Glaxo-Welcom ‘s marketing manager’s assessment of the economic risks for the sales of pharmaceutical goods in Colombia over the next five years and how giving free samples might affect the products pricing.
Introduction
There are many factors that are forcing companies to venture into foreign markets. According to Johnson (2009) one of the factors for selling in foreign markets is the desire to grow revenues. Many companies are faced with stagnant and declining sales projections in their domestic markets (Johnson, 2009).These companies have no option but to venture in to foreign markets if they are to meet their operating costs. U.S. pharmaceutical giant Pfizer Inc for example has ventured into Venezuela (Johnson, 2009). Communication and travel has been made easier and faster than in the past due to recent technological advances (Wilkinson, 2000). Companies are therefore able to serve customers in distant lands. Other factors that have hastened globalization include increased international competition and increased lifestyle homogeneity among consumers in many countries (Wilkinson, 2000).
Economic risks associated with selling in Colombia
The economic challenges that the marketing manager will face in his bid to market Glaxo-Welcom’s pharmaceutical products in Colombia are varied. The first economic risk is relative insecurity. According to Farzad (2007) Colombia faces the challenge of perceived and real insecurity. Colombia is still a major producer of cocaine which fuels insecurity even though the levels have reduced in recent years due to President Alvaro Ulribes efforts in curbing the menace. The other challenge is extortion by organized paramilitary groups which still exist in the country. For example Chiquita Brands International which is a banana giant based in Cincinnati, U.S.A is reported to have paid $1.7 million in protection money to such a paramilitary group (Farzad, 2007).This will increase the company’s overheads and will impact heavily on the cost of doing business.
The other economic risk is inadequate infrastructure. Farzad (2007) noted that the existing infrastructure is strained and may in future give way. He also noted that congestion on the country roads is being felt. This will slow distribution of the products and increase fuel and vehicle maintenance costs. This will impact on the bottom line negatively. The prospect of kidnappings of foreigners is also another risk which the manager will grapple with (Business Week , 2010).This will hit the company’s ability to achieve competitive advantage since it will find it difficult to recruit internationally to fill in skill gaps which are in short supply in the country.
Another economic risk that the manager will face is poor or lax enforcement of copy rights, patents and trade secrets acts (Taylor, 2004). Black market players will be able to manufacture and sell similar products in the company’s brand names and the authorities will be unable or unwilling to stop the practice. This will dent the company’s image overtime and especially when the these substandard black market products packaged illegally in the company’s brand names start causing severe side effects or even deaths among the populace.
According to Taylor (2004) another challenge is the rampant poverty which inflicts large portions of the society. These people because of their low incomes will be unable to buy the company’s products. The company will be forced to give huge discounts or face the prospect of reporting low sales which will be reflected on the top line. The other risk according to Taylor (2004) is caused by the existence of purchase contracts with certain manufacturer entered into by the government. The government may have entered into purchase agreements to purchase products from certain manufacturers. The manager will find it difficult to infiltrate this arrangement during the duration of the contracts.
Competition is another risk that the company will face. Due to the recent levels of economic growth set at 6.8% many new drug companies will also venture into the country. Other large and financially capable drug companies namely Pfizer of America, Norvatis of Switzerland and Sanofi-Avensis of France are also eyeing the market (Farzad (2007). Competition will hamper the company’s ability to achieve its sales targets.
The other risk is lack of well development capital markets to raise investment funds for expansion. According to Farzad (2007) the Colombian stock/securities exchange is still small as compared to New York Securities Exchange. This will hamper the company’s expansion designs.
Effects of giving free samples on the pricing
According to Taylor (2004) giving free samples will impact on the sales of the company and the pricing of the products. Since most of the company’s products are likely to retail at higher prices than their generics even after discounts have been factored in , free samples will enable the patients to appreciate the efficacy and benefits of the products without having to pay for them (Taylor, 2004). If the products given as free sample prove to be of superior quality than the generics many patient will start buying them as long as the pricing is set in such a way that it is affordable by the targeted consumers(Taylor, 2004).
Free samples will also make the doctors to prescribe the company’s products to their patients. Taylor (2004) wrote that doctors who are given computers and other samples tend to prescribe the company’s products. This serves to increase sales and increases the loyalty to the company’s products. Free samples might also be resisted by civil society organizations since they may feel that they will influence the prescriptions given by doctors (Taylor, 2004). According to Taylor (2004) free samples can increase the cost of sales which will make the company to price their products at a premium to recover the cost used in manufacturing the samples given for free. Free samples can also enhance wide usage of the company’s products which will enable the company to benefit from economies of scale. Once this happens the company can reduce their products prices to penetrate new low income market segments (Taylor, 2004).
References
By Roben Farzad With Cristina Lindblad in,New York. (2007, May 28). Extreme investing: Inside Colombia. Business Week, 50-50. Retrieved from http://search.proquest.com/docview/236769082?accountid=45049
Johnson, A. (2009, Jul 07). Drug firms see poorer nations as sales cure. Wall Street Journal. Retrieved from http://search.proquest.com/docview/399074852?accountid=45049
Hail Colombia. (2007, Jun 11). Business Week, , 60-60. Retrieved from http://search.proquest.com/docview/236771870?accountid=45049
Taylor, B. (2004). Giveaway drugs: Good intentions, bad design. Health Affairs, 23(1), 213-7. Retrieved from http://search.proquest.com/docview/204501218?accountid=45049
Wilkinson, B. A. (2000). Know risks of selling overseas. Best’s Review, 101(4), 111-111. Retrieved
from http://search.proquest.com/docview/205488434?accountid=45049
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