Pricing Management: It's All About the Data

Feb 21, 2014

Any pricing or revenue management initiative is only as good as the information on which it is based. However, too many pharma companies continue to adopt a fragmented, siloed data approach which fails to make the most of this critical business asset.

James Robinson

James Robinson

In recent years, the need for suppliers to the life sciences sector to implement effective price and profit management has grown rapidly in importance, in the face of a different and often challenging procurement environment. However, firms are still struggling to put in place effective strategies and controls across key areas such as tendering and global pricing management.

At the heart of this is a failure to access and make timely use of good quality data. As part of a best practice data acquisition and usage strategy, data should be collected from every possible relevant source — both within and beyond the business — and automatically consolidated within a single central and easily-accessible repository. This can then be integrated, modelled and visualized in a way which presents the resulting intelligence accurately and in a timely way.

By accessing up-to-date data and making the resulting intelligence available to all relevant decision-makers, fully-informed pricing decisions and proposals can be based on an accurate and timely assessment of risk and acceptable trade-offs.

People, process, technology
In supporting the pricing team, pharma companies generally have skilled people trying to work with processes of variable quality but with almost non-existent technology support. The pricing function in particular remains poorly-resourced and under-funded: pricing managers may be moving centre-stage in terms of strategic importance to the business, but they still lack robust systems to support them, instead relying on small teams, individual skills and spreadsheets.

Underpinning all this, they also need the right data, available at the right time, in order to deliver robust, long-lasting change. This is because any global pricing management strategy requires a number of key elements to provide the right foundation for effective tendering, reference pricing and other pricing activities.

First, the business needs sound, accurate pricing data to work from. Second, armed with timely access to this data, staff across all departments need to collaborate on a global, companywide platform. And finally, accurate timely information forms the bedrock of ensuring full compliance with internal global governance policies and external regulation.

An end-to-end approach
An effective GPM implementation begins with the data, appropriately connected and integrated in one place – a single point of truth where all relevant stakeholders can access and retrieve the information they need, rapidly and easily.

There are four key steps to maximizing the value of pricing information, which enables intelligent predictive pricing decisions based on an accurate assessment of risk and acceptable trade-offs.

The first centres on collection. Up-to-date pricing data should be combined with fully-documented GPM rules for the organization. All this can be consolidated into a single calendar of events which may also include each market’s current referencing rules and timetables, mandatory cuts, launch products and those which may be de-registered in individual countries. Other data elements include volume forecasts and exchange rates, especially important in the case of reference countries with more volatile economies.

All this data should then be automatically brought together centrally and integrated, in order to make it accessible in real time for effective manipulation and analysis. The resulting models need to be easy to use by the business, yet provide sufficient detail and granularity to answer complex questions. They must be flexible, scalable and configurable to automatically examine any combination of products, prices and markets, providing the analysis required for intelligent decision-making and informed negotiation.

The final step is that of visualization. In order to interpret and derive insights from large volumes of data analysis, a decision dashboard needs to present all components of the decision framework in an easy to read and understand format. This will enable pricing scenarios to be compared with competitors, other scenarios and market benchmarks and ensure they are compliant with the company’s global pricing policy and external regulatory requirements.

This approach drives critical value for the business, turning a mathematical, analytical exercise into intelligent business decision-making. It will also impact on pricing and revenues designed to drive the bottom line. It can be applied with equal effectiveness a

t every stage of the product’s life, from pre-launch and launch, through growth and maturity to loss of patent exclusivity.

Measurable benefits
Asked to list their top frustrations in meeting key pricing challenges, 61% of the top global pharmaceutical manufactures questioned in a recent poll highlighted the need for a centralized database, providing timely, accurate pricing information, as critical.

The importance of comprehensive, accurate data was reinforced in another part of the survey, in which 84% of respondents pointed to the need for sophisticated analytics and simulation capabilities. This was essential, in order to understand better the potential impact of future pricing events, both internally and externally, as well as optimising the firm’s regional and global P&L.

Importantly, building a business case for global pricing management based on robust data can be supported by the availability of proven metrics against key value drivers, based on a detailed analysis of existing implementations.

In the area of improved predictability, for example, the accuracy of price and revenue forecasting and mandatory reporting compliance has been shown to improve by 80-90%. In the area of cost reduction, efficiencies in pricing administration have shown a 40-70% improvement, with a similar reduction in fines and claw-back for mis-reporting.

In the area of increasing revenues and margin too, response times to price events have typically halved, with price/volume correlation improved by 8-15%.

In a multi-billion-dollar market, these savings are substantial. One Fortune 500 global pharma company has identified average year-on-year reduction in price erosion in Europe, for example, of around 40%, which equates to an annual saving of tens of millions.

James Robinson is Director Solutions, Model N.

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