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Pricing is one of the most difficult and frustrating duties a manager must deal with. Pressure comes from all sides. Both the sales force and the customer base can be extremely vocal. Managers never hear that their prices are too low. They usually hear that the compe

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

tition will provide equal service and quality for a lower price.

This question plagues many managers: What should the manager's role be when it comes to pricing? Some managers exert almost total control, while others abdicate pricing decisions to the sales force.

T

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

e outside sales force naturally wants pricing authority and often feels insulted if the manager doesn't "trust" them enough to give them at least some degree of pricing flexibility.

Giving pricing authority to salespeople can quite often be a real detriment to the c

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

ompany's gross margin. There are several reasons I believe this is true. One reason is that most poorly trained or inexperienced salespeople tend to lower the price when they receive price resistance.

Another reason is that once a hard-bargaining, price-oriented cus

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

omer figures out that the salesperson has pricing authority in his or her hip pocket, the salesperson often becomes putty in the customer's hands.

The key, I believe, is the difference between cost and price. Customers say that they want a lower price, but I believe

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

what they really want is a lower cost. If the sales force is adept at explaining the difference, perhaps it's not all that negative to give them pricing authority. But if they don't possess this skill, perhaps pricing should be left in the hands of the manager.

Pric

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

e is what the customer pays for your product or service on the face of the invoice. Cost is what he pays for your total "offering," which includes service, quality, the salesperson's personal expertise, etc.

On an assignment with a Northwest lumberyard, I was workin

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

with a group of salespeople on how to deal with pricing issues when one of them volunteered, "I lost a framing order to one of my builder customers because my price was only $200 higher than the competition." He went on to say, "I knew that our service was superior

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

o the competitor and I was right. The builder had nothing but problems with that job."

"What kind of problems?" I asked.

"Well, for one thing, the [my competitor's] initial delivery was over four hours late."

"How many framers did he have on the job?"

"He had a p

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

retty good size crew. He had a seven-man crew."

"How much would you guess that he pays his crew per hour?"

"I'd guess pretty close to $20."

"And how late was the delivery?"

"If I remember correctly, it was about four hours late."

"So what you're telling me is th

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

t this particular framer had seven men on the job for four full hours doing nothing while they waited for the framing to arrive, is that right?"

"You heard me right."

"Well, let's do some simple arithmetic. Seven men times four hours per man is 28 man-hours. And 28

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

man-hours times $20 per hour would come to $560. What other problems did he experience?"

"Well, this is a pretty good example of the difference between cost and price. It sounds as if your customer's framing crew had to wait around for a late delivery cost him $560

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

to save $200. Your customer made the same mistake a lot of builders have made, he didn't take into consideration the total cost of doing business with a new supplier whose service commitments were unproven. All he considered was the price on the face of the invoice."

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

"I wish I had had the presence of mind to explain this difference [between cost and price] when this first occurred."

"Well, you can't change history, but you can remember to make this point the next time your prices are a few dollars higher on the face of the invo

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

ce. Just remind him that there's a big difference between cost and price."

MY ADVICE

If it were my business, I wouldn't give pricing authority to my sales force. I would place that authority with someone who was more objective. It's next to impossible for salespeop

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

le who get feathers in their caps for making sales to hold the line on pricing, especially when an order is at stake.

But if I were to give pricing flexibility to my sales force, I would make sure of one thing inparticularly:

#1. I would make sure that my salespeop

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

e were trained to negotiate. I believe it's a bad idea to put pricing authority in the hands of a group of salespeople who haven't been schooled in the art of negotiating.

I do both consulting work and training for a 16-location distribution chain. It's this company

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

s management policy to allow the individual managers to run their locations as if they were their own. So it's a highly decentralized company.

One particular manager in this chain has by far the highest gross margin in the company even though he operates in a market

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

that is no less competitive than many others where the chain operates. What's the big difference? This manager makes 100% of all pricing decisions. If his salespeople run across a competitive situation, they are required to report it to him. In some cases, he author

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

zes the salesperson to meet the price. But in others, he chooses to go out and visit with the customer. In still other situations, he may pass on the business altogether.

What about in your business? Are your salespeople trained well enough to have pricing authority

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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