Reference no: EM132184953
Pricing is a critical component of new drugs that cost millions of dollars to develop. For example, AZT which controls the AIDS virus is one of these decisions. Does the company price it for maximum profit or for the greatest market penetration?
Read: "Ethical Concerns over Differential Prices While the issue of the equity or fairness of charging different prices to different customers is primarily a concern of the law, evaluating the fairness of the price charged to a particular customer can also involve ethical considerations. For instance, just because a customer attaches a high value to a given product or service and is therefore willing to pay a high price does not necessarily mean it is always ethical—or in the firm’s best long-term interest—to charge such a price. Consider the case of AZT, a drug treatment for symptoms of AIDS. When the drug was first intro- duced by Wellcome PLC, a yearlong treatment cost $10,000. The company argued that the high price was necessary to compensate for the heavy invest- ment involved in developing such a drug for a rela- tively small market. In addition, potential customers attached a high value to any drug that offered prom- ise for ameliorating AIDS symptoms. However, public reaction to AZT’s high price was so negative that the company eventually reduced it substantially, but only after some damage had probably been done to the firm’s image and reputation. Similarly, in a somewhat less “high involvement” product category, shoppers complained to Amazon when they realized the company was testing differ- ent prices for the same items in different markets. Amazon abandoned the test in just five days and went back to uniform pricing."
1. Do consumers value a drug like AZT versus other medications?
2. How could the company avoided the negative PR about the drug price, while maintaining a decent gross margin?
3. Should the company test different prices in different areas of the world?
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