Merck Gardasil Case
Problem Identification: Allison Watkins, Mercks senior director of Vaccines Division, needs to decide on Gardasils price. She is faced with the dilemma of making a decision to go with the outside consulting firms recommendation to price Gardasil at $120 per dose, $360 per person. The other alternative is to go with a higher price as recommended by the Marketing team. There is also another faction in the company who believe that the $120 per dose, $360 per person is too high.
Merck has the pricing objective to maximize its profit on Gardasil because it has been facing dwindling revenues in 2005. Its revenue stream is also depleting in the near future because of the expiration of its patents, namely Zocor, Fosamax, and Singulair. On top of that, Mercks stock price has plummeted due primarily to lawsuits on Vioxx. To date, Merck realized sunk cost of $1.2 Bn in developing Gardasil before FDA approval. A lot is at stake for Merck to ensure that Gardasil is priced right as this means creating a revenue stream for Merck.
On the other hand, the points for setting the price low on Gardasil are also valid. Setting the price at $120 per dose, $360 per person would be the highest priced vaccine ever recorded. With the onset of the Vioxx lawsuit, this can potentially ruin Mercks already damaged reputation if consumers react negatively to the price. So, it is justifiable to set it Gardasil at a price lower than $120 per dose. The reimbursement by insurance company for such vaccine is an issue because the upfront costs are high while the justification for savings is not realized until many years later.
I believe that the price should be set at $500 considering that this is a one-time shot. The price elasticity of demand is low on Gardasil. For the most part, the demand will be high, whether the price is at $360 or $500, because there is no substitute for saving human life if one has cervical