Pharmaceutical drug costs and pricing trends

Management

Pharmaceutical Drug Costs

In today's competitive pharmaceutical drug market there are more and more factors that are influencing brick and mortar pharmacies in their endeavor to stay viable. One area in which pharmacies are competing hard is that of generic drugs. "Generic medicines account for 69% of all prescriptions dispensed in the United States, yet only 16% of all dollars spent on prescriptions. Generic pharmaceutical products are used to fill nearly 2.6 billion prescriptions every year" (Facts at a Glance, 2012). It is these drugs that pharmacies are using to lure people in the door in hopes that they buy other products besides their drugs.

Several of the nation's largest retailers and pharmacies now offer discounted pricing on a large range of generic equivalents and brand name prescription drugs. Drug discount cards, retail drug discount programs, and other programs may offer substantial savings from retail prices (Retail Discount Drug Programs, 012). One of the last pharmacies to jump on this trend is that of CVS. Enrollment into the CVS/pharmacy Health Savings Pass is easy and costs only $15 annually, per person. Whether one has limited prescription insurance or no coverage at all, they can sign up today for the CVS/pharmacy Health Savings Pass and start saving right away. This is not an insurance plan, but a prescription savings pass that allows a person to save on the medications that they and their family need. Plus, they will receive 10% off MinuteClinic services that are located inside certain CVS/pharmacy stores. A Health Savings Pass allows customers to:

"Pay only $11.99 for a 90-day supply of over 400 generic prescriptions.

10% off at MinuteClinic on any regular priced health service or screening

Save 10% off on your annual flu shot

Save $10 on 50 count TRUEtest strips (limit 2 per month)

Save at any of our more than 7,000 CVS/pharmacy locations nationwide" (CVS/pharmacy Health Savings Pass, 2012).

The current issue that CVS is having is that they are not making any money on this program because they have to discount their generic drugs so deeply. Their hope is that just getting people in the store will create store loyalty and people will buy other products while they are also getting their prescriptions filled. The issue that needs to be addressed is twofold. First they need to work on getting as many people as possible signed up for their discount prescription program. And then they need to figure out how to get those people to come into their store so that they can buy things other than prescriptions. CVS needs a good marketing plan in order to make these things happen.

In order for a company to stay competitive they must know where they are currently, where they want to be in the future and have a plan on how to get there. Research and analysis are critical because they lead a company to identify their product's target audience, as well as its strengths, weaknesses, threats and, most importantly, opportunities. Knowing the threats and opportunities that a product faces helps one more realistically set sales goals and objectives. Knowing ones opportunities, target audience, and sales goals will give them the information they need to set their marketing goals to take advantage of the opportunities and meet the sales goals. Knowing ones marketing objectives will give a company the information they need to set their positioning, pricing, distribution, and other marketing strategies. Having these strategies in place will give a company the road map to set up the tactical elements of their marketing plan, such as advertising, promotions, branding, and packaging. All of these things have to be tailored to a company's market in order for them to be successful (Buttell, 2009).

The first thing that CVS needs to do is perform a situation analysis. A situational analysis, which examines the internal environment, the external environment, the current marketing mix and the continuing relevancy of current market targets (Gerson, 1998). A useful tool used in performing a situation analysis is what is known as the C's of Marketing. The C's of Marketing help companies center on key fundamentals that apply directly to marketing. Understanding these principles is vital in developing a successful marketing plan. The 5 C's of Marketing can be summarized as:

Company - the product time line and experience in the market.

Collaborators - distributors, suppliers, and alliances. These are any companies that one works with on a day-to-day basis to help the company function.

Customers - this is the company's market. It is important to understand the quantity a customer will purchase and even trends in consumer tastes so that a company can make sure that they have the products on hand that the customer wants.

Competitors -- it is important to know both ones actual competitors as well as their potential competitors as well as those that directly or indirectly compete with them. It is vial to understand their products, positioning, market shares, strengths and weaknesses.

Climate - these are governmental policies and regulations that affect the market. It is also the economic environment around a company. This includes the business cycle, inflation rate, interest rates, and other macroeconomic issues. Society's trends and fashions are found in the climate. The technological environment is creating new ways of satisfying needs like using technology to enhance the demand for existing products (Milne, 2011).

The next step that CVS needs to take is to do a PEST analysis. The PEST analysis is a useful tool for understanding market growth or decline, and as such the position, potential and direction for a business. A PEST analysis is a business measurement tool. PEST is an acronym for Political, Economic, Social and Technological factors, which are used to assess the market for a business or organizational unit. The PEST analysis headings are a framework for reviewing a situation, and can be used to review a strategy or position, direction of a company, a marketing proposition, or idea (Pest Market Analysis Tool, 2010).

The next step is for CVS to do a competitive analysis so that they can figure out where they stand in comparison to their competitors. The objective of the competitive analysis is to better position an organization to leverage their competitive edge. It is important for a company to know how their company differs from others, in what way does it stand out and is there a sustainable value that they can maintain and develop over time (Berry, 2012).

The competitive analysis process gives a company the opportunity to describe their major competitors in terms of the factors that most persuade revenues. This often includes a competitor's:

size amount of market share comparative product quality expansion accessible capital and resources representation marketing strategy target markets and any characteristics considered important.

"Industry associations, industry publications, media coverage, information from the financial community, and their own marketing materials and websites may be good resources to identify these factors and rate the performance of each competitor. Access to competitive information will vary. Competitors that are publicly traded may have a significant amount of information available. Competitive information may be limited in situations where a competitor is privately held. If possible, one may want to take on the task of playing the role of a potential customer and gain information from that perspective" (Berry, 2012).

The last thing that CVS needs to do is evaluate their product offering. Company's that are successful don't market products, they market offerings. An offering includes the benefits or satisfaction that is provided to the target markets, both tangible and intangible. In order to successfully market a product, a company must first understand its benefits from the buyer's point-of-view. This approach allows a company to see past the tangible product itself and consider what the consumer is actually buying and their reasoning behind buying it. Offerings should comprise a tangible product or service, plus any related services that go along with it. It should also include any intangible benefits that are present. Centering on the offering, rather than on the actual product or service itself, can be important for analyzing consumers' options, in order to better recognize unmet needs and wants of the target markets, and to improve development of new products or services. "In a bigger sense, an organization's offerings are a part of who they are as a business. The marketing plan should address what types of customers a company wants, what the consumers need, and how their offerings will meet those needs. It should also describe how the offering is communicated and what value it holds for the customer" (Berry, 2012).

Most companies sell more than one product. A multi-product advance frequently adds worth, leverages economies of scale and expertise, and augments the potential for revenue generation. Most retail stores offer several hundred products in order to meet the span of needs of their customers. The mutual offerings of a company are known as their offering mix. This offering mix can be categorized according to the breadth, extent, intensity, and steadiness of the products. These four dimensions are the tools for developing the company's marketing strategy and deciding which product line to cultivate, preserve, yield, or get rid of. Strong products should be grown or maintained. Weak or unprofitable lines should be sold or discontinued as soon as possible. "Four basic factors are critical in the decision to manage individual product lines.

Consumer demand

Cost to produce

Gross margin

Total sales volume" (Berry, 2012).

Going through the process of developing a marketing plan will help CVS to figure out how they are going to draw people into their stores and sell them things beyond discounted generic drugs. A provides the market with a source of discounted drugs among other products. This market need is important today as many Americans are faced with the dilemma of using their limited income on food or meds. A pharmacy should seek to fulfill the following benefits that are important to their customers.

Selection: The pharmacy needs to offer a wide range of medication, both originals as well as generic alternatives.

Accessibility: Products should be distributed through their conveniently-located store front

Customer service: The pharmacy should recognize the value of having outstanding customer service. By exceeding all of the customer's expectations, they are ensuring repeat customers and many referrals.

Pricing: The pharmacy's prices have to be noticeably better than other local pharmacies (Pharmacy Marketing Plan, 2012).

CVS also needs to conduct some marketing research in order to ensure their success in the market. One method that they can use would be to conduct several focus groups in order to gain insight into the targeted customer's mind and the processes of their decision making. These focus groups help to provide the pharmacy with a wealth of information. In addition they could hand out surveys to current customers. Having a carefully designed survey is paramount to ensuring that the data collected is accurate and applicable. The surveys can help provide insight into the barriers that people face when buying products from a pharmacy as compared to other retail shops. The last source of marketing research that CVS can do is an in-depth analysis of the pharmacy industry, focusing on consumer decision models within the industry. Cumulatively, all of this market research will help the store to lay out a plan on how to move forward in the market (Pharmacy Marketing Plan, 2012).

The keys to CVS's success include: repeat customers, low overhead and operating costs and superior prices and service. In the drug store business the prescription department is the profit core and center of the business. The prescription department ranks as one of the most profitable sections in the pharmacy and has a significant influence on other department sales. The pharmacist should, therefore, concentrate on making this department the central