Correspondence: Sanjay K. Rao, CRA International, 1201 F Street, N.W., Suite 700, Washington, DC 20004-1204, USA. Tel: +1 202 662 3978; Fax: +1 202 662 3910; e-mail:srao@crai.com Web: http://www.crai.com

¹is Vice President, Pharmaceuticals, CRA International. Between 2001 and 2006, he led US and Global Business Analysis and Information Teams at Amgen for blockbuster brands Aranesp, Neupogen and Neulasta. Prior to that, he was a management consultant at ZS where he solved strategic marketing, research and corporate strategy challenges facing each of the top ten bio-pharmaceutical firms in the US and the EU. Since graduating with a PhD in Marketing from the Wharton School, he has also led consulting teams developing innovative solutions to strategic marketing challenges at Microsoft, American Express, AT&T, Pizza Hut, Coca Cola and US Sprint.

Received 27 July 2007; Revised 27 July 2007.

Abstract

A significant challenge facing managers tasked with commercialising new drugs is how best to price the product, and then, upon its launch, how best to manage price over time. Traditionally, pricing decisions have relied heavily on supply side considerations, such as R&D costs associated with product development, expected access and the prices of competitors, or — in the case of first-in-class products, of analogous drugs. In markets where product availability is conditioned by centralised, intermediary agents and processes, pricing strategy is often a reaction to de facto mechanisms such as contracting or reference pricing. This paper presents details of an innovative approach that explicitly recognises the importance of product value in determining its price. Notions of value are captured by recognising interrelationships between important supply and demand forces that combine with product price to influence product purchase decisions. Further, the approach views price as part of a complete marketing mix designed expressly to support a specific new product, launched in a market characterised by interrelating customer and competitive forces. The holistic approach lends itself well to the creation of a Pricing Decision Support System. Such a system can be used to develop rational pricing strategies by studying the impact of a wide range of pricing alternatives on product performance forecasts in the framework of a realistic customer/market context.