Microeconomics Class Project: Formulated pricing strategy for syndicated subscription data services to biopharmaceutical companies. Recommendations included price differentiation and versioning, pricing based on utility, bundling, two-part tariff, cost reduction strategies.

1. *Projected
MCMM Sales Over Time
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
2009 2010 2011 2012 2013 2014
(projected)
Renewals New Sales
$882,566
$2,621,322
$6,549,069
$9,296,228
$ 9,623,245*
$8,469,610
Figure 1

2. 2014 Projected ($)
TOTAL SALES 9,623,245
DIRECT EXPENSES
Fixed Direct Salaries 777,947
Fixed Consulting/Outside Svcs. 159,264
Fixed Computer Programming 71,743
Fixed Travel and Entertainment 38,402
Variable
Honoraria
(money paid out for surveys)
1,114,006
Fixed Data 1,191
Total Direct Expense 2,162,552
Contribution Margin 7,786,812
Contribution Margin Percent
of Revenue
78%
2014 Profit & Loss Statement
0%
20%
40%
60%
80%
100%
Contribution Margin
Data
Honoraria
Travel & Entertainment
Computer Programming
Consulting Svcs
Direct Salaries
Figure 2

3. MCMM 2014 Pricing by
Therapeutic Area
$50,000 $100,000 $150,000 $200,000
Level 1
(low volume)
Level 2
Level 3
Level 4
Level 5
(high volume)
Product Pricing Bands
.
7-20
20-35
35-75
>75
Pricing Principles
• Syndicated model
• Volume-based by disease state
• 2nd degree price discrimination:
25% disc for add’l subscriptions
• 1st degree price discrimination:
small biotechs offered much lower
price for slightly less value
Assumptions
• Monopoly –  switching costs,
 product differentiation,  entry barriers/
 capital investment
• Data volume is a proxy for value
( volume =  value =  price)
Figure 3

4. Purchasing Client’s Semi-Annual Message Volume
Therapeutic Category’s Semi-
Annual Survey Volume
A: x < 7 B: 7 ≤ x < 20 C: 20 ≤ x < 35 D: 35 ≤ x < 75 E: 75 ≤ x
Level 5
Therapeutic
Category
140 ≤ x $124,727 $156,198 $166,968 $182,201 $197,434
Level 4
Therapeutic
Category
75 ≤ x < 140 $105,908 $124,727 $140,393 $156,198 $182,201
Level 3
Therapeutic
Category
50 ≤ x < 75 $90,675 $98,292 $109,061 $132,483 $156,198
Level 2
Therapeutic
Category
30 ≤ x < 50 $67,825 $83,058 $90,675 $101,165 $124,727
Level 1
Therapeutic
Category (1
report only)
10 ≤ x < 30 $60,208 $67,825 $75,442 $83,058 $93,256
2014 Prices for a 12-month Subscription, per Therapeutic Area
Figure 4

5. $0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
2009 2010 2011 2012 2013 2014
1
2
3
4
5
Sales by Price Band, Over Time
Figure 5

6. Utility of a Therapeutic Area for a Pharmaceutical Client
Price-
utility gap
Few drugs in a
therapeutic
category
Many drugs in a
therapeutic
category
Utilityofproducttopharmaclients
Time (years)
Utility over time, for a therapeutic category
Data Volume
(and price)
Figure 6

7. Demand Analysis
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
0 5 10 15 20 25
Priceperunit
Units Demanded
Level 5 Pricing - Actual Demand 2009-2014
Figure 7

8. Marginal Cost to service an
additional client
Manager time $2,092.50
Analyst time $2,092.50
$4,185.00
0%
20%
40%
60%
Direct Salaries Consulting
Svcs
Computer
Programming
Travel &
Entertainment
Honoraria Data
Breakdown of Cost Structure and Contribution Margin
0%
20%
40%
60%
80%
100%
Variable
Fixed
Fixed vs. Variable Costs
Figure 8

9. Recommendations
Increase Demand Reduce Cost Structure
Horizontal differentiation
• Custom questions value-add
• Adjust price based on client
reservation price
• More data from  value survey
respondents
Decrease payments to low value survey
respondents
Payments  25%  could afford to lose
$1.24M sales
Bundle with other Zitter products
Decrease labor costs by automating data
exchange
 labor ~50%  could afford to lose $1.73M
sales
Two Part Tariff – base subscription for web
portal data only, PPT deliverables cost
extra;
•  entry price point will  demand
Charge  price for peak years of utility
curve,
 price when utility is low
Figure 9