Pricing Strategy Case Interview - Pricing Strategy for Pharmaceutical Company

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Pricing Strategy Interview Question


Pricing Strategy for Pharmaceutical Company


Interviewer: Our client is a renowned pharmaceutical company. It has developed an innovative drug which enables people to sleep for just 4 hours compared to the regular 8 hours. Please help them with a pricing strategy for this. 


Priyanka: I would like to understand the client better before delving into the pricing part. 
Interviewer: Yes, please go ahead. 
 

Priyanka: What are the products which the client is currently selling? What is the objective for rolling out this new drug?  
Interviewer: The client sells a wide range of drugs. However, you can consider this to be an independent drug. The client wants to earn revenue from this new drug. 
 
Priyanka: For how much duration should this pill be taken? What is the frequency for taking this pill? Also are there any associated side effects? 

Interviewer: It is a long-term pill. One pill needs to be taken every day. As such there are no-side effects. 

 

Priyanka: Are we the first company to launch such a drug or there are already existing competitors selling similar drugs in the market? 

Interviewer: Our client has done an innovation, and we are the first ones in the market. 

 

Priyanka: Which geography is our client currently operating in? Also, in which geography does it plan to sell the drug? 

Interviewer:  He has the manufacturing capability set up in India only. Firstly, he wants to roll out in India, and later he will plan for global expansion. 

 

Priyanka: Are there any regulations related to selling such a drug which I should be concerned about? 

Interviewer: You can ignore the regulatory concerns for this analysis. 

 

Pricing 

 

Priyanka: I can use the following strategies to decide the price for this drug: 

  • Cost-based pricing: to decide the minimum price that we should charge 

  • Competitor-based pricing: Since we are the first ones in the market, I will ignore competitor-based pricing although we can look for substitute products in the later stages. 

  • Value-based pricing: to determine the maximum price that we can charge 

I will start with determining the minimum pricing first. 

Interviewer: Please go ahead. 
 

Cost based Pricing 
 

Priyanka:  Do we have any data on what is the cost incurred by the client? Also, what is the profit margin the client expects to make?  

Interviewer: The unit cost for each drug is INR 15 and the client expects to make 20% profit here. 

 

Priyanka: Basis that the client should sell each unit at INR 18(INR 15*1.2%). 

 

Value-based pricing 

 

Priyanka: For value-based pricing, I will look at the value this drug can create. The value will be different for different individuals. 

Interviewer: What are the different customer segments you can think of? 

Priyanka: The importance of this drug can be for working professionals who have to complete some important work and can afford only 4 hours of sleep.  

Interviewer: How will you quantify this value? 

 

Priyanka: For working professionals, the value will be in the form of the extra earnings that they make in these 4 hours. I would like to do a guesstimate here. 

Interviewer:  You can assume that 15% of the working population will use this pill and this segment earns INR 6000/hour.  

 

Priyanka:  

Assuming India’s population to be 1.3 billion. 

The working professionals will be in the age group of 20-55 which is ~60% of the population. 

Assuming that 15% of the working population will use the pill 

15%*60%*1.3 billion 
 

Since earnings per hour = INR 6000 

Additional Earnings for 4 hours = INR 24000 

 

The working professionals should be willing to pay anything below INR 24000. 

 

The revenue that our client can make is  

15%*60%*1.3 billion*INR 24000 = 2808 billion 

Interviewer:  The revenue projections look quite good. Thank you for the analysis. 

  

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