AN EVALUATION OF THE IMPACT OF PRICING POLICY ON THE CONSUMPTION OF PHARMACEUTICAL PRODUCTS IN NIGERIAN HOSPITALS
CHAPTER ONE
1.0 INTRODUCTION
The main objective of any organisation is to generate some satisfaction or benefits
for it sponsor. Therefore, the Hospital exists principally to satisfy the needs of its patients.
The hospital has now become a business organisation as no treatment is given free of
charge to patients again. In this case the objective of the hospital is to generate profits, so
that services can be given continuously. The hospital can satisfy the need of its patients
through prompt and adequate services provided and its obligation is to reward those who
work for it with salaries and other benefits.
After the introduction of the Drug Revolving Fund (DRF) Scheme in the hospitals,
the Hospital Pharmacy Shop started operating strictly as a business enterprise, with the
objective of satisfying their patients and making profit.
Pricing has been called the most important business decision for any firm. Pricing
mistakes may be costly but there are some that are not so costly and there are costs attached
to any poorly made pricing decision. The costs can range from lost sales to selling at below
the cost to acquire the product.
Price is thus only one of the element in the marketing mix which determines the
success or failure of a product and in any actual marketing situation, price exerts its
influence in combination with other factors, including the intensity of the competition as it
manifest itself in the attitude and behaviour of the customer of the customers.1
According to Kotler, P2
an American Business Consultant, “Price is the only
variable in the marketing mix that generates income, all the others such as product
development, packaging, advertising and sales promotion generate costs. While this is
certainly true in the formal sense, it would seem preferable to paraphrase it, and say instead,
that the purposes of all the other elements in the marketing mix is to make the product sell
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in appropriate quantity at the desired price, and that if the price is not right, all the
merchandising efforts might be wasted.
It should be noted that since in this competitive world, profit margins tend to be
narrow, even slightly difference in price can greatly affect profitability. And a firm which
has achieved all its objectives except profitability and has no reasonable hope of doing
better in the future could hardly be considered successful.
The price of an article is its market value expressed in terms of money. Market value is
power in exchange. The price of an article or service, therefore, is an expression, in terms of
monetary units, of the power which that article exercises in exchanged in the market; that is, of
the money it will buy and hence, ultimately of the goods and services for which it can be
exchanged. Price is a matter of fundamental interest for both buyers and sellers in the market.
For producers, the price at which they sells may have varying effects on their ultimate
net profit. Price helps to determine the volume of their sales and may also affect their unit costs
if their expenses vary with the volume of sales. While the consumer is interested in
improvements in services and quality of product at any given time the relative price of similar
products is his major interest.
The researcher recognize the fact that all strategies mapped out by the management
Are designed directly or indirectly to enhance the overall profitability. However, the researcher
will limit the study to the effect of pricing on the consumption of pharmaceutical products.
It is the belief of the researcher that if the pricing is not adequate, the realization of
profit objective and satisfying the needs of the patients would be an illusion. It is against this
background that the researcher intends to focus her attention on the effect of pricing on the
consumption of pharmaceutical products.
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1.1 STATEMENT OF THE PROBLEM
Pricing is near the heart of marketing strategy because of its link to profitability. It is
believed that price of a product should be based on the production costs. Any firm that sells its
product less that the cost price will not survive for long. It is therefore not easy to arrive at a
price that both satisfies consumers and provides the firm with profit.
With the introduction of price on drugs in Nigerian hospitals, it is seem that price has
several effects it exerts on the health care system of the country. One of such effects is the
effect it has on the consumption of drugs in such hospitals.
A simple assessment of the Ahmadu Bello University Teaching Hospital (A.B.U.T.H.)
Zaria indicated that it is averagely performing well. But when further analysis is done
considering the resources available to it, there is indication that the hospital can do better that
what it is achieving now.
Thus, does charging for drugs affect the consumption of drugs or is it the availability of
the drugs that affect the consumption of drugs.
1.2 OBJECTIVES OF THE STUDY
We live in a mixed free enterprise society that depends primarily on a complex system of
price to allocate goods and services among consumers, government and business. Since the
government plays a major rule in resources allocation something else must fulfill the role of
allocator in our society. Price plays this role nicely by rationing and business. Since the
government plays a major rule in resources allocation something else must fulfill the role of
allocator in our society. Price plays this role nicely by rationing and allocating resources to their
most efficient use, that is, price helps us to distribute our limited resources.
Since price serves as an allocator of goods and services in our economic system. It is
important for marketing executives, therefore to charge price that will earn the company a fair
target return on it investment. To achieve this, specific attainable realistic and measurable
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pricing objectives must be established. However, it is not easy to arrive at a price that both
satisfied the consumers and provides the company with a profit. The price charged determined
the quantity of goods and services that a consumer can buy from their limited income. With this,
the main objective of this research study can therefore be briefly stated thus:-
- To determine and reconcile the pricing objective of the hospital with the corporate
objective. - To find out the importance which the hospital places on pricing pharmaceutical products.
- To examine on highlight areas in which such practices and strategies are deficient and
make recommendations that would help in improving the efficiency of pricing in the
hospital. - To examine the pricing strategy used in setting prices for the pharmaceutical products.
- Finally based on the findings, useful suggestions or recommendation would be given that
might help the hospital in its effective pricing of pharmaceutical products.
1.3 SIGNIFCANCE OF THE STUDY
No product has or can enter the market place without a price. Earning a profit is a basic
objective for all businesses irrespective of their organizational set up.
For long price has been recognized as an accepted procedure for profit planning and
many of the most successful companies have applied it to good effect over a period of years.
Price determines in may aspects the volume that can be realized as well as the final profit.
Price is the only element in the marketing mix that creates revenue, the other elements being
costs.
Inspite of the importance of setting the price, many organisations do not handle pricing
well. The common mistakes are:-
5 - Pricing is cost oriented in that companies fail to take sufficient account of demand
intensity and customer psychology. - Price is not revised often enough to capitalize on changed conditions in the market
place; price is often set independent of the rest of marketing-positioning, strategy. - Price is not varied enough for different products items and market segments.
The study was based on the premise that an understanding of the various factors that
need to be considered before the price, for a pharmaceutical products will be of assistance to
the management in the area of developing pricing strategies for increasing the consumption of
the pharmaceutical products.
The significance of the study therefore is to determine the importance of pricing and its
effects on the consumption of the pharmaceutical products.
The study will provide information of facts that will lead to efficiency and effectiveness
in the determination of potentials for sales (consumption) of pharmaceutical products in the
hospital.
Finally, this study will help in solving the complicated problems being faced by
management in pricing of pharmaceutical products.
1.4 ASSUMPTION AND HYPOTHESIS
1.4.1 ASSUMPTION
The research is based on the following basic assumptions that:-
(a) All organizations desire to achieve their main objectives. This may be clear in some
firms and vague in others.
(b) The fundamental objective of the A.B.U. Teaching Hospital, Zaria is to meet the
patients need. All other objectives are secondary.
(c) Pricing is a logical decision-This would seem to be a rather obvious statement, but like
so many obvious truth, unless stated it may be overlooked.
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(d) Price like most other decisions of a firm should be aimed at achieving some goals.
(e) That the importance of cost in price depends on the way in which one’s price is
determined. This of course contracts the opinion of many authors about the relationship
between cost and price. Note however, that in some pricing techniques, cost is the most
important single determinant of price. In others, it plays only a very minor role.
1.4.2 HYPOTHESIS
Based on the assumptions listed above, the following hypotheses are made.
NH Price has effect in consumption of pharmaceutical products.
AHO Price has no effect in consumption of pharmaceutical products.
NH The prices of drug in A.B.U. Teaching Hospital are favourable.
AHO The prices of drugs in A.B.U. Teaching Hospital are not favourable
NH The increase in sales volume of pharmaceutical products in A.B.U.
Teaching Hospital is as a result of good price.
AHO The increase in sales volume of pharmaceutical products in A.B.U. Teaching
Hospital is not as a result of good price.
NH The increase in sales volume of pharmaceutical product in A.B.U. Teaching
Hospital is a result of available of the pharmaceutical products.
NH The increase in sales volume of pharmaceutical product in A.B.U. Teaching
Hospital is not as a result of availability of the pharmaceutical products.
1.5 THE SCOPE AND LIMITATIONS OF THE STUDY
It is pertinent to note that this research study has a scope limited to Zaria (ABUTH
Zaria). Considering constraints of time and finance, a scope beyond this might produce
something less satisfactory.
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The scope is limited to the pricing effects on the consumption of the pharmaceutical
products and the degree to which it take into account the interest of the patients.
It is important to note that all objective of this study could be fully achieved. Like any
other research, several constraints were encountered during the study. Some of the major
limiting factors during the research however include the following. - The difficulty in getting adequate information from the Hospital pharmacy shop
because of improper record system. - Halo effect and inco-operative attitude of questionnaire respondents.
- Time and financial constraints which limit the research to only A.B.U. Teaching
Hospital, Zaria.
1.6 RESEARCH METHODOLOGY
Data were collected through the use of primary and secondary sources of information.
Also, the study examines the consumption rate of pharmaceutical products.
The primary source involves the collection of Data from the hospital pharmacy shop,
questionnaires and personal interview especially where further clarification is required.
Secondary sources of data were obtained rom textbooks, journals and magazines. In
addition data were also collected through interviews which were publications on pricing
procedure, relevant articles in business newspapers and other publications in the library relating
to pricing.
Data obtained was then analysed through a descriptive method.
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1.7 DEFINITIONS OF TERMS
DRUG
A drug is any substance of biological or chemical origin which when applied to a living
tissues produces an effect.3
DRUG REVOLVING FUND (DRF)
This is a system in which an initial capital is provided for the purchase of drugs which
are then sold to patients. Money realized from the sale is then ploughed back to purchase
more drugs or supplies which are again sold and the money continuously recycled.
Theoretically, it is perpetual system which is expected to be self sustaining.4
PRODUCT
A product is a complex of tangible and intangible attributes, including packaging,
colour, price manufacturer’s prestige, retailers prestige and manufacturers and retailers services
which the buyer may accept as offering satisfaction of wants and needs.5
STRATEGY
The term strategy is derived from the Greek wood “Strategos” which means a “general”
in the military profession. It has been applied to business to mean some sort of planning or steps
taken to achieve set objectives. According to Gilueck and Jauch, strategy means a unified
comprehensive and integrated plan that relates the strategic advantages of the firm to the
challenges of the environment and that is designed to ensure that the basic objectives of the
enterprise are achieved through proper execution by the organisation.6
PHARMACEUTICAL PRODUCTS
These are drugs and non-drugs used in the treatment of diseases.
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