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1. What should HeatherBreschdo? Why? What risks do you see with this plan of action?
Heather Bresch, the CEO of Mylan, is faced with a public backlash over the rising cost of EpiPens produced by Mylan. Public reports have shown that while EpiPens are cheaply produced at $1 per unit, they currently retail for about a few hundred dollars (depending on market), with prices having risen by 400% in recent years following Mylan’s takeover. Bresch should lower the EpiPen price by a limited degree of 20%. This is the right course of action for several reasons. Foremost, maintaining present EpiPen prices is no longer tenable, given the public backlash and fall in Mylan’s stock price in recent times. Issuing discounts would also not work, as the price of EpiPen is far above cost of production, and because giving discounts would simply make it seem as if Mylan were using stopgap measures to address the issue. Furthermore, Bresch need not drastically lower the price, and should only lower the price by a limited degree to maintain cost leadership while not sacrificing profitability. This is because the EpiPen product is a necessity for many of its customers, as it is price inelastic in demand. Therefore, a limited price reduction of 20% would appease public anger over high EpiPen prices, while still ensuring that profitability is not affected too much. Furthermore, EpiPen should lower prices by a decisive 20% while the level of competition is still low and while Mylan’s public relations and public reputation is still salvageable. Without such a price drop, Mylan would continue to face intensifying public backlash and harsh media criticism, which would further damage its stock prices. The price drop would also help to spur a rebound in share price as public confidence in Mylan rises. Finally, Mylan should do so as its income statement shows healthy positive net earnings over 2014 to 2015. Given the price inelastic nature of EpiPens and the healthy profit margin that Mylan currently enjoys, Bresch can clearly take an executive decision to lower the price of EpiPens by a limited margin without hurting profitability too much.
There are two XXX XXXXX associated XXXX XXXX XXXX XX XXXXXX. Foremost, XXXXX is the XXXX XXXX the XXXX XXX XXXXX lead XX a XXXXX outcry XXXX the degree XX XXXXX XXXXXXXXX. XXXX is XXXXXXX XXXXXXX XXX regard the XXXXX reduction as XXXXXXXXX XXX insufficient, and might continue XX protest XXXXXX’s XXXX prices. XXXXXXXXXXX, there is XXX risk that the XXXXXXXXX in XXXXXX prices XXXXX XXXX to a XXXXXXXXXXX XXXXXX if XXXXXXXXXXXX see XXXXXX as XXXXXXXXXXXX XX XXXXX XXXXXXXX to XXXXX XXXXXX prices. Bresch XXX mitigate these two XXXXX by managing communications XXXX the XXXXX and XXXXXXXXXXXX carefully, so as to assuage their concerns.
X. Doesthevariation in prices XXXXXX countries seem XXXXXXXXXX? What XXXXXXXXXXX ifMylan XXXX XXXXXX XX make its XXXXXX XXXX consistent?
According to XXX case, a XXXXX by XXXXX Lichtenberg XXXXX that XXXX XXXXXX varied XXXXXX countries, which XX the case for EpiPen, XX it can XX purchased in XXX-XXXX form for $85 in XXXXXX and $XXX in XXXXXX. However, Bresch and XXXXX have XXXX XXXXXXXXXX XXXXXXX for XXXXXXX XXXX prices across XXXXXXXXX. XXXXXXXX, XXXXX costs, XXXXXXXXXX XXXXX and supply XXXXX XXXXX XXX XXXX XXXXXX countries. XXXX XXX be a XXXXXX of local politics, factor XXXXXXXXX and supply XXXXX efficiencies. XX a result, there may be variations in these cost items XXXXX XXX XXXXXX XXX overall cost of XXXXXXXXX and distributing XX a XXXX XXXX as XXXXXX in different XXXXXXXXX, XXXXX XXXXXXXXX XXXXXXXXX XXXXXXXXX prices in XXXXXXXXX countries. XXXXXXXXXXX, as Bresch discussed, XXXXX is ‘subsidising the rest XX XXX XXXXX’ XX pricing XXXXXXX higher in the U.S., XXXXX disposable incomes XXX generally higher, XXX lower in the XXXX of XXX XXXXX, where disposable XXXXXXX XXX XXXXXXXXX XXXXX.
However, with XXXXXXXX XXXXXX to EpiPen, XXX XXXXXXXXX in XXXXXX across XXXXXXXXX is not reasonable XX other XXXXXXX are XXXXXXXXXX. Foremost, it XX XXXXX noting that XXXXXX XX grossly XXXXXXXXXX, being XXXXXXXX at a XXX hundred dollars XXX a cost price XX $X, and XXXXXX XXX prices rise 400% over the past XXX years. This XXXXXXXXXXXX XXXX XXXXX has a XXXX XXXXXXXXXXXXX margin XXXX XXXXXXXXXX manoeuvring room XX standardise XXXXXX XX required. XXXXXXXXXXX, Mylan has XXXXXXXXXX economies XX XXXXX XXXXXXXX to XXXXXXXXXXX XXX XXXXX at an affordable level, given XXX volumes XX XXXXXX XXXX. XXX XXXXXXXXX in XXXXXX XX also XXX reasonable XX the possibility XX XXXXXXX XXXXXXXXX XX considered, XXXXX XXXXX XXXXXXX XXXXXXXXXXXXXX buying XXX EpiPen in one country and XXXXXXXXX it for XXXX to the other XXXXXXX. Finally, such price discrimination XX XXXXXX XXX XXXXXX XXXXXXXXXXXX reasons, XXXXX XXXXX’s XXXXXXXXX XXXXXXX.
XX Mylan XXXX XX truly XXXX XXX XXXXXX consistent XXXXXX the XXXXX, Mylan XXXXX likely have to accept either a lower profit margin or XXXXX prices XXXXXX the XXXXX. XXXX is because if XXXXX were XX lower its prices across the board XX a XXXXXXXXXXXX XXXXX, its profit XXXXX drop. XXXXXXXXXX, XX it XXXX XX XXXXX XXX prices XXXXXX XXX XXXXX, XXXX may provoke a XXXXXX outcry, especially in countries XXXXX the XXXXXX prices have XXXX raised XX the standardised XXXXX. Regardless, XX Mylan were forced XX XXXX its prices XXXX consistent, XXXX XXXXX successfully quell XXXXXXXX XXXX the price discrimination XXXX XXXXX currently XXXXXXXXX for its XXXXXXXX around XXX XXXXX.
X. XXXX XXXXXXX, XX any, would you make toMylan'spricing XXXXXX? XX there a XXXXXX way XX structure XXX discounts?
The XXXX XXXXX that EpiPen XXXXXXX had XXXXX XXXX $XXX million to XXXX XXXX $X billion, XXXX price XXXXXXXXX over XXX XXXX XXXX years XXXXXX EpiPen prices by over 3.5 times, XXXX $160 to $XXX over 2011-XXXX. XXXXXXXXXX, XXXXXXXXXX (XXXXXX’s key ingredient) XXX cheaply produced XX $1 per XXXX, with XXXXXXXXXXXXX XXXXX estimated at about $1 as XXXX. This indicates that Mylan clearly XXX XXXX manoeuvring room XX XXXXX prices XXXXXXX significantly endangering XXXXX profitability, as XXXXX has an XXXXXXXXX XXXXX XXXXXX margin for XXX XXXXXX XXXXXXX.
XXXXX, Mylan should lower the XXXXX XX its XXXXXXX XX XX% XXXXXX the XXXXX, XXXXX would XXXX a clear XXXX of XXXXX’s commitment XX XXXX affordability to the XXXXXXX public. XXXXXXXXXXX, XXXX regard to discounts, discounts should XX XXXXX to long-XXXX users, XXXX XXXXXXXXXX and XXXXXXXXXXXXX buyers XXXX as XXXXXXXXX. XXXX is XXXXXXX these XXX the XXXXX who XXX able to fuel the long-term production XX XXXXX through XXXXX XXXXXXXXXX power. XX a XXXXXX XX XXXXX XXXXXXXX XXXXXXXXXX XXXXXXXXX, Mylan can XXXXXXXXX XXXXXX XX XXXXXX XXX XXXXX XXXXXXXXXX in order XX encourage XXXX institutional buyers and long-XXXX XXXXXXXXXX to XXX XXXX XXXXXXX for the XXXX XXXX. XXXX XXXXX XXXXX XXXXX to XXXXXXX its profitability through a XXXXX-XX in volume, XXXX XX it XXXXXXX XXXXXX prices.
XXXXX XXXXX XXXX XXXXX XXXXXXXXXX discounts, XXXXXX XXX 20% XXXXXXXX across the board, XXX XXXXXXXX XXXXXXXX XXXXX XXX XXXXXXXXX XXXXXXXX by XXXX XXXXXX prices. These include patients with health XXXXX XXXX face higher out-XX-XXXXXX costs, XXXXX Mylan XXXXX XXXXXXX with a savings card for $400, XX well as XXXXXXXXX patient assistance plan discounts and a subsidised EpiPen XXXXXX XXXXXXX to provide discounted or free EpiPens XX schools XXX their students. This XXXXX XXXXX XXXXX to XXXXXXXX its XXXXX XXXXXXXXXXXXXX, XXX in a XXX XXXX takes care XX XXX XXXXX XX Mylan’s XXXX XXXXXXXXXX XXXXXXXX segments, such as XXXXXXXX and XXXXXXXX facing high out XX pocket XXXXX, XXXXXXX shielding Mylan from XXXXXXX XXXXXX backlash.
Finally, Mylan should also XXXXX XXXXX pricing XXXXXX to XXXX in line XXXX XXX XXXXXX XX their close competitors, and XXXXXX strive XX XXXXXXXX XXXX leadership as XXXX of its XXXXXXXX. Generally, XXXXXXX, Mylan XXXX XXX reduce XXX prices too XXXX XX the XXXXXX for Epipens is price inelastic. XXXX would XXXXX Mylan to maintain cost leadership through discounts, XXXXXXX sacrificing XXX much of XXX profitability, in order to XXXXXXX a XXXXXXXXXXX XXXXXX.
4. XXXX XX the XXXXXXX XXXX XXXXXXXXXXXXXXX?
XXX biggest XXXX that Bresch currently faces as CEO of XXXXX remains XXX media publicity featuring XXXXXXX XX makeshift EpiPen XXXXXXXXXXXX and patients XXXXX for lack XX EpiPens. XXXX XXXXX XXXXXX XXXXXXX stories of how Mylan’s high XXXXXX XXXXXX XXXXXX XXX XXXXX XXX XXXXXXXX cost XX XXXXXXXXXX, as XXXX as XXXXX XXXXXXXX XXXXXXX XX how schools, XXXXXXXX XXX at-XXXX individuals XXX XXXXXX to XXX XXXXXX XX XXX XXXX needed XXXXXX during medical XXXXXXXXXXX as a result XX elevated prices.
This is XXX XXXX significant XXXX XX it is XXX XXXX most likely to XXXX a detrimental XXXXXX XX Mylan’s profitability through a XXXXXXX of XXXX. Foremost, negative media XXXXXXXXX on XXX XXXXXXX effects on XXXXXXXX XXX XXXXX stakeholders XX XXXX EpiPen XXXXXX could lead to a XXXXXXXXX boycott XX Mylan XXXXXXXX. This XX XXXXXXX consumers may XXXXXX XXXXXXX XXXX XXXXXX XXXXXX prices XXX XXXX to Mylan’s lower-priced XXXXXXXXXXX or other XXXXXXXX instead, XXXXX would XXXXX XXXX to gain XXXXXXXX at XXXXX’s expense. XXXXXXXXXXX, intense media scrutiny XXXXX lead to a XXXXXX XXXXXX, in a XXX that XXXXX invite government intervention, in XXX XXXX of XXXXXXXXXXXXX hearings and XXXXXXXX government XXXXXXXXXX XX XXXXXX XXXXXX. XXXX would permanently damage Mylan’s ability XX XXX XXXXXX in a way that XXXXXXXXX it XXXXXXXXXXXXX, XX XXXXXXXXXX XXXXXXXXXX XX EpiPen prices XXXXX XXXXX XXX government XX set price XXXX on XXX EpiPen product.
Finally, XXXXXXXX media publicity over the high EpiPen XXXXXX XXXXX continue XX XXXXX XXXXXXXX XXXXXXXXXX in XXXXX, as XXXXXXXXX react poorly XX negative publicity XXX lose XXXXXXXXXX in a company XXXXX is constantly besieged by XXX media. XX a result XX negative XXXXXXXXX, Mylan’s XXXXX price XXXXX therefore continue XX slide XX more and more shareholders either abandon XXX Mylan XXXXX or XXXXX-XXXX it on XXX open market. XXXX XXXXX XXXXXX XXXXXX Bresch’s XXXXXXXX and reputation XX CEO negatively. Hence, Bresch should maintain open and XXXXXXXXXXX communications with the XXXXX, and XXXXXXXXX update them XX how XXXXX XX working XX XXXXXXX XXXX XXXXXX prices for XXX affected XXXXXXXXXXXX, in order to reduce the XXXX of negative media XXXXXXXXX.
1.XX XXXX consumers XXX unwilling XX XXX higher XXXXXX for McDonald’s XXX XXXXXXX XXXX XXXXX XXXXXXX XXXX do not know XXXXX XXX XXXXXX benefits XXXX provide, how XXXXX XXXXXXXXX an endorsement from the XXXXXXXX XXXXXX XXXXXXXXXXX (XXX) XXXX XXXXXXXX’s?
XXXXXXXXX an endorsement from XXX American XXXXXX Association XXXXX XXXX XXXXXXXXX XX XXXXXXXX XXXXXXXXX XX pay XXXXXX XXXXXX for XXXXX new healthy fast foods XX XXXXXX them XXXX aware XX XXXXX accompanying XXXXXX XXXXXXXX by (a) XXXXXXXXXX a XXX XXXXXXX XXXXXX’s influence and (b) raising XXX XXXXXXXXX XXXXX of XXX XXXXXXX. XXXXXXXX, XX a XXX XXXXXXX XXXXXX and expert authority in XXX area of nutritional health, an XXXXXXXXXXX XX the XXX would XXXX McDonalds to XXXX XXXX credibility in XXX XXXXXXXX XX XXX XXXXXXXXX XX XXXXXX food. This XXXXX dispel XXX traditional consumer perception that McDonalds is.a XXXXXXXX XX unhealthy fast food, and put XXXXXXXXX XX the XXXXX path XX winning consumer credibility XXXXXX its health XXXX. XXXXXXXX, an endorsement XXXX XXX XXX XXXXX XXXXX McDonalds XX XXXXX the XXXXXXXXX value of XXX health food, as XXXXXXXXXX XX its XXXXXXXXX. XXX perceived value of XXX product XX the value XXXX the XXXXXXXX (perhaps with XXXXXXXXX information or XXXXXXX full XXXXXXXXX of XXX XXXXXXX’s features or XXXXXXXX) would XXXXXXX to a XXXXXXX mentally. At XXXXXXX, XXXXXXXXX XXXXXX food XXX a low perceived XXXXX in XXX eyes XX consumers, as McDonalds has an XXXXXXXXX XXXXXXXXXX for producing XXX selling XXXXXX unhealthy XXXX XXXXX. XXXXXXX, an XXX endorsement would XXXXXX consumer mindsets by XXXXXXXXX consumers with a XXXXXXXX explanation XX XXX health XXXXXXXX XX XXX new XXXXXXXXX XXXXXXX offerings, which XXXXX in turn allow them XX have a higher XXXXXXXXX value.
2.XXXXXXXX the three critical XXXXXX to any XXXXX-pricing decision and how XXXX XXX utilized to determine XXX price XX a given product of XXXXXXX.
Value-pricing refers to a XXXXXXX XXXXXXXXXXX XXXX bases XXXXX on the economic XXXXX XX a XXXXXXX delivered to XXX consumer of said XXXXXXX. The XXXXX critical XXXXXX XX a XXXXX XXXXX XXXXX-XXXXXXX strategy are the true XXXXXXXX value, perceived value and XXXX XX XXXXX XXXX. XXX true economic XXXXX XX XXXXXXXXX XXXXXX XXXX the perceived XXXXX, while XXX perceived XXXXX is in turn higher that XXX cost of XXXXX sold.
The true XXXXXXXX value refers to the XXXXX XXXX a XXXXX with XXXX information should attribute XX XXX product, which would vary by XXXXXXXX type XXX demographic. The XXXX XXXXXXXX value XX comprised conceptually XX XXX XXXX XX the next-XXXX alternative XXX XXX value XX the performance XXXXXXXXXXXX. For example, a firm XXXX as Daikin XXXXX evaluate the XXXX economic value XX XXX XXX XXXXXXXXXXXX XXXXXXX XX XXXXXXXXX it with the XXXX-XXXX alternative XXXXXXXX by XXXXX consumer electronics firm Midea, XXX XXXX calculating XXX value XX XXX performance differential and adding it XX.
The perceived value XX XXX XXXXXXX is the value that XXX XXXXXXXX (XXXXXXX XXXX XXXXXXXXX XXXXXXXXXXX or XXXXXXX full awareness of the product’s XXXXXXXX or XXXXXXXX) would ascribe to a XXXXXXX mentally. XXXX consumer XX XXXX likely to be misaligned in XXXXX XX needs for the product. The XXXXXXXXX value is XXXXXXXXX calculated through market research into XXX potential or XXXXXXX XXXXX’s willingness XX XXX XXX a given XXXXXXX.
XXXXXXX, XXX XXXX XX goods XXXX is XXX XXXXXXXX production value that a XXXX needs to expend in order XX XXXXXXX the good in XXXXXXXX. This XX generally the XXXXXX level a firm would be XXXXXXX to XXXXXX (the ‘XXXXX-XXXX’ XXXXX), perhaps XX a XXX XX introduce a new product to the XXXXXX or to XXXX adoption XXXXXXX XXX use XX cost XXXXXXXXXX. The cost XX XXXXX XXXX XX XXXXXXXXX XXXXXXXXX from a XXXXXXX’s XXXXXX XXXXXXXXX, and XXXXXXXXX XXX XXXXX loaded variable XXXX XX XXXXXXXXX the product, XXXXX would include a firm’s production costs, supply chain XXXXX, XXXXXXXXX XXXXX XXX X&D costs.