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.
