Case Study Analysis: GlaxoSmithKline and AIDS Drugs in South Africa (A)

Case Study may be found in Managing Change (Third Edition) by Todd Jick & Maury Peiperl

Written by Lance King

Immediate Issues

The primary issues GlaxoSmithKline (GSK) faced developed a tremendous awareness about how the principle of inelasticity of price varies at different degrees when compared to demand in various geographic segments. As a result of the attacks on GSK by several non-governmental organizations (NGO’s), Dr. Jean-Pierre Garnier, the company CEO, faces an economic lesson that will constitute restructuring more than just the price of pharmaceutical drugs. Price and branding will be the most important immediate decisions to be made in the upcoming 2004 year.

Associated Issues

The reputation of GSK has been severely damaged. They will need to nurse their relationships with developing countries; a process that may take years to reach restitution. Additionally, if the firm is to remain a “global giant” as the largest AIDS produced pharmaceuticals, they must council with the World Trade Organization (WTO) and TRIPS to strategize various trade regulations in order to meet the needs developing countries are experiencing with the HIV virus.

Issues Analysis

GSK’s Lack of Pricing Sensitivity

The events that have transpired with the Pharmaceutical industry surface a need to evaluate how things progressed from an company making up to $14K on the HIV antivirus with price inelasticity of demand to earning about $1,400 and discovering that there are many generic substitutes being created and introduced in to the industry by other countries. To begin, it seems that if the consumers of an industry begin alluding to tremendous amounts of greed and selfish behavior, that this would be a major indication that an industry’s needs aren’t being met to their satisfaction; which is the sole purpose of developing a firm within an industry—to supply demand and effectively satisfy the needs of consumers within the market segment.

Remembering Geographical Segmentation

As the CEO of GSK, recognizing a trending theme of complaint with the company and providing some degree of additional satisfaction to the consumer would have been of upmost importance. In this situation, analysis would need to be directed toward price in the industry—namely, as price dropped from about $60K to 10-$15K in the 1980’s, times and circumstances may again necessitate a price decrease, even if by a small percentage to ensure consumer satisfaction. Without some degree of attention to the cantankerous criticisms from buyers of pharmaceutical goods, a person suffocating from having to pay for the HIV antivirus medication could only assume that GSK’s primary motivate is to get gain for themselves and not to add contributing value to the target market. Being that the price of GSK’s AIDS drug was fixed instead of being a variable cost per nation, is it any wonder that GSK’s brand began to spoil in the eyes of consumers in South Africa. With most families in Africa making only 2K a year, and assuming a household maintains the need to manage a growing ecological footprint, it would take about 14 years (spending $1K on the product and $1K on food, housing, etc.) to pay for the medicine.

Rebuilding Brand Equity with Developing Nations

The impacts of the NGO’s campaigns to reduce medicinal resources for people within South Africa and other developing nations, was extremely devastating for the pharmaceutical industry. Not only did companies such as GSK reduce 90% of total annual revenues and 100% of sales in 63 (selling at cost) of the world’s poorest countries; but, GSK is now in a position where they need to rebuild trust with these nations. Also, it is will extremely important to rebuild brand equity with the WTO.

Rebuilding Brand Equity with the WTO

The fact that the WTO developed and supported TRIPPS, and then has this giant fiasco surface with NGO’s and developing nations, places the WTO in a position where there counties who have once trusted their various subsidiary programs, may begin questioning their trustworthiness. Therefore, because the arms of the WTO may experience distrust from the nations it supports, this organization may decide to sever ties within the most cancerous arm. Being that GSK has been accused as the primary culprit in the pharmaceutical debacle, they may find themselves in an even worse state than they currently unless they begin mending this relationship by strategizing a plan to rebuild trust and continue developing impoverished countries through programs such as TRIPPS.

Recommendations and Implementation

Restructuring Price per Segmentation

Garnier mentioned how catastrophic the economy could become if patents were dissolved with pharmaceutical drugs. A solution to suffocating companies creating generic brands within such countries as India and Brazil is two-fold. Though profits would not compare to the $400 Billion annual revenues for the pharma industry, competing firms of patented products could create an agreement where they fix price below what other countries are charging for generic drugs, thereby maintaining the monopolistic environment the WTO sought to create through appendages such as TRIPPS. This collusion would dissuade the research and production of generic medicine in India, Brazil, and even China. The response of other entities would likely be favorable being that GSK controls about 40% of the profitable AIDS drugs market. The negative drawbacks relate to having the ability to sufficiently compensate with researching and manufactures such as PhRMA. However, if these firms are shown a timeline of how prices will be fixed at varies levels based on the geography, anti-virus medication needed (specifically AZT and Combivir), and age, these firms are likely to also collude for the long-term benefits for the firm and lives of people having their health and wellness compromised, even to death.

How to Rebuild the Brand with Developing Nations

In addition to price changes, it will be important for GSK and other related firms to either begin or remain consistent providing discounts of branded products. This will demonstrate an increased effort to appeal to consumers desire to receive deals as often as they can get them. In addition, it would be in the best interest of a long-term relationship with developing countries if GSK provides financial aid where needed, within reason. For example, a donation for improvements to a medical center could build significant trust and brand loyalty for GSK. Even though, in the short-term, these types of generous distributions will likely be expected, the long-term benefit will be brand loyalty if consistently executed.

How to Rebuild the Brand with the WTO

One of the most important reasons to remain an alliance with the WTO is to protect the brand patents. Because the WTO regulates trade between nations, it is important that GSK rebuild credibility with them by developing a strategy for patent protection. One specific method of reducing the price of medications would be negotiation to reduce tariffs and any other trade barriers. This may seem selfish; however, this single price tactic will demonstrate responsibility to recover GSK’s relationship with countries affected and the WTO.