A recent article on pricing power referenced the example of Martin Shkreli’s Turing Pharmaceutical decision to raise the price of Daraprim by 5000%. Shkreli famously purchased the rights to an older off-patent drug used to treat infection in AIDS patients and dramatically raised the price – a demonstration of pricing power. The following controversy caught up with Shkreli, who gloated that he didn’t raise the price enough. Investigators couldn’t jail him for the Daraprim price, but digging found other dirt and he was sentenced to seven years for fraud related to his former hedge fund.
Around the same time, Gilead Pharmaceutical launched a cure for Hepatitis C, Sovaldi, with a course of treatment costing $84,000. The $1000 per pill cost launched a national debate on the fairness of drug pricing in the US. In the case of Sovaldi, Gilead had a solid value-based message: this new cure eliminated the massive costs of lifetime treatment for Hepatitis patients, at annual costs between $15,000 and $100,000 per year.
Societal perceptions of pricing fairness can be arbitrary – we seem to agree that seniors should get a discount on movie prices, but not cars or groceries. At its heart, pricing fairness relates to delivered value. When we offer customers improved outcomes – through better performance or lower total costs – we can charge a premium. Customer value can be financial or emotional. But any company that ignores relating pricing power to customer value risks the reaction Shkreli faced.
These opinions are my own, not those of my employer.
Vice President, Pricing & Revenue Management at Iron Mountain