Strategic Movements: October 2018


Tim J. Smith, PhD
Founder and CEO, Wiglaf Pricing

Published October 30, 2018

Price Cut in Healthcare? Probably Not

Gilead released a generic version of its own Hepatitis C therapeutic regimen.  Harvoni, the branded treatment, lists at $63,000 for an 8-week treatment in 2018.  When it was first released in 2014, it listed at $94,500 for a 12-week treatment.  Its new generic, Epclusa, is listed at $24,000 for a full course of treatments.

Why launch a cheap generic of your own product?  Well, this is U.S. healthcare and the market is extremely distorted, so the story is a little complex.  (For an example of the distortion of the market, try asking admitting or a doctor how much a procedure costs, and you will find they generally don’t know.  It is a stretch to call healthcare a healthy and functioning market if customers can’t determine prices.)

The branded Harvoni is eligible for many discounts and rebates to pharmacy benefits managers (PBMs) and insurers.  The handling of these discounts and rebates is somewhat secretive and the lower prices are not fully passed on to consumers.  Cutting a long story short: the list price on the branded Harvoni version is not necessarily reflective of the invoice price, the net price, the pocket price, much less the out-of-pocket price of the end-customer.

The list price on the generic Epclusa version is reported to be in the range of Gilead’s pocket price and is unlikely to be eligible for the same discounts and rebates.  That is, Gilead is really selling the same product at roughly the same pocket price but that average pocket price arrived through two different paths to meet the needs of two very different distribution channels.

EEG and Eye-tracking Evidence from Urszula Garczarek-Bak Supports Wiglaf Claim

In 2014, Smith wrote in the Wiglaf Journal that “Price is Not (Always) the Most Important Driver to Customer Purchasing Behavior”. Recent research from Garczarek-Bak in support of my claim indicates that “Young customer’s behavior in the process of buying private-label products of distributive networks can be highly affected not only by declared, but also latent [unconscious or subconscious] factors.”  Thanks Urszula Garczarek-Bak!

Private Label at Target to Launch

To rebuff hard discounters such as Aldi and Dollar General and retail behemoths and Walmart, Target is launching the Smartly brand.  70 products in the toiletry market (razors, toilet paper, dish soap, etc.) priced under $2 and sold in small quantities.  Gen-Z and Millennial shoppers have demonstrated a desire for purchasing in smaller quantities, and these offerings might be attractive to this newer market segment.  At this price point, the products are generally 70% lower than comparable items with manufacturers brands from Procter & Gamble, Unilever, or Kimberly Clark.  Branded good producers: Ouch.  Good luck Mark Tritton of Target Corp.

iPhone Pricing Power Revealed

According to HIS Markit estimates, the components of the iPhone XS Max cost $390 to produce and sell for $1099.  How long will Apple be able to hold onto its margins?  Hypercompetition is always breathing down their neck.

About The Author

Tim J. Smith, PhD, is the founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, and the author of Pricing Done Right (Wiley 2016) and Pricing Strategy (Cengage 2012). At Wiglaf Pricing, Tim leads client engagements. Smith’s popular business book, Pricing Done Right: The Pricing Framework Proven Successful by the World’s Most Profitable Companies, was noted by Dennis Stone, CEO of Overhead Door Corp, as "Essential reading… While many books cover the concepts of pricing, Pricing Done Right goes the additional step of applying the concepts in the real world." Tim’s textbook, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, has been described by independent reviewers as “the most comprehensive pricing strategy book” on the market. As well as serving as the Academic Advisor to the Professional Pricing Society’s Certified Pricing Professional program, Tim is a member of the American Marketing Association and American Physical Society. He holds a BS in Physics and Chemistry from Southern Methodist University, a BA in Mathematics from Southern Methodist University, a PhD in Physical Chemistry from the University of Chicago, and an MBA with high honors in Strategy and Marketing from the University of Chicago GSB.