This week in PharmaSim World

In examining the elasticity of Allround cold medicine, prices changes from 1%-15% did not affect the sales. It is determined that the product is inelastic as the price changes had no major impact. I think a big part of this has to do with the brand loyalty of Allround. Customers are willing to pay more for the product as they remain loyal with price increases. The brand also has very high customer satisfaction and brand perception. The increase in price is equal to the already added value the product has. Therefore we are able to increase the price as much as 15% without there being setbacks in net income. At a 20% increase in price, I believe that is where customers realize that the price is too high and are therefore no longer willing to pay that premium for the brand.

Implementing the 4 Strategies:

Everyday Low Price: Implementing this approach would include dropping the price dramatically in order to become the lowest priced cough medicine in the market. However, as seen in the elasticity work this week, decreasing the price is a strategy that will not increase sales. The brand has strong customer awareness, therefore a low price strategy will be unsuccessful. Allround can produce a new line priced very low  in the market but this strategy may be at odds with the customer’s perception of the brand. It might have to create a 2^nd brand to implement an EDLP strategy.

High/Low – I think this strategy would be successful if implemented as customers would get perceived added value. The brand is already highly regarded based on customer surveys. Therefore having set a high price, and then giving rebates and discounts will have customers believing that there is a huge deal when they buy Allround.

Skim – A price skimming strategy would involve introducing a new Allround product at a high price and decreasing the price over time.  Similar to the EDLP strategy, I also feel that having a reduced price with the strong brnad name of Allround would confuse customers. It would make for an unclear strategy for Allround.

Penetration – Penetrating the market with a low price and increasing over time may work if Allround introducing a price just slightly lower and then increases it. The low price initially would make customers try the new product and the company will be able to increase the price over time as soon as a strong customer base is established.