Skip to content

High Quality vs Low-Cost Bargain: The Current Dichotomy! (XXIV). Basic Principles of Pricing Wars Explained.

Have a beautiful Tuesday. In my last post, I started to explain that the foundation for pricing contradictions occurs when our price and quality mix for products and/or services are not located around or near the Value Equivalent Line (VEL).

The stress to deliver on time is also another factor of mistakes. Before anything else, let me apologize for an editing mistake that I did yesterday when posting the article. I was editing at night, and without notice, when I was ending to review the whole post, I simply deleted a couple of sentences when I listed the type of vaccines. It was an involuntary mistake. Today at the first hour in the morning, I inserted the phrase that I took out yesterday night. I am so sorry. These types of errors (and others in every industry that you can imagine, are typical when we are stressed). And this happens all the time when we are rushing things to happen only because of tight deadlines… In the case of vaccines, rushing under pressure may have horrendous consequences.

The pandemic has been a cause of stress for all the pharmaceutical industry. And, mistakes always happen, when humans are racing and competing, either when we are looking for a trophy of recognition or when we are tired, or when we are under strain. Many of our worst mistakes in product design, development, manufacturing, and delivery occur when humans act under pressure. It is like walking on a tightrope. When our problem-solving systems are always in a speedy mood, it is much easier to make mistakes.

Pricing Contradictions in the case of COVID19 VaccinesNow that we have analyzed the issues with the current (up to date) vaccines, I will show you the principles of pricing contradictions and how we trigger a pricing war. I will show you theoretically, with the application of the dynamic theory of pricing using the graph of quality vs price. As I mentioned yesterday, I will use an example of the existing prices of COVID19 vaccines which have been approved for commercialization and distribution under an emergency use authorization (in the USA). And we will see how a pricing war begins when initiating price cuts. This happens when competitors, begin to clash on price only, and the cannibalization of the industry occurs when reducing the prices below the Value Equivalent Line (VEL). Moving below the VEL often hurts the whole industry. Let’s see it on the following slides:

If you wish to download the slides, click here:

Do you mind following the slides with me please? Let’s begin. Whenever we have first movers in one specific product, this is the case of the current or existing COVID19 vaccines, be sure that they will position themselves on an initial Value Equivalent Line. See slide 1. I have created this slide assuming that people see each of these FDA-EUA with different qualities. We have respected the assumption that an expensive price means higher quality, meanwhile, the cheapest one (Astra Zeneca) is the one in the economy segment, probably with the less perceived quality of all. These are only assumptions that I have chosen to illustrate this example. Ok.

When there is a minimum number of competitors, as is the case right now in the United States: PfizerBioNTech (at $19.50 each shot), Moderna (at $33.00-37.00 each dose), and Johnson And Johnson (at $10 its unique jab), then we ask ourselves why is it the case that a shot of Moderna is priced 75% MORE than the value of PfizerBioNTech? In pharma, usually, the cheapest brand of vaccines (with an equivalent type of technology), corresponds to the urgent drive to dominate the market through lower costs. Another reason is the economies of scale. Of course, the Pfizer vaccine has more plant capacity for production in comparison to Moderna that has been forced to create strategic alliances with other pharma manufacturing companies. But slide number 2 shows that at least in the United States, the three vaccines are being advertised as with the same quality. The American population perceives that the three of them are of medium equivalent quality regardless of the price. To my understanding, the US Government has bound several contracts with 6 different vaccine COVID19 producers.

Once new competitors get the regulatory approvals, they will join the party of selling vaccines. Since the first movers have reached enough contracts by this time, the rest of the competitors will need to prove that they have something better to add to the table for a lower price to cover international markets (outside North America). And here is when we find a pricing contradiction. How could it be that the most cautious vaccine pharma developers won’t be able to sell their jabs at a higher price? Well, this will happen because the same industry (without knowing) believes that for being late into the release of their vaccines, they have to initiate price cuts. The new competitors (more than 270 vaccines that will be in the market during this year or at the beginning of 2022), will inevitably initiate a price war trap, cannibalizing the margins if they still have not tied up contracts with the COVAX initiative or with governments of so many developing countries (nations).

The big issue with Astra Zeneca is a matter of not only unknown side effects that have been noticed in certain countries, like Canada and Europe… but also because of its low price. Is the low price a measure of low quality? How do know this?

In terms of vaccines, the first movers of this particularly the COVID19 vaccines industry must show zero mistakes. Any short, medium or long-term effects on patients could kill the existence of the first-mover companies for the long run. My advice for governments is to diversify their contract purchase mix of vaccines because not all vaccines are good for all. To pre-purchase vaccines in a state of stress and fatigue is a blind irresponsible action. There are some vaccine technologies that can be used in certain people, meanwhile, others are too risky to apply, without knowing in advance that there are serious implications per type of individual.

When price wars occur, no one wins.

See you tomorrow for the summary and conclusions last episode of this saga. Blessings. Bonne Nuit!.

Disclaimer: Illustrations in Watercolor are painted by Eleonora Escalante. Other types of illustrations or videos (which are not mine) are used for educational purposes ONLY. Nevertheless, the majority of the pictures, images, or videos shown on this blog are not mine. I do not own any of the lovely photos or images posted unless otherwise stated.

1 Comment »

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s