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227 Cards in this Set

  • Front
  • Back
what is demand based on?
what is it affected by (2 things)
based on preception of need

affected by marketing and by price
price elasticity is sensitive to?
price increase
product is typically?
while services are?
standardized-tylenol is tylenol is tylenol-sometimes

services are not standardized
price sensitivity increase as ___________ increases
switching costs
services that require RELATIONSHIPS, have?
HIGH switch costs
4 more things affecting price
pharmacy image
price as signal of quality
non-monetary costs
demand backward
price as a signal of quality means?
high price=high quality
low price=low quality
what does non-monetary costs mean?
searching for prod./service
what does demand backward mean?
if given price, determine service profitability at offered price
ex-3rd party payers
reference price
price consumer thinks is reasonable to pay
reference prce
easier or harder to determine for products?
for servicesS?
easier to judge for product

services is harder
what are the strategies for maximizing long term profits
penetration pricing

price skimming
define penetration pricing
sacrifice short term profits to build sales quickly

good for elastic demand
what is diapers an example of
loss leaders-penetration pricing
what is price skimming
serving onlyfor ppl who pay higher prices

good for inelastic demand
-pharm services, attorneys
pricing(valuing) pharm services
estimate demand
calc cost of doing service
fig out wanted profit
set start price
comapre price set with demand
consider competitors response
implement price
monitor pt and comp respon.
price vs value
price-cost of something

value-precception of worth
is it easier to communicate the value of a product or a service?
when presenting service prices to consumers:
time and expense-what do u bill for?
bill for time + cost+ profits
when presenting service prices to consumers:
resource-based relative value scale-what do u bill for?
bill for time + intensity + effort
what is fixed fee
fixed monthly fee=capitation
define contingency pricing
based on % of savings pharmacist save the payer
-pharm saved pt $100-so we charge $50, we are both happy
define bundling
selling a bundle or group of products + services as 1 price
-cust thinks they r getting more value-health fair with 20 test cheaper than 1 at time
deinfe capitation
bill out predetermined monthly fee for each pt enrolled
-not really for pharmacy, but good for services billing
-florida medicaid situation
we only get paid if successful switch...could spend 2 hours with pt, but no switch=no pay
define third-party
an org. that reimburses a pharm or pt all/part of pt's prescription drug costs
define private pay
pt's pay out of pocket
-diminishing commodity-most is 3rd party
what are the 2 types of presciption drug insurances
indeminity insurance

service benefit plans
define indeminity insurance

good or bad for pharmacy?
pt pays the pharm directly nad later reimbursed by ins

good for pharmacy
define service benefit plans

good or bad for pharmacy?
pharmacy is reimbursed directly from 3rd party with predetermined negogiated prices

bad for pharmacy
examples of 3rd parties
private insurance
indigent care programs
Med PartD
1990 reimburstment breakdown?

90-private pay 59%, 3rd party 41%

2009-12%private, 88% 3rd party
breakdown the 2009 88%3rd party plan
44% goverment
44% Other
3rd party % of total rx's thru years
generally increases every year, but at 2006 it peaked and 2009 it was slighly lower
why do PBM's exist?
to establish networks
negogiate rebates with manu.
formulary dev. + manage
disease state management
mail order/speaclity
decreasing % of private pay pt and rising 3rd party pts lead to?
increase in bargaining power for 3rd parties

decrease pharmacist power to determine price of meds
Results of all this 3rd party taking over
1,400 less indep pharmacies in 2010 vs 2005

chains cutting hours
central fills, mergers
3rd party and PBM sit down and decide to change our rate to 50cents per rx. legal or illegal?
we do not accept this rate. illegal or legal
legal for them to set price

illegal for us to deny this set price

shoulda been Docs
in 2009-2011 the # of independents have?
acctually increased
reimburstment rate
based on formula in contract between pharmacy and 3rd party payer
how is the reimburstment rate determined?
product cost and dispensing fee
what is actual acquistion cost (AAC)
price the pharmacy pays wholesaler or manu for drug product

this is proprietary,only the specific pharmacy knows it
Average Manufacturer Price
avg price the wholesaler pays the manu

proprietary, only wholesaler knows
average wholesale price(AWP)
list price for what wholesalers charge pharmacies (overestimate/proprietary)

what is estimated acquistion cost
3rd party estimate of what pharmacy pays wholesaler or manu
what are the owner's personal pricing philosophy types
price oriented(deep discount)

non-price oriented (service oriented)
what are the objective of pricing philosophy
evaluate owners personal pricing philosophy
evaluate competition
estimate desired profit
consider affect of "outside forces"
develop + implement price matrixes
example of outside forces
3rd party reimbursement and mix
what is price-oriented competition(pricing)
concerned with creating leader in a market they are more interested with TOTAL gross margin than indiv sales
what is price oriented (deep discount)
owner can be very aggressive w pricing-want to be lowest price out there!
what is non-price oriented competition(pricing)
selling price based on cost + merchandise + markup
or fee sufficent to reach desired product
what is non-pricing oriented competition concerned with
gross margins for each individual product
what is gross margin
difference between selling price and cost of product

what do you need to know to determine the SELLING PRICE
cost of item
operating expenses
desired profit
what is fixed costs
remains same regardless of VOLUME
what are variable costs
costs that change depending on VOLUME
what are direct costs
directly caused or resulting from providing the service
what are indirect costs
costs not from providing the service
Rent is an example of?

points of care supplies is ?

points of care-variable
insurance is example of

pharmacist/manager salary

salary-variable if need to hire another pharmacist
utilites-fixed or variable?
variable if V increases and you stay open later
how to determine price for front-end
selling price=item cost + operational cost+profit
deteremine rx dept selling price
selling price=med cost+operational cost(directly to rx dept) + profit
front end: items include?
loss leader
impulse items
private label
prod mix, campanion sales
what is a loss leader
selling for cheaper, BOGO
-want to sell image you are cheapest in town
wht are impulse items
strategically placed products you had no intention of buying
what are private labels
ex-walgreens brand-only can get at walgreens
OTC actue vs chrontic
-which increases profits more
some reason-acute increases profits more
what are companion sales
ex-rack of flashlights on sale-suggesting batteries
in Rx Dept, what increases profits?
gen vs brand?

chronic vs acute meds?
generic meds increase profits

acute meds increase profits
what are the strategies used for increasing profits in pharmacy
loss leader
gen vs brand meds
chronic vs acute meds
qty dispensed as a strategy
companion sales
what are the pricing challenges for RX dept?
reimbursement from 3rd parties
external costs
what makes up external costs?
contracts + agrrements
cash flow issues
from consumers perspective
all for nothing
from providers perspective
nothing for all
when will service/prod be provided:
perceived VALUE>PRICE
when will service/prod be provided:
pice>= COST + PROFIT
define price
sum or amt of money or its EQUIVALENT for which anything is BOUGHT,SOLD or offered for sale
Price vs Cost
price is used for concrete objects for sale

cost-purely objective term-finacial calculations
define value
worth of something in terms of exhcanging for other things

to regard or esteem highly

an estimated valuation

to rate according to relative estimate of worth or desire
example of tangible objects
the pills
benefits of tangible object
positive health outocme, improved QOL
what is marketing myopia
fixation on the provision of tangible object(pills)
what prevents marketing myopia in pharmacy
TOTAL product concept-looks at product in terms of 3 components
what are the 3 components of total product concept
1-core product
2-epected product
3-augmented product
define core product
benefit from bInding of tangible product, info, and services to meet underlying consumer needs
define expected product
what consumer expects to recieve-right drug in reasonable time
what is augmented product
anything provided beyond consumer expectations-delivery, MTM
what are the 2 wys to set the price
value focused pricing

cost based pricing
what is value focussed pricing
something thats highly valued will cost more

value is how you feel about it
what is cost-based pricing
probably NOT sure

setting price based upon cost to us and added profit
watermellon example
start with 6 watermellons
sell for $1=$6, then can buy 3 more and sell for $3, then buy 1 more watermellon sell for $1
define MAC-maximum allowable cost
max cost 3rd party will pay for multisource drug
define WAC-wholesale acquistion cost
list price for what manu charges drug wholesalers
what do 3rd parties want to use to reimburse
they want to used AAC, but can't
why can't 3rd parties use AAC
cause proprietary info
varies between pharmacies
diff to admin reimbursements
what does the 3rd party use for reimburstement
use AWP

AWP-18%+$2 dispensing fee
what does the 18% represent
usually pharmacises get discount on AWP
3rd parties ESTIMATE the % a pharmacy gets
another formula 3rd parties use?

WAC+3% + $2 dispensing fee
WAC, is a
alternative method insurances use to determine "true" cost of meds
who determines the MAC
the goverment or the insurance companies themselves
what is the deficit reduction act of 2005
change to reimbusement formulas using AMP to gov MAC list instead of AWP
switching from AWP to AMP does what?
will lead to MUCH LOWER reimbursement rates
what mechs do u use to determine acepting or decling 3rd party contract
1.calc cost of dispensing Rx
2.Avg Net Profit comparison
3.Differential Analysis
4Pro Forma Analysis
step 1-Cost of Dispensing
gather expenses
labor expenses, direct expenses, and indirect expenses

COD=(Labor exp + dir exp + indir exp)/# of Rxs dispensed in 1 yr
example COD
was about $11.94
step 2 -avg net profit comparison
define it
when u compare profit from new contract to profit form old
step 1 of avg net profit comparison
pharm gets drugs at AWP + 28% disc
COGS is 54.24
now calc the current avg reimbursement

AWP-15% + 2.50
current contract is AWP-15% + $2.50

75.33 - .15(75.33) + 2.50=66.53
calc new avg reimbursement
AWP-20% + 1.00
75.33- .20(75.33) + 1.00 =61.26
now calc the avg net profit
avg reimbursement rate-avg COGS-Cost of disp.=net profit
current net profit =

new net profit
66.53-54.24-11.94= .35Net profit

66.53-54.24-11.94= -(4.92) Net profit
STEP 3 Differential Analysis
takes into accoun for?
some expenses are fixed and will not change regardless of RX volume
step 1 of Conducting Differential Analysis
eq for avg gross margin?
1-calc differential reventue(avg gross margin)

avg gross margin=avg reimbursement-COGS
step 2 of conducting differential analysis
calc average variable costs-labels and techs are considered variable
.17 per vial and label/RX
1.74 for tech per RX
step 3 of conducting differential analysis
calc contribution margin
equation for contribution margin?
CM=avg Gross margin - AVG variable cost

if the CM number is positive what does this mean
you should accept the contract
determine net profit margin if u accept or decline offer

takes into account overall impact on net profit
basic elements of 3rd party contract include?
-provider rights and responsibilities
-transmiss of claims process
-requirement for pharm participation in 3rd party network
provider right and respons include?
proper records
collecting pts copays
complying with 3rd party formularies
complying with agreement provisions
maintaining proff standards
what to make sure of when signing contract with 3rd party?
3rd party reimbusrement cycle is NOT longer than pharmacies payment cycle to vendor
what is an assigment clause
contracts make pharmacies required to accept this

means pharmacy agrees to charge pt no more than amt specifed
what is most favored nation clause
requires pharmacies to extend lowest cash price or reimbursement rate to 3rd party
all-products clause
requires pharmacy to participate in all of 3rd party plans if it wants in
red flags for 3rd parties
days supply errors
missing sig
only used as directed
bait + switch
not reversing 3rd party claim if not picked up
DAW codes
0-no product selection indicated

1-must be DAW-subs not allowed
DAW codes
2-Subs allowed-pt wants brand, gen is available

4-subst allowd-generic not in stock

5-subs allowed-brand given as generic
DAW codes
7-subs not allowed Drug mandated by law-negative formularies
avg sales per sq foot?
3,500 square foot for $1,227
avg sales rx price

avg person owns how many pharmacies

whats the avg hours and days per week for pharmacies
what is the avg % of generic RXs dispenses
typical number of employees in community pharmacy
whats the national avg wage for pharmacists
per H
the national avg to dispense is
in 2009 what percent operated at a loss
top 25% made how much owners discrentionary promit margin

owners discrentionary PM equation
> 9.4%

Net profit+owners comp before taxes / total sales
the most offered service in 09 was? followed by?
followed by DME
avg number of compunds done per day went from 4 to
7 per day
avg price is $35.50
avg inventory turns
12 per year, and want it to increase each year

meansure how quickly u sell merch to make cash
what are the 4 distinguishing characteristics of services
characteristics of services
unlike goods, services cant be seen, held or felt before purchases
characteristics of services
produced and consumed at same time
provider and pt are both part of service experience
characteristics of services
experience depends a lot on who does it
training addresses consistency of high quality service
characteristics of services
inability to store services
image of the facility, this includes?
even the employees
what are the services needs in community pharmacy
chronic diseases, prevention and screening, populations(spaish, geri)
what are service needs in hospital pharm
process improvement, financial mangement, clinical
what is CDTM
collaborative Drug Therapy Management-its a growing phenomena

formal agreement btwn Docs and Pharmacists to perform clinical services
-Fl is included
T or F
There are many innovations, but far fewer inventions
many inventions, less innovations
define innovation
commercial exploitation of new or improved product/service
what is the ROLE of marketing strategy
to minimize RISK and realize OPPORTUNITY
from the view of the conumer:
when will consumers consume
perceived value>Price
when will service be provided
view of providers
examples of
what driives customer loyalty and profit
their experiences
random exp->predicatbale->branded->cust loyalty
whats the diff between predicatble exp and branded exp
both are consistent and intentional

Branded-is differentiated and valuable
The customer statisfaction model
triangular top to bottom
achieve cust delight(exceed expectations)-cust loyalty

satisfy cust needs(cust satisfaction)-develop cust confidence

meet basic cust requirements-prevent cust complains
CMO of Dells quote basically says?
cust is informed by peers not Markerters-listening to cust is best marketing
Sum up a poor experience
one mistake after another
didn't get moneys worth
bumpy ride
may/may not complain
sum up a good experience
worth repeating
value for money
when creating value, what is most critical challenge for service firms?
to differentiate themselves from competitors
when creating value, great companies have
their own unique identities and value proposistions
What are the 4 characteristics of the value proposition
Clear, Consice, Credible, Consistent over time
Value Propositions
Visa-everywhere you want to be
brief thought of company-like misson statement
companies excelt by practicing?
1 of 3 value disciplines
Value Discipline:
customer intimacy
image driver:relationship
image: best friend
Value Discipline:
product leadership
image driver: unique attributes
image:best product/service
Value Discipline:
operational excellence
image driver:low cost
image:best deal
designing a value proposition, use?
the SQIP diamond


Image Value Price


these are all the benefits the consumer is obtaining
Applying the SQIP approach

Costs= Price-(travel time, parking time, nonmonetary costs)
Assessing a services value position:
Discount Value
Cost: Low
Assessing a services value position:
Best Value
Assessing a services value position:
Fair Value
Assessing a services value position:
expensive value

poor value
Cost High

Cost High
buying behavior
processes and acts of ppl buying/using products
consumer buying behavior
behavior of ppl who buy products for personal use, NOT for business purposes
Consumer buying decision process
1-problem recognition-ppl aware of diff in desired state and actual condition

2Informational search-internal-search memories for answers
-external search-info from outside sources
consumer buying behavior
behavior of ppl who buy products for personal use, NOT for business purposes
Consumer buying decision process
evaluation of Alternatives
-Consideration set-brands seen as alternative
-evaluative criteria-objective/subjective things important to buyer
-framing alternatives-making a feature look more important to inexp buyer
situational influences on buying process
factors that can shorten,lengthen, or termin process

major factors-physical environ, social envior, time perspective, reason for buying, buyers money mood
Consumer buying decision process
1-problem recognition-ppl aware of diff in desired state and actual condition

2Informational search-internal-search memories for answers
-external search-info from outside sources
Consumer buying decision process
evaluation of Alternatives
-Consideration set-brands seen as alternative
-evaluative criteria-objective/subjective things important to buyer
-framing alternatives-making a feature look more important to inexp buyer
social influences on buying decision:
family influences
consumer socialization-person acquires knowledge and skills to function as consumer
situational influences on buying process
factors that can shorten,lengthen, or termin process

major factors-physical environ, social envior, time perspective, reason for buying, buyers money mood
social influences on buying decision:
family influences
consumer socialization-person acquires knowledge and skills to function as consumer
social influences on buying decision:
family decision making processes
autonomic-equally shared decion making
husband dominant-he makes decision
wife domin-she makes
syncratic-decision made jointly
reference groups
group that + or - affects values, attitudes, or behavior
reference groups:
membership-social group u are part of

aspir-social group u think you are apart of, but r NOT

dIssa-do NOT want to be identified in
social class
group of ppl with similar social rank
-have common behaviors
reference prices
any price set against other price -SHOPPING Around

may be internal-memory
price-quality inferences
using price as indicator of quality

some companies use exclusivity and scarcity to justify premium prices
Consumer adoption process

early adopters:
2.5% of population
highly educated than avg

13.5% of pop
slightly above avg in educ
Consumer adoption process
early majority:
many informal social contacts
Consumer adoption process
late majority
34% of pop
below avg social status
Consumer adoption process
laggers or non-adaptors
tradition bound
friends and neighbors r info sources
who could be your greatest marketer?
word of mouth-advocacy marketing
4 steps of strategic planning
define mission
external assesmentof O,T
Internal assesment of S,W
establish priorities on objectives
define market
set of actual and potential buyers
define target market
grp that a firm markets its goods, services, or ideas to statisfy their specific needs
any marketing strategy must include a
detailed target market
STP process
define segmenation
process of classifying cust into groups which share 1 common characteristic
define targeting
evaluating segments attractiveness and selecting one or more segments to enter
define positioning
product to occupy a clear, distinctive and desirable place
examples of segmentation
pts with similar:
stage of illness
age group
advantages of segmentation
forces marketer to analyse and consider both needs of market and companys liability-it informs company about its customers

rsources used to best advantage
segments need to be?
identifiable and measurable
differntial and responsive
viable and actionable
Steps in segmentation, targeting, and positioning
1-ID bases for segmenting market
2-develop profiles of segments

3-develop selection criteria
4-select target segments

5-devlop position for each target segment
5-develop marketing mix for each
levels of market segmentation
mass marketing
segment marketing
niche marketing
what is mass marketing
same offering to all consumers
no segmentation
what is segment marketing
diff services to one or more segment
some segmentation
what is niche marketing
diff services to subgroups within segments
more segmentation
what is micromarketing
services to suit tastes of indiv. and locations
complete segmentation
what are the bases for segmenting consumer markets
psychogrpahic-social class,lifestyle
behavioral-usage rate,loyalty
what are the traditional approaches to market segmentation
mass marketing
differentiated marketing
-multisegment approach
-market concentration approach
niche marketing
mass marketing strategy
single marketing mix for 1 total market
all cust in the market
multisegment strategy
more than one marketing mix and more than one market segment
market concentration strategy
single marketing mix and focus on a single market segment
niche marketing strategy
single marketing mix focused on a small subgroup-segment A1 of A
OTHER market segmenttion strategies
1:1 approach
mass customization-spec tailored to large group
permission marketing-agree to receive certain messages(opted in)
relationship marketing
goals and outcomes
shifts focus to CREATING VALUE
outcome is customer retention
its ongoing, looking to generate new value
to keep cust, marketers must show care AFTER purchase

goal of trad. marketing is ts cust acquistion
what are the key relationship variables
informational exchange
efforts to maintance and enchance cust relationship
make realistic promises 1st time
enable employees to deliver on promises
keep promises
what forms the basis for the relationship
moments of truth:interactions are opportunities to keep or break a promise
concept of Therapeutic relationship recognizes?
that the pt has responsibilities not just the provider