Value In Use Pricing, Ethics and 42 Days

“Value in use pricing — which means setting prices that will capture some of what customers will save by substituting the firm’s product for the one currently being used.” (Essentials of Marketing 14e, p. 486).

How do you price a pharmaceutical drug that offers patients (on average) 42 additional days of life? This is the question that faced the makers of Zaltrap — and the answer ended up being $11,063 per month of treatment. I heard this story on one of my favorite podcasts “How Much Would You Pay for A Year Of Life?” (Radiolab, December 23, 2014). When doctors at the prestigious Memorial Sloan-Kettering Cancer Center wrote an op-ed in the New York Times, the drug maker cut the price in half — still pretty pricey. Another drug example discussed on the podcast is Sovaldi — which is also discussed in this Forbes magazine article.

Value-in-use pricing is always an interesting issue when we teach Price. This adds an interesting ethical question that you might discuss when you cover pricing. What responsibility does a company have to its shareholders? the medical community? customers?