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A business framework for pricing and broader brand strategy.
When conducting payer market research for drugs in development, a typical question asks for a product analog. Product analogs serve as price comparators to help develop a recommended price.
Based on my experience, there are four different intrinsic characteristics associated with product analogs. Each point to not only different pricing, but to different strategic profiles for products.
This article will put the spotlight on these four intrinsic characteristics. The suggestion here is two-fold. First, that the four types of product analogs align with four payer market scenarios. Second, that the four scenarios compose a business framework for pricing and brand strategy in the payer market.
In Scenario A, product analogs dictate a price ceiling with virtually no latitude for a higher price. This scenario is shaped by “clinically interchangeable” treatment options with generics and similar brands for the disease condition.
In Scenario B, the analog suggests a price ceiling with some latitude for a higher price. This scenario is shaped by “comparable” but not interchangeable treatment options for the disease condition.
There are also landscapes where good analogs do not exist. In Scenario C, latitude for a price ceiling is very extensive. Here, there are only “inferior” treatment options for the disease condition.
In Scenario D, latitude for higher pricing doesn’t apply because there is no benchmark for a price ceiling. In this last case, “no” effective treatment options for the disease condition exist.
Cutting across these four scenarios are two key business factors: competitive conditions and value proposition. Interaction of the two in each scenario produces a unique strategic profile for a future product in the payer market. These profiles are described in the product analog matrix shown below.
Scenario A. Pricing is typically at parity or X % below the analog.
Scenario B. Pricing is capable of being X % above analog.
Scenario C. Pricing should reflect a “stretch price” (highest price that doesn’t invite management beyond what is naturally expected).
Scenario D. Extreme pricing is normative.
To the degree future products fit one of the scenarios, this framework can be used to shape pricing and brand strategy. Projecting out, few new products are likely to fall under Scenario A; some will fall under Scenario B; industry R&D strives for most to fall under Scenario C; and steady escalation can be expected for Scenario D.
Ira Studin, PhD, President, Stellar Managed Care Consulting. He can be reached at email@example.com