Product manager just imagine that you find yourself in the following position: your company creates a great product development definition that it uses to make a new product that a large group of people want, in fact they might even need. Then you have the issue of what price you should sell your product at. Generally speaking, you’d want to set your price as high as possible, right? Is there any way that this could cause a problem? Is this going to be the kind of thing that you can put on your product manager resume?
Say Hello To Sovaldi
Let’s be frank here, hepatitis C is a very bad disease to get. The U.S. CDC describes hepatitis C as a contagious liver disease that ranges in severity from a mild illness lasting a few weeks to a serious, lifelong illness that attacks the liver. It results from infection with the Hepatitis C virus (HCV), which is spread primarily through contact with the blood of an infected person. HCV is spread primarily by blood-to-blood contact associated with intravenous drug use, poorly sterilized medical equipment, and transfusions. An estimated 150–200 million people worldwide are infected with hepatitis C.
The pharmaceutical company Gilead Sciences, Inc. has just introduced a new drug called Sovaldi. This new drug has been shown to cure a hepatitis C infection in just a few weeks. Clearly this is a breakthrough in treating this disease. There have been other treatments, but these treatments generally just dealt with patients symptoms. There were a few that went after the disease itself, but often they didn’t work and they had some nasty side effects.
Sovldi sounds like a miracle cure, right? What’s holding the product managers back from making it available to all of the people who need it? In one word: the price. Sovldi costs US$1,000 per pill. A typical person’s treatment is going to end up costing them roughly US$84,000. Clearly this solution comes with quite a price tag!
How Product Managers Should Handle Pricing
The Gilead Sciences product managers are facing a real challenge. Advocacy groups and members of Congress are starting to investigate how the price for this drug was reached. There are other expensive medicines out there, but Sovldi seems to have crossed some sort of magic barrier that has attracted a great deal of attention.
In defense of the product managers involved, it turns out that without the new treatment the cost of treating a hepatitis C patient can be quite expensive over time especially if their liver start to fail. Just as an example, the lifetime cost of treating an HIV patient is estimated to be US$380,000. 60% of the people who contact hepatitis C will end up with chronic liver disease.
So what should the product managers do? It turns out that Sovldi is actually a good deal – the upfront cost of the medication is less than the long-term cost of treating the symptoms of the disease. Additionally, if you can cure someone of hepatitis C then they can’t pass it on to anyone else. These are both great stories that the product managers need to clearly communicate. What they need to do is to reframe the discussion so that people are not focusing on the per pill cost, but rather on the savings that they realize by using this new drug.
What All Of This Means For You
Every product manager’s dream is for part of their product manager job description to require them to be responsible for a product that has a built-in market: people who both want and need it. In these cases, it’s not if we’ll be able to sell our product, but rather for how much. Very quickly the question of what price we should set for our product comes up.
An example of this situation has arisen in regards to the medication that can cure hepatitis C – Sovaldi. This treatment is currently priced at US$1,000 per pill with a total treatment cost of roughly US$84,000. A great number of people are starting to ask if this price has been set too high.
As product managers, it is our responsibility to control the story around our product. Yes, a high price can easily cause both our potential customers and others to start to question our ethics, etc. However, if we control the story and make sure that everyone fully understands the value of obtaining and using our product, then we can allow both our product and it’s price to be accepted. Keep your eyes open and stay on top of your product’s story!
– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™
Question For You: If people don’t buy the value story that you create for your product, what is your next step?
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What We’ll Be Talking About Next Time
If the product that you are responsible for is going to be successful, then you are going to have to find ways to get your potential customers to notice it. One way to go about doing this is to create ads that work with your product development definition and talk about your product and the problems that it solves. Ads can be a powerful communication tool for product managers; however, they can also end up pushing our potential customers too hard. What is the right way to use an ad?