I'll make him an offer he can't refuse.
- The Godfather

For truly innovative products, you may be able to set a price your customers cannot refuse. However, for most products, the days of simply establishing a price and realizing revenue are long gone.

In today's cost-constrained marketplace, customers are scrutinizing manufacturers' prices. Managed care increasingly blurs the lines between payer and prescriber, as it shifts financial risk and exposure. Prices set too high can place you and your product on customers' radar screens, exposing you to unwanted utilization controls.

Furthermore, as the concern over health care costs and manufacturers' prices intensifies both in the public and private sectors, price perception can be as important as the price itself.

Pricing a medical product or service is one of the most difficult challenges facing manufacturers today. BioMedical Insights can help you conduct the proper research and analyses needed to set and justify price.

Questions to Ask Before Establishing a Price

Who is at financial risk for our product?

Before determining a price, you need to evaluate the impact of price on those who will assume financial risks and rewards for your product. You should quantify the financial exposure of relevant customers within your market, including patients, physicians, pharmacies, third-party payers, and wholesalers.

What role will price play in the adoption of our product?

Customers' reasons for choosing a product usually begin with efficacy and safety profiles. Although price may not be the most important criterion, customer price thresholds can influence the adoption and use of a product. Furthermore, pricing decisions must account for other factors that will affect product acceptance, including discounts, rebates, and distributor and wholesaler margins.

How do we derive a price and minimize financial risk?

Consider alternative models for determining your product's price. In some cases, market-based pricing is optimal. In other situations, economic-based pricing, that is, pricing based on how your product impacts overall costs, may be more suitable. Innovative contracting arrangements may provide effective selling strategies. When devising a pricing strategy, your financial risk must be carefully weighed against your potential return.

What are our internal goals with respect to product price?

Think beyond your expected ROI. A product's pricing strategy should consider public and patient relations. It should evaluate the effect of price on other product lines. It should examine external partnering opportunities and synergies within other divisions of your own firm.