5-47 Pricing, Ethics, and the Law Great Lakes Pharmaceuticals, Inc. (GLPI), prod

Question

5-47 Pricing, Ethics, and the Law Great Lakes Pharmaceuticals, Inc. (GLPI), produces both prescription and over-the- counter medications In January, GLPI introduced a new prescription drug, Capestan, to relieve the pain of arthritis. The company spent more than $50 milion over the last 5 years developing the drug, and advertising alone during the fi rst year of introduction will exceed $10 million. Production cost for a bottle of 100 tablets is approximately $12. Sales in the fi ist 3 years are predicted to be 500,000 750,000, and 1,000,000 botties, respectively. To achieve these sales, GLPI plans to distribute the medicine through three sources: directly to physicians, through hospital pharmacies, and through retail pharmacies Initially, the bottles will be given free to physicians to give to patients, hospital pharmacies will pay $25 per bottle, and retail pharmacies will pay $40 per bottle. In the second and third year, the company plans to phase out the free distributions to physicians and move all other customers toward a $50-perbottle sales price Comment on the pricing and promotion policies of GLPl. Pay particular attention to the legal and ethical issues involved CERT

Explanation / Answer

The company given in the question deals both with prescription and over-the-counter medications.

It has recently developed a new drug with an investment of $50 million which is huge and an advertising expense of $10 million in the first year.

The company has given free samples to physicians and issued the drug at a cost of $25 per bottle and $40 per bottle for two different customers.

The above strategy is to attract the sales and to penetrate into the market.

From the second year, it has eliminated the free samples and increased the sale price per bottle to $50 for all the customers.

Looking at the scenario in a financial perspective, the company has kept many efforts to gain from the product.

But looking at it in ethical way, issuing free samples to physicians is prohibited, it is illegal. The free samples issued in the year 1 may attract major penalties and fines for the company.

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