Pharmaceutical Manufacturer
Cost Recovery Through Price Increases
Implemented differentiated price increase to recover cost increases on contracted customers, generating $100M of impact over 4 years
Strategic Pricing in Pharma: Recovering Costs Through Differentiated Price Adjustments
An $800M pharmaceutical manufacturer implemented a data-driven pricing model to offset rising costs, increasing profitability and market share.
Rising raw material costs and heavily negotiated long-term contracts created margin pressure for this $800M pharmaceutical manufacturer. With inconsistent discounting policies and wide variations in customer size and pricing structures, the company struggled to pass through cost increases effectively. To address these challenges, they implemented a differentiated pricing model, incorporating material costs, geography, and capacity utilization. By aligning pricing with value proposition and peer performance, the company achieved $100M in impact over four years, driving machine profitability and increasing wallet share.
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Situation
Pricing Pressures in a Contract-Heavy Market
Raw material cost spikes, rigid customer contracts, and inconsistent discounting led to shrinking margins and missed pass-through opportunities.
- Client raw material costs were experiencing massive increases
- Majority of revenue was tied to heavily-negotiated long-term agreements
- Inconsistent usage of discounting and freight policies
- Wide variation in customer size, where large customers had contracts but smaller were more transactional
- Cost trends revealed steep increases, where pass-through was not fully realized
- Experiencing shrinking margins due to increased costs and customer contracts
Approach
Optimizing Price Adjustments with Data-Driven Strategies
A tiered pricing model, strategic contract negotiations, and targeted messaging enabled sustainable margin recovery.
- Developed differentiated pricing model to capture price impact, with consideration to material cost, geography, and capacity utilization
- Instituted sales best practices to negotiate annual contracts based on value proposition and performance vs peers
- Crafted internal and external messaging for off-cycle pricing
Reduce Unmanaged Variation with Intentional Price Differentiation
Key Takeaway
- Differentiated price adjustments based on performance vs peers, with risk mitigation via caps and controls
Impact
Delivering Sustainable Profitability and Market Expansion
Strategic pricing and performance improvements drove long-term impact, increased wallet share, and product-level profitability
$100M
of impact over 4 years
Established strategy for machine profitability
Increased wallet share
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