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Community Care Pharmacy has decided that they are going to address the opportunities the two target markets have provided. With their SWOT analysis, goals, and objectives in mind, Dr. Rockefeller and his colleagues have decided that a vaccination service is aligned with the strengths outlined in the SWOT analysis. For example, all pharmacists are already certified to administer vaccines, and a private area is available in the pharmacy. In addition, a vaccination service seems to be a good fit considering their limited financial resources and workload. The community offers tremendous market opportunities as the elderly population (Target Market #1) in the area has a need for influenza, pneumococcal, and zoster vaccines. Hence, Dr. Rockefeller and his employees decide that Community Care Pharmacy will provide influenza, pneumococcal, and zoster vaccines for this elderly target market. If the service is successful, Dr. Rockefeller believes they will be able to expand the type of vaccines they provide.
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Dr. Rockefeller realizes that this service is difficult to classify as purely tangible or intangible. Although the delivery of the service is intangible, the benefit one gains from receiving a vaccination is tangible. Because of this, Dr. Rockefeller concludes that this service is more of a hybrid and believes he can promote the service through advertising. He also realizes the risk of inconsistency in the delivery of a service. For example, while all pharmacists may be certified to administer vaccines, one may have much more experience in providing the service and therefore is much more thorough. He believes his pharmacists are well trained to provide a consistent high-quality service in a polite and respectful manner that is representative of the pharmacy's image and therefore, inconsistency should not be a major issue. His technicians and store employees are also kind and respectful so he is not worried about interactions with patients. Dr. Rockefeller currently has optimal staffing levels but understands that this service may require him to hire another part-time pharmacist. As previously stated, elements of the marketing mix may differ among different market segments. In the case of Community Care Pharmacy, the young population market (Target Market #2) would desire a different product from the elderly market. For example, an influenza vaccination service could be the focus for this target market.
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The next step in marketing Community Care pharmacy's new vaccination service is to establish a price for the product. In order to ensure the success of any new good or service, organizations must offer them at an appropriate price. There are many factors to consider when setting a price, including the costs of providing the good or service, overall consumer demand for the good or service, competition from other organizations offering similar goods or services, and the use of pricing strategies that appeal to consumers.
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Costs of Providing a Good or Service
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The first thing to consider when pricing a new good or service is the costs the organization will incur to provide them. In the case of Community Care Pharmacy's new vaccination service, they must purchase vaccines, syringes, needles, a refrigerator, cotton swabs, alcohol wipes, band-aids, and the proper medical waste disposal supplies to comply with state and federal disposal laws. Also included in the cost of providing the vaccination service is the salary and benefits they have to pay their pharmacists, technicians, and other employees involved in providing this service. If Community Care Pharmacy plans to offer this service using an outsourced model (i.e., contracting with another vendor to come to the pharmacy and provide immunizations to their patients), an agreement between their pharmacy and the organization contracted to provide the vaccinations must be made related to how the revenues from this service will be shared. If they plan to provide this vaccination service using their own employees, a decision must be made that relates to how they will compensate their pharmacists. Will they offer their pharmacists additional monetary or nonmonetary rewards? Or will they require their pharmacists to provide vaccinations in addition to their normal dispensing activities without additional compensation? These are important questions that will need to be addressed when pricing the service. Overhead expenses must also be considered when pricing the new vaccination service. The principles used to calculate a pharmacy's cost to dispense a prescription can also the applied to calculate their costs to provide any service, such as the costs to provide an immunization (see Chapter 19).
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As seen in Community Care Pharmacy's SWOT analysis, consumer demand for vaccination services appears to be high. The SWOT analysis also shows that there is little competition from other providers in the area when it comes to providing these vaccinations. These two opportunities allow the pharmacy to consider how much profit they aim to gain from providing vaccinations. To merely breakeven from providing the service is not the goal. That being said, pricing the service high may result in failure due to low utilization and an increase in competitors who see the high price as an opportunity to provide the service at a lower cost.
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For many goods and services offered in pharmacies, reimbursement rates depend on contractual agreements between third-party payers and the pharmacy. For instance, pharmacies that provide medications and MTM services to Medicare Part D plan enrollees are reimbursed at levels stated in the contract. In this case, pharmacies have limited flexibility in determining prices for services they provide. On the other hand, pharmacists have greater flexibility setting prices for services offered to out-of-pocket payers or services offered through a contractual agreement with self-insured employers.
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There are many pricing strategies to consider when determining an optimal price for a new good or service. One pricing strategy that is commonly used is known as odd pricing. Odd pricing is the practice of pricing a service just below whole dollar amounts (Berkowitz, 1996). In the case of Community Care Pharmacy, let us assume that their costs of providing an influenza vaccination (including overhead costs and the cost of the vaccine itself) are $20.00. Taking into consideration government regulations regarding the pricing of the service, the usual and customary charge for a similar service by other providers, the pharmacy's cost to provide the service, and the profit desired, Community Care Pharmacy needs the price of influenza vaccination service for cash payers to be at least $20.00. Using the odd pricing strategy, the pharmacy can price this service for out-of-pocket payers at $24.99, just under $25.00. The rationale behind this strategy is that consumers believe products and services priced just under whole dollar amounts ($24.99) are priced at the lowest possible price or that the product or service has been discounted from a higher price.
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A second pricing strategy is bundled pricing. Bundled pricing is the practice of selling several items or services together for one total price. This is becoming a very common strategy in health care and can be very appealing to consumers (Berkowitz, 1996). If Community Care Pharmacy chooses to do this, the amount of savings to the patient must be seen as a real advantage. For example, because their influenza vaccine is priced at $24.99 and their vitamin supplements are priced at $11.99, bundling them and selling them for $36.98 would not be beneficial. The pharmacy would need to bundle them and sell them at a discount while still covering their costs. A reasonable bundled price for both the good and the service at the pharmacy would be $29.29 (assuming that the cost of the vitamin supplement is under $10). In addition, Community Care Pharmacy can apply a similar strategy by offering a bundled price for influenza and pneumococcal vaccines for those who need both vaccines.
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Discounts are another strategy used in the pricing of goods and services in pharmacy. A functional discount can be given to a large organization by offering vaccination services to its employees for a lower price than the general public (Berkowitz, 1996; Kotler and Armstrong, 1994). As seen in Community Care Pharmacy's SWOT analysis, there are several large, self-insured organizations in Weagle to whom they could offer such a discount. By offering a functional discount to all employees and retirees of these self-insured employers, Community Care Pharmacy can increase the utilization of their vaccination service. Seasonal discount is another pricing strategy commonly used to increase utilization of services. These discounts are given to consumers who purchase goods or services when they are out of season (Berkowitz, 1996; Kotler and Armstrong, 1994). For example, many people wait until the spring and summer months to purchase gym memberships and get in shape. A seasonal discount would offer the same gym membership during the off months for a discounted price. In the case of vaccination service, flu shots are usually offered between September and November and seasonal flu season generally starts in December and lasts through the spring. Even though it is ideal to get vaccinated early, a flu shot in January can still be helpful as there are still 2 or 3 months left in the flu season. To apply this seasonal discount strategy, Community Care Pharmacy may offer influenza vaccine at a discounted price in January or February, if they still have a supply.
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The third P in the marketing mix is place. This component refers to the distribution of the good or service. In other words, place refers to how and where the product or service is accessed by the consumer. For a chain community pharmacy, the locations and hours that each pharmacy will offer a service are examples of distribution considerations. Some organizations focus on the convenience of accessing their goods and services by providing multiple locations in the area where they compete with the goal of having no customer go out of their way to access what they have to offer. Chain pharmacies such as CVS, Walgreens, and Rite Aid are examples of organizations that employ this strategy. Community pharmacies have also extended their hours of operation to increase access. Many pharmacies are now open 24 hours a day and in most cases, those that are not open for 24 hours have extended their hours of operation and have begun offering their goods and services on weekends.
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Intensity of distribution is a key concept that should be understood when thinking about the place component of the marketing mix. Intensity refers to how available the service is to the consumer. The three forms of distribution intensity are intensive, selective, and exclusive (Berkowitz, 1996). Deciding which form of intensity to utilize with a new good or service is vital to its success.
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Intensive Distribution
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Intensive distribution is a strategy used when the good or service is available from a large number of locations. Everyday products that community pharmacies sell such as toothpaste, eye drops, aspirin, and ibuprofen are examples of products that are intensively distributed. These products can be found in many different locations and therefore consumers will not go out of their way to patronize a specific organization to purchase them. The same is true about automatic blood pressure machines in pharmacies. Since a patient can check their blood pressure for free in many pharmacies around the country, charging a patient to use a “do-it-yourself” automatic blood pressure cuff without pharmacist consultation would result in a service failure.
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Exclusive Distribution
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Exclusive distribution is the opposite of intensive distribution, and is the strategy used when a good or service is only offered in very few locations. In the Weagle community, most pharmacy goods and services are offered at multiple locations. This is not the case with Community Care Pharmacy's compounding service. Since other pharmacies in the area do not provide compounding services, consumers of this service are required to patronize Community Care Pharmacy to take advantage of this service. This is an example of a service that is exclusive to their pharmacy and therefore, consumers that want to access this service will not find this service at Community Care Pharmacy's competitors' locations.
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Selective Distribution
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Selective distribution is the strategy used when a product or service is offered in multiple locations, but fewer locations than an intensive distribution approach. It is known as the selective approach because the consumer has the option to shop around and select the location where they purchase the product or service based on the level of support they perceive they will receive. An example of this in the retail setting is designer clothing. Many premier designer clothing brands select high-end retail stores that match the image they want to portray with their brand. This is considered selective distribution because although a consumer may be able to purchase a particular designer brand at a few different stores in their area, they will not find the product everywhere clothing is sold. The consumer has the op-portunity to choose which location they purchase the designer clothing based on their evaluation of the options.