018). Brexit has affected the pharmaceutical industry in a negative way since it is difficult to develop policies that are embraced by all the member countries (Song, 2016). It has affected the development of binding laws and regulations.
Essentially, in contemporary times manufacturers that have launched new pharmaceutical products enjoy some level of exclusivity on their patents thus enabling them to set prices that will cover all the costs incurred. The costs that are incurred in producing new pharmaceutical products have increased in modern times and the manufacturing companies are unable to assess them accurately (Enzmann, H., 2016). A scope of the regulations have been initiated by the governmental agencies in order to address the factors that lean on the demand side, consisting of patients and medical professionals, and the supply side that addresses market elasticity and the pharmaceuticals. The EU health laws and policies have been critical in establishing an industry that is guided by common regulations (Hervey et al., 2017). It becomes difficult for different companies to hike prices of pharmaceuticals since there is a set standard; hence, reducing monopoly and unfair competition.
V. Methodological Approach
The method applied in this research paper is exploratory because it involves an analysis of academic enquiries that have been conducted in this field. The data sources that are used in the paper are mainly reports from governmental agencies and reputable scholars that have an interest in the topic being discussed. In essence the justification of the methodology stems from the need to understand from a policy perspective the hurdles and opportunities that present for drug discoverers as they seek to gain market entry into the EU.
Essentially, an integral part of the research methodology that was applied in this study was a skimming of the pharmaceutical policies that have been introduced within the EU framework to control pricing and purchasing of medicines. The academic sources used in this review are seminar papers that have relevant information on the topic and other authoritative policy documents that have been influential in the development of legislations and regulations in the pharmaceutical industry. The scope of this explorative research is broad covering all aspects that have an impact on the development of a pricing strategy for a medicinal product in the EU market. Additionally, there is inclusion of the multi-dimensional nature of pharmaceutical marketing norms so as to come up with recommendations that can assist new entrants in setting the most appropriate prices (Hanf, 2011). The key phrases that are critical in this research paper include reimbursement policies, price regulations and market authorization.
Notably, the explorative study investigates the impact of generic medicine in influencing drug pricing policies at the country level. The issue of competition between the generics and the branded drugs that have IP rights has a bearing on the pricing strategies as different member states of the EU and their different regulations. The regulatory regimes of EU countries have been considered extensively in developing recommendations for a company that is a new entrant in this market niche.
Generic drugs are usually copies of drugs that have already been branded and they accomplish the same treatment goal that is intended by the manufacturers of the branded medicine. The competition challenge that is existent in the European market stems from the issue of generic and brand drugs in which the latter has gained prominence among the consumers due to their affordability. The non-patented pharmaceuticals have been problematic because they interfere with the market prices. The market for generic medicine has expanded significantly in the EU market contributing about half of the consumed pharmaceutical products. Governments are facing challenges on promoting the use of generic medicine to promote access to healthcare while at the same time ensuring that are innovations in the pharmaceutical industry (Herr, and Suppliet, 2012).
This paper studies diverse methods for pricing of new pharmaceuticals on the European market. This includes medicines developed for humans, without pharmaceutical equipment. Different strategies will be discussed along with their consequences for the selling company regarding finances, customers and brand image. Before jumping into further detail, there are a couple of concepts that need to be explained.
Porter`s 5 Forces of Analysis
The pharmaceutical industry has a lot of stakeholders that have vested interest and in some other cases power to control the market dynamics and the prices. Pharmaceutical companies have to invest on stakeholder management so as to address various interests that interplay in negotiating for prices and ensuring that customer needs are satisfied. The pharmaceutical industry is based on innovation and the pricing system is hinged on the competition policy. European Union enforces the authorization regulations for drug manufacturing companies within the body`s jurisdiction. Pharmaceutical companies in contemporary times have to satisfy the perceptions on value from stakeholders such as payers to be given access to markets (Sendyona et al., 2016). The growth and factors that influence economic success of companies operating in the pharmaceutical sector depend on the level of innovation and the investments on research and development. The marketing campaigns of pharmaceutical manufacturers should have clear and concise messages that appeal to the needs of the customers.
A new entrant in the pharmaceutical industry in Europe should consider factors relating to their customer base, the competitors and the capacity of the organization to position itself in a particular market niche. Noteworthy, a new pharmaceutical organization must establish clarity in terms of ensuring that it possesses a differential advantage and a clear understanding of the target market. The products offered by a drug manufacturing organization must be memorable to the consumers in order to create a relationship that develops to loyalty (Vogler and Martikainen, 2015. The differential advantage that is enhanced by the introduction of new pharmaceutical product has to be credible from the analysis of a consumer. Additionally, the innovation introduced in new products is supposed to give the companies a competitive edge in the market.
Competition in the Industry
The pharmaceutical sector in Europe exhibits intensive competition and the participants are in the private sector, as well as government agencies. The factors that influence competition are price, reliability of the products and customer service. Claim to patents and the manufacturing rights guarantee the new entrants a chance for survival in the market. Changes in the industry because of acquisitions and mergers have an influential role in the development of the pharmaceutical sector (Margaret, 2007). A new entrant in a highly rigid market in terms of regulation should have distinctive advantages over other competitors.
The critical element that is valuable for new entrants in the pharmaceutical industry lies in the development of a branding policy that creates an identity for a product. Customers are attracted to drugs that have closer associations and a strong perception on quality (Fernandez Utges Manley, 2015). The position of a new product is important because it is hinged on consumer needs and preferences, an undertaking that can assist a corporation to dominate the market.
The power of the suppliers
Pharmaceutical companies have to put into considerations various aspects of the market they ventures are located before implementing pricing strategies. Essentially, to address the pricing challenges new entrants can create market segments with the aim of offering products that address the specific needs of a particular group in a population.
Substitutes
The main concern for the pharmaceutical market is the existence of substitutes because they have the capacity to devalue the branded products hence creating a risk of vulnerability. Furthermore, the impact of globalization in the pharmaceutical industry has led to an increase in the manufacturers in the hope of reaping super profits. The aspect relating to expiry of patents is problematic because it encourages the production of generics that compete with the branded drugs. Pharmaceutical corporations have a responsibility to capitalize on the opportunities that are induced by the influence of globalization and neuter threats that are posed by the saturation of the markets (Colak, 2014). Launching new branded drugs demands an introduction of a marketing infrastructure that will aid in the building of a reputation for the brand. The competition from the herbal drugs can be quelled mainly due to their inability to prevent health conditions such as cancer.
PESTEL Analysis
1) Political
Politicians on their part view of process of pricing for the pharmaceuticals to be exploitative and a preoccupation of cartels whose intention is to profit from the public. The companies are forced to engage a wide array of stakeholders to understand the complex process of pricing that is primarily determined by valuation. Pricing attracts political attention; hence, becoming a source of debate on the issue (Löfgren, 2017). The pharmaceutical industry is attracting attention from the policy makers because of its role in the achievement of the healthcare goals. Notably, healthcare services have become expensive and this is a responsibility that EU countries national governments have taken as a burden that over time has morphed to be an election agenda. The repercussions on the industry are stringent measures by governments that are under pressure to deliver on healthcare by the citizens.
2) Economical
The high competition levels in the pharmaceutical industry has contributed to innovation leading to introduction of new products and market entrants that are facing hurdles in gaining foothold in the sector. However, more companies have been established in the industry and there is a growing portfolio of the products in this segment and eventually the economic benefits have been extended to the public through buying shares and securities from the listed drug manufacturers.
3) Social
The social aspect of pharmaceutical companies in the EU region is mainly on the commitment to their corporate responsibility. The mainstay of pharmaceutical companies is the achievement of a social need by delivering quality healthcare. Drug manufacturing companies are more responsive to the issues in the society by driving innovations that contribute to wellbeing of the society. Drugs manufacturing companies must adhere to established systems of social accountability, corporate compliance, philanthropy and ethics.
4) Technological
Innovation has been a major driver of developments in drug manufacturing sector in the EU region due to the pressure to develop better drugs and the competition emerging from the generics leading to reduced prices of branded medicine. Undoubtedly, the EU market is highly competitive and industry players have to invest heavily on research and innovation so as to remain relevant and come up with products that address the contemporary health challenges. Companies have a risk of being defined as venerable in case the health products they produce are inferior compared to those offered by the competitors.
5) Environmental
The aspect of compliance in the pharmaceutical sector has been reinforced because of the underlying factors relating to customer preference by demanding quality and a fair pricing for medicines. Consumers of the products solely depend on the trust that is established between them and the regulatory authority to protect their interest in the sector. The overhead costs that are associated with the regulation and compliance requirements reduce the investments that are directed towards innovation. The research initiatives undertaken by the companies in the pharmaceutical industry are focusing on the aging generation because they are biggest consumers of the drugs.
6) Legal
The political environment and the society in general have great influence in the functionality and operations conducted by pharmaceutical companies, especially on matters ethics. However, regulatory authorities have greater mandate in ensuring that there is compliance with the laws for consumer protection. Essentially it is incumbent upon the company to demonstrate its compliance to safety standards and the effectiveness of administering the drugs manufactured on the patients.
VI. Contemporary Pricing Strategies in the Pharmaceutical Industry
Drug pricing has remained as a contentious issue that has affected the entry of new players in the EU market due to the risk of intensive competition from well-established companies. Noteworthy, price strategies in this unique market are affected by the market forces, intensive political scrutiny and pricing regulations that discourage introduction of new products because of the rigidity of market entry (Aaker and McLoughlin, 2010). In essence, developing the appropriate pricing system is critical because it will offer immense value. Drug manufacturers are facing a lot of challenges in contemporary times, especially with regard to the introduction of new drugs to improve the standard of care with no peer to support the evaluation. It is; therefore, critical for companies to develop effective marketing approach in the industry (Lidstone and MacLennan, 2017). Having a sound marketing plan is vital sine it will increase the customer base of the pharmaceutical products.
Determination of the pricing for a pharmaceutical product
The contemporary times pricing norms for new products in the pharmaceutical industry are determined by their effectiveness in terms of therapeutic gains to the consumer. The main determinant that eventually leads to price wars is the therapeutic advance that embodies a drug that is introduced in the market (Carone et al., 2012). Drugs that have greater therapeutic results on the patients may have their prices twice those of comparable levels. Competitive pressures play a significant role in terms as launch prices are influenced by the pricing of the substitutes. Duplicate products such as generic drugs are essential in the development of pricing strategies for the pharmaceutical industry.
Pharmaceutical company have caused a media uproar due to increase in the prices of drug which is not related to the rate of inflation. In essence, there are numerous issues that affect the pricing system that is adopted by EU countries in an effort to control the pharmaceutical industry. The services of an auditor are in most cases necessary in determining the unfair practices that could be sanctioned by stakeholders in the industry. The pricing strategy in the EU has had to be developed effectively to ensure there is fairness in the market (Faulkner et al., 2016). It has also been a key strategy used by companies to ensure they have a competitive edge in the market.
Pricing strategies have a major impact on timing that launch of new products is done and the reception by the target market. Countries that institute price controls in their market make it difficult for external players and new entrants to gain entry into the EU pharmaceutical industry (Margaret, 2007). The legal framework has also made the pricing regime in the EU regime complicated because of allowing the import of parallel substitutes. Price regulation practices in one region affects the pricing strategies of the domestic firms and entry of external investors in the market.
Pricing Regulations
Price change is impactful on supply of drugs within the EU and the method applied in reimbursement influences the relationship and the memorability of a particular brand. Essentially, a cross-reference pricing system is adopted because it is agreeable among the decision makers. Furthermore, there are greater incentives with regard to strong incentives that are introduced due to effect of spill-overs as a result of impact by foreign drug prices (Vogler and Martikainen, 2015). However, to alleviate the problems that are associated with cross-referencing in pricing and index that considers all the countries should be created in determination of the definite price for reimbursement.
Figure 2
Challenges facing pharmaceutical industries in percentages
Source: EU policy documents.
Figure 2 provides an overview of the challenges players in the pharmaceutical industry face. The major problem is increased manufacturing cost, which influences the pricing of the products. Additionally, the increased customer expectation to lower the prices of the products also forms part of the big challenges the industry faces. It becomes difficult to balance between the customer expectation and the profitability of the company.
Introducing a new pharmaceutical product in a market like EU that adopts a differential pricing system can be transformative because it gives incentive for the innovators that introduce new drugs in the market. The dicey issue that investors in the pharmaceutical industry is the inability to recover costs that relate to research and development (Ruggeri and Nolte, 2013). In Europe, the prices of the pharmaceuticals are decided at the national government`s level. Drugs are provided as a form of subsidy which is supposed to be reimbursed by the payers. In case, the health insurance is introduced by a company that enjoys monopoly, then, there is high likelihood that it will influence the drug prices. In essence, the manufacturers do not have the opportunity to negotiate the prices of the medicines in the various countries within the EU framework (Simoens, 2012). Notably, adopting profit maximization strategies can only be effective with delayed distribution of innovative medicines or ultimately avoiding their access which affects access of healthcare impacting on welfare. The patients in a very competitive market for pharmaceuticals are denied access to new medicine.
The regulatory pathway for the European Union is developed by the European Union Medicines Agency (EMEA) that has legislative authority with regard to allowing industry players to introduce new products. New market entrants have to be aware of the existing pricing systems and they have to negotiate with the national governments and agree on a refund rate. Essentially, there is a determination of the additional benefits that patients will derive from the new drug to another comparative product that is expedient (Kyle, 2007). The negotiations for refund rates are negotiated in case there is an identifiable benefit that will accrue to consumers by using a particular pharmaceutical product compared to another. Noteworthy, the pricing strategy for a new entrant is determined by their ability to come up a with a product differentiation that will lead to therapeutic benefits for the consumers. A pharmaceutical company that introduces a medicine with additional benefits has a legitimate basis to charge a higher price as part of the comparative therapy.
VII. Challenges Facing New Pharmaceuticals in EU Market
New pharmaceutical companies in the European market face great challenges due to the rigidity of the regulations and the complexities of the pricing systems. In essence, an additional benefit emanating from investment in innovation will guarantee a new entrant in the pharmaceutical industry a greater power in the negotiation of a higher price compared to other substitutes in the market. The major issue of contention that is existent between entrant pharmaceutical companies and the regulatory authorities stems from the selection of a comparative therapy that is an under-priced generic product (Cravens and Glover, 1995). Market authorization and pricing is approved upon evaluation of the dossiers that are delivered by the pharmaceutical companies with the ultimate aim of ensuring that the consumer is protected from exploitation by the manufacturers.
The price negotiation for drug discoverers as players in the pharmaceutical sector should start in initial stages so as to define the impact expected from a project and the end points that will be realized. The trial design is critical in the determination of the pricing and the model reimbur
