Marketing And Price Essay Example

started its marketing operations by promoting their ethical and prescription drugs to doctors. Sales representatives would meet with doctors to explain or promote the merits of products, inviting doctors to product symposiums whereby industry drug specialists would explain the drug in detail.

With business booming, Unilab was able to expand its marketing operations by hiring more sales representatives. Product divisions were established so that the sales team could focus on certain areas: cardiology, paediatrics, and general practice. Why was Unilab so successful so quickly? The success of Unilab can be attributed to its organizational culture of Bayanihan, a Filipino term which refers to people working together to achieve a particular goal. It is a key principle for Unilab and the foundation of a true and genuine relationship between management and employees. In recognition of the exemplary performance of Unilab, in January 2009 the company received the Philippine Quality Award (PQA) for Performance Excellence. This is the highest award that can be given to a company that has demonstrated excellence in quality and performance.

Competitor analysis

When Unilab decided to launch the simvastation, Vidastat, its main competition was Zocor. The original simvastatin, Zocor was first introduced in the Philippines in the late 1980s by Merck & Co, a U.S. global company. Zocor comes in 10mg and 20mg tablets. In 2004, the price of a Zocor 10mg tablet was $0.85 per tablet while the 20mg tablet was priced at $1.00. In 2005, Zocor was Merck’s number-one product and the second-biggest anti-cholesterol product, with worldwide sales of $4.3 billion.

Zocor enjoyed a first mover advantage, thereby becoming the market leader in the anti-cholesterol segment.

In 2004, Merck’s patent on simvastatin expired and it became a generic product, whereby other companies could now manufacture and market simvastatin in different countries and with brand names without paying any royalties to the previous patent holder. Merck expected a decline in its sales as a result of the proliferation of generic , produced by different companies. Zocor had been promoted not only in Asia but all over the world, and doctors were happy to prescribe the drug as it proved to effectively reduce the risk of heart attacks and strokes among patients by reducing cholesterol. Based on clinical studies, simvastation has to be taken continuously for three months to reduce high cholesterol to a normal level, Other competitors’ alternatives-such as fish oil capsules, which are sometimes called the “natural anti-cholesterol agent”-were not as popular as simvastatin and were not being prescribed by doctors.

Zocor was the market leader, securing more then 35 percent of the Philippines’ anti-cholesterol market. Zocor was promoted by a strong sales team who regularly met with doctor to explain the merits of the drug. The sales team also carried out sampling and distributed promotional material including brochures and free branded gifts such as pens. Merck also conducted roundtable discussions and product symposia with general practitioners and specialists to further explain the safety and efficacy of Zocor. Nobody questioned the price of Zocor since it was an innovator’s product. (An innovator’s product is a product that offers new benefits to its customers and is introduced to solve specific problem.) In this case, the problems is hyperlipidemia, which is the abnormal increase of lipids in thee body, and Zocor was

the first product introduced to lower it. Doctors and patients alike felt that Zocor’s product efficacy and quality justified its price.

Unilab Launches

A Counteroffensive As mentioned, Merck’s patent on simvastatin expired in 2004 and Unilab had already started the groundwork to launch Vidastat, its own brand of simvastatin. Negotiation with suppliers had been ongoing, product mock-up and design had been complete, and laboratory tests had been carried out. The last phase in production had been the ordering of raw materials and packaging materials. Unilab had designed its marketing program to capture the anti-cholesterol market.

It had looked at Merck’s pricing strategy and determined that Zocor pricing strategy was a market skimming strategy. (This is where a product is priced high enough to recover the cost of research and development and the price is lowered little by little to serve new market). However, Merck’s objective for Zocor was to accrue more profit in a shorter period as it knew that the Zocor patent would expire in 2004. Unilab initiated focus groups to determine what doctors needed in a new product similar to Zocor. Based on the studies conducted, Unilab learned that many patients who have to continuously take simvastatin for three months to attain a normal level of cholesterol cannot complete their prescriptions because of the high price of Zocor.

Doctor suggested that if Unilab could introduce a similar product at a much low price, they would move to Unilab’s brand. With that vital information, the marketing plan was drawn up and it was decided that the new product would be priced 50 percent lower than Zocor. Vidastat 10mg would be

priced at $0.40 per tablet while that 20 mg version would be priced at $0.50 per tablet. Unilab chose the brand name Vidastat as vida means “life” and stat is a medical term for “urgent or rush.” Sales representatives were given detailed training on the features and advantages of vidastat versus Zocor. On top of the usual sampling and detailing conducted by the sales team, product symposia (such as cardiologists speaking on the merits of Vidastat to a large group of doctors) were held simultaneously in all big hospitals to communicate the low price of the product to target doctors.

Roundtable discussions (similar to product symposia but done in small groups) were conducted and promotional materials such as product brochures and Rx pads were given to doctors, which resulted in increased prescriptions of Vidastat. As a result, stocks of Vidastat moved so fast in drug stores that vendors were unable to cope with the number of prescriptions coming in. Nor were Vidastat stock sufficient enough to cover the number of orders from different drugstores. Manufacturing had to double its production, and marketing had to increase its forecast three-fold. For the first six months following Vidastat’s launch, Merck monitored movement of Vidastat and conducted prescription surveys to determine who were its primary supporters. Merck determined that the majority of its former doctors had shifted their prescriptions to Vidastat.

Merck was determined to stop the declining sales of Zocor and doubled its frequency of coverage, sampling, and detailing to top doctors. The company had focused its promotions on its target doctors, covering mostly top hospital specialists and known users of simvastatin. Zocor’s market share continuously

declined as more doctors prescribed Vidastat. After eight months of monitoring Vidastat, Merck lowered the price of Zocor by as much as 50 percent.

It also offered discount coupons and other promotional supports to gain back doctors’ support. But what made doctors switch from prescribing Zocor to prescribing Vidastat? Unilab used a price penetration strategy for Vidastat against Zocor. (Price penetration strategy refers to setting your price lower than your target competition.) Vidastat’s price was set 50 percent lower to penetrate and grab market share from Zocor. The market penetration strategy can be favorable to a product when consumers are highly price sensitive, a lower price will increase sales and expand the market.

Also expension of demand for low-priced product such as Vidastat mean an economy-of-scale advantage for Unilab, whereby manufacturing and distribution cost decrease as the volume of production increased. Also, doctors saw that the quality of Vidastat was equal to Zocor and that Vidastat offered a much lower price, which was an advantage for their patients. Doctors preferred Unilab which offered an affordable drug that could help their patients adhere to their medication regimen.

Question for Discussion

 Question 1

What type of price strategy did Unilab adopt in capturing the anti-cholesterol market? Discuss your answer.

Unilab adopt price penetration strategy in capturing anti-cholesterol market by setting a low price for its new product, Vidastat than the market leader Zocor produced by Merck and Co. to penetrate the market quickly and deeply. Unilab set a low initial price to attract a large number of buyers quickly and win a large market share. This cause consumers move to Unilab’s

brand. As the result, its production had to double and marketing had to increase its forecast sales to three fold.

The high sales volume results in falling costs, allowing the company to cut their price even further. Several conditions must be met for this low-price strategy to work. Firstly, the consumers in the market must be highly price sensitive; a lower price will increase sales and expand the market. Secondly, production and distribution costs must decrease as sales volume increases. Lastly, low price must help keep out the competition and the penetration price must maintain its low-price position. Otherwise, the price advantage maybe temporary.

Question 2

How did Zocor neutralize the entry strategy of Vidastat in the anti cholesterol market? If you were the product manager for Zocor, what might your strategy have been if you had been faced with the same situation?

At first, Zocor used price skimming strategy so they set high price to get back the expenses of research and development. It was possible strategy because Zocor have held a patent on simvastation until 2004. However, after 2004, other companies also could produce simvastatin which became generic medicine. As you Know, Vidastat is generic medicine. Unilab used Price penetration strategy to increase market share. For that reason, Merk and Co. lowered the price as much as Vidastat. If I were the product manager for Zocor, first of all, I would improve the quality of Zocor and reduce the quantity of medicine to keep the original price.

Since Zocor has been an innovator of simvastatin medicine, it had good perception to customers. This brand image shouldn’t be abandoned

easily. For that reason, I would take advantage of this image rather than throw it away. So, to get a competitive advantage, I will improve the quality of Zocor such as milder and more effective one than before. It might be possible through using natural ingredient or reforming other chemical technologies and so on. It can be differentiated from normal generic medicine. However, at this rate, it is unavoidable to increase the price.

In this situation, I think that it would be better to maintain the price while reducing the quantity of medicine. This strategy might be a Psychological pricing. Customers can perceive the value of Zocor as high quality product because of keeping their price. On the other hand, I would launch new line of generic simvastatin medicine which price is same as Vidastat but the quantity is more than Vidastat. As Unilab used the economy-of-scale advantage to achieve low price, I will adapt this advantage as well. In my opinion, Merck and Co. has more channel than Unilab, since Merck and Co. is more worldwide corporate than Unilab.

In addition, If Merck and Co. packs the new generic medicine more than standard. It is also helpful to fulfill the economy-of-scale advantage. Therefore, via these strategies, I am able to target two types of customers. One is for customers who care about efficacy rather than price, and the other is for price sensitive customers. At the same time, I would emphasize brand image of Merck and Co. to raise perceived value for the customers. Compared to Unilab, Merck and Co. is an innovator of simvastatin. Furthermore, It has done lots of researches

and advanced developments. For that reason, the efficacy is certificated and reliable than other pharmaceuticals. I can emphasize this strength to increase the sales of Zocor.

 Question 3

Why do you think Zocor lowered its price by matching the price of Vidastat? Explain your answer.

Vidastat adopted price penetration strategy and it was worked. Vidastat is continuously occupying the market sharing significantly. So Merck and Co. judged that it also has to compute low price as much as Vidastat. Customers of simvastatin are more likely to care about the price. That is main reason that they shifted to the Vidastat. If Zocor lowers its price than Vidastat, It will affect to profit. Revenue must be decreased than before. There’s no need to put itself out of the way. Zocor is representative product to Merck and Co. so it is enough to compete in similar price. And in my opinion, this medicine is low involvement product, thus Zocor sets the similar price and then has to give more effort to marketing than Vidastat. I think Merck and Co. knows the importance of marketing in this case.

 Question 4

As a marketing student, how would you respond to this pricing issue with the worsening economic in Southeast Asia in mind? Do you think Merck implemented the right strategy by lowering its price, thereby exposing itself to criticism from its customers?

As a marketing student, I would respond to this pricing issue by maintaining the price and increasing the quality of Zocor. To my mind, Merck had been using an inappropriate strategy by lowering the price of Zocor by as much as

50%. Although it might be one of the best initiatives in an attempt to beat its rivals or to capture back its own market share, the continuous lowering of price can erode a brand's value to its traditional customers. Since many patients are unable to complete their prescriptions on simvastatin due to the high price of Zocor, doctors will most probably shift their prescriptions to Vidastat which is sold at a cheaper price in order to reduce their patient's' financial burden during the worsening economy in Southeast Asia.

Therefore, I strongly suggest that Merck should focus on its research and development (R&D) program because it reflects on their commitment to continuous innovation. This is important to Merck to differentiate its product from Vidastat by upgrading the quality of Zocor and so to convince the doctors about the merits of Zocor. In rare cases, Zocor can cause a condition that results in the breakdown of skeleton muscle tissue, leading to kidney failure and some other side effects include; headache, abdominal pain, constipation, and diarrhea.

Thus, Zocor can reduce its side effects by using high quality of raw materials and packaging materials. Since simvastatin has to be consumed continuously for three months, both doctors and patients will definitely consider on the side effects. On top of that, Merck can improve Zocor's quality by making it to be more effectively with the reducing consumption period from three to two months or even shorter instead. This method is very efficient as it could overcome the financial burdens faced by most of the patients and they will be able to complete the prescriptions.

To sum up, maintaining

price and increasing the quality of Zocor can provide a relative advantage for Merck. The higher quality creates greater consumer value which justifies the higher price. The psychological pricing also states that a higher price indicates a higher quality in customer perception. So, by maintaining its price, Merck still can outperform Unilab in the sense of market share and marginal benefits by conducting different activities in different ways and it creates a high entry barrier, sustainable growth and profits for the company.

Conclusion

In the conclusion, for the question 1, type of price strategy did Unilab adopt in capturing the anti-cholesterol market is price penetration strategy for condition to succeed the strategy: highly price sensitive, costs decrease as the sales volume increase, and keep out the competition. For question 2, how did Zocor neutralize the entry strategy of Vidastat in the anti cholesterol market? If you were the product manager for Zocor, what might your strategy have been if you had been faced with the same situation: Unilab launch Vidastat by using Price Penetration Strategy, Zocor neutralize the entry strategy by lowering the price as much as 50%, and price adjustments: promotional pricing and discount and allowance.

While for question 3, Why do you think Zocor lowered its price by matching the price of Vidastat is to compete with Vidastat and grab back the market share and to gain back doctor’s support. Finally, for question 4, as a marketing student, how would you respond to this pricing issue with the worsening economic conditions in Southeast Asia in mind? Do you think Merck implemented the right strategy by lowering its price, thereby exposing

itself to criticism from its customers? : maintain the price and increase the quality of Zocor and focus on research and development (R&D) of side effects.