Pricing is an area which can be difficult for a lot of brands. In most cases here brands adopt standard approaches: mostly through parity pricing to the leading brands or via a price advantage. Only a few go premium. 
 
However, it can also be a source of innovation especially when the brand must innovate on pricing to get anywhere in the marketplace. Velcade is a brand of J&J UK for treating a form of cancer, which had to do exactly that. 
 
The UK has a government-controlled hospital system that reimburses drug expenses that meet cost limits and demonstrate acceptable efficacy against set standards. Velcade’s problem was that under those conditions, its cost per year to a user was likely to going to be in excess of the ceiling so it was not going to get accredited for reimbursement. It looked grim for the brand unless they found a way around it.

Traditional pricing would have suggested to drop price by around 50% to meet the ceiling or to just exit the UK market. J&J chose neither.
Velcade’s choice was to offer the option of paying for performance. No success for the patient, no payment required. That was hard for the UK hospital system to ignore –  Velcade got accreditation. 
 
Since then, it has become the UK market leader in its category despite being the most expensive treatment in that category, with an average cost per user which comes in just under the ceiling, including the no pay side. That was a bold step that took into account the facts that:
  1. Velcade could in fact demonstrate efficacy on a significant proportion of multiple myeloma sufferers; 
  2. But like all cancer drugs,  it did not work on all cancers of that general type because every cancer type comes in different variations that medicine at this time has neither fully identified nor understood: treating cancer still has an element of chance in many cases;
  3. The proportion of the type of cancer that Velcade could handle was probably high enough that the brand could absorb in its high gross margin paying for the proportion of sufferers on which it did not work;
  4. Sufferers who did not respond to Velcade would cease treatment shortly and switch to another brand, so Velcade would not have to subsidize  a full course of treatment.
That is innovation in pricing. Globally, Velcade sells over a billion dollars a year now.
 
Another innovation was adopted by Salesforce.com, a maker of customer relationship management software. 
 
Software from well known suppliers has been sold on a rights per individual copy basis. On the other hand, the software industry has been full of suppliers who will send out free copies of the stuff as trial builders and then charge you if you wanted to keep using. They could do that because the incremental cost to a software supplier of sending out a billion more bytes of software was actually quite low, particularly if downloaded through the internet.
 
Salesforce.com took a different pay for performance approach as it sold its customer relationship management software. They sold software as a service so you only paid based on how much you actually used the software. This got them many more new users: those who did not have to use it a lot and who therefore were unwilling to pay full price for an occasional service, but who were willing to pay based on the amount of usage they got.
 
Salesforce.com’s action took into account the facts that:
  1. The incremental cost to them of sending out the software was very low because they operated a cloud computing service where the software is not resident on clients’ servers and they can track usage easily to charge out as needed;
  2. It would be  attractive to smaller companies that do not have the resources to handle big software and hardware;
  3. There is potentially an advantage to them of getting their software into the hands of users who will then be familiar with its usage and could learn to prefer it over others.
Where there is a need, there will eventually be a way.


 
Benedicto “Poch” Cid is the Chief Brand Adviser of Mansmith and Fielders, Inc. (www.mansmith.net), the leading marketing and sales training company in the Philippines.  For inquiries, please email info@mansmith.net call (+63-2) 584-5858 /412-0034 or text (63) 918-81-168-88. Please also send your marketing, sales and strategy questions tomentors@mansmith.net.