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Intra-country tiered pricing strategies: Let's get going

09 February 2015 Gaelle Marinoni

Last year, when I shared some of our research findings on global pharmaceutical tiered pricing strategies, I highlighted the acute need for further pricing granularity to address intra-country income disparities. Granted, this is easier said than done, So we decided to carry out further research to support the development of intra-country tiered pricing strategies in emerging markets. To do so, we interviewed nearly 90 stakeholders, including payers, doctors, pharmacists and industry representatives in seven lower and upper middle-income countries.

Interestingly, our research showed that while there is great appetite for such schemes to increase revenues and improve patient access, the opportunities are still largely untapped. In retrospect, this is hardly surprising as intra-country tiered pricing strategies are complex to implement. However, this should not stop us as an industry given that the opportunities are there to grab. So where do we start to make sure these do not remain untapped any longer?

Considerations for country selection…
One of the first steps is to select the country (or countries) in which to apply the strategy. There are a number of factors to consider for country selection. For instance, it is critical to determine whether the national legislation allows several price points for a given brand. It is also paramount to understand the broader policy context and what the government is doing to promote healthcare as an intra-country tiered pricing strategy will not achieve its objectives if there is no appropriate healthcare infrastructure in place to diagnose and treat patients.

Furthermore, this strategy is not suited to every type of market as it also relies upon the existence of price sensitivity, meaning that eligible markets must either be private out-of-pocket markets or those characterised by high copays.

Consumer spending on healthcare is another important factor to consider when selecting a market for intra-country tiered pricing. In emerging markets, consumers spend the lion's share of their income on basic needs such as housing, food and transportation (see figure 1). As such, the size of the out-of-pocket healthcare market must also be taken into consideration when evaluating the commercial opportunity.

All things considered, intra-country tiered pricing may be best suited to middle-income rather than to low-income countries, where government, NGO and corporate social responsibility (CSR) initiatives seem more appropriate to promote patient access to medicines, at least for now.

… and customer selection
Once countries are selected, it is also important to define the target markets within each country, bearing in mind that intra-country tiered pricing is first and foremost a commercial strategy and not a universal access strategy. As such, these schemes need to not only improve patient access to the treatment but also increase the company's revenues.

As it stands, in emerging markets, pricing strategies tend to cater to the top of the income pyramid, while income distribution is skewed towards the lower income segments (see figure 2), meaning that current pharmaceutical pricing strategies price out large segments of the middle- and low-income classes. One thing to consider is whether an intra-country tiered pricing strategy needs to cater to all income segments or only a select few. As such, a first step could be to design additional price points to cater to the affordability of the untapped middle-class segments and rely on government, NGO and CSR initiatives to focus on the low-income segments of the population.

Looking forward
Intra-country tiered pricing strategies are an innovative way to promote patient access while increasing revenues in emerging markets. Once the country and target population segment have been selected, adequate price points need to be defined, patients need to means tested, treatment and dispensation channels need to be identified and secured, programme effectiveness needs to be assessed etc… Our research identifies the intricacies of designing and implementing intra-country tiered pricing strategies and informs their successful development and administration. Indeed, there is a lot to learn from Industry's first forays into the concept, and there are great opportunities to develop more systematic, efficient tiered pricing programmes.

Learn more about our study and review a sample of the research. We would be happy to talk to you about our findings and how they may help your organisation.

Learn more about our Global Consumer Markets research and analysis

Gaëlle Marinoni is a life sciences manager for IHS
Choukri Genane is a life sciences analyst for IHS

Posted 9 February 2015


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