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Why do we need Price Elasticity Studies?

One of the biggest factors that determine the performance of a medicine or a product in the market is how it is priced. Price elasticity is an important concept that indicates how the market for a product reacts to a change in the price and allows companies to take action in order to maximize the availability of the product for the consumers or the patients. When it comes to price elasticity studies, there are many situations in which a firm would be interested in conducting one, including: the market entry of a new product, price revision for an existing product, reimbursement amount decision or determination of the optimal price for market value maximization.

Five main elements should be thoroughly considered in a price elasticity study

Several main elements may affect the pricing decision in a country, and they should be considered to effectively construct a price elasticity study. First, it is important to understand which factors influence the purchase and how they differ in terms of their impact on the purchase decision. During their purchase decision, patients may get influenced by the opinions of their families, friends or peers. Today, even a simple online search of the product name will give patients tons of reviews on the experiences other patients had with the specific product and affect their final decision. 


The second element is the physicians’ willingness to prescribe medicines. Physicians consider different factors when they decide what product to prescribe to which patients. These factors include the safety, efficacy, brand, local availability and price. 


“Patients’ ability-to-pay” is another element that is important to look into and identify, since patients without the necessary financial means will be unable to buy the prescribed medicine, which may potentially create a bottleneck in the process and prevent the patients from receiving the medicine they need. Affordability may also vary if the patients are paying out-of-pocket for the whole treatment or only for the co-pay.


The fourth element that is significant in the construction of a price elasticity study is the “patients’ willingness-to-pay” for a product. Willingness-to-pay of patients is affected by their ability-to-pay, personal and household income, as well as their out-of-pocket treatment expenses. Additionally, the number of dependents may also affect willingness-to-pay, as some patients may prioritize the well-being and needs of the dependents, further lowering their willingness-to-pay for treatment. 


Lastly, it is crucial to have a deep understanding on the competitive landscape to better recognize at what price points the patient would shift to an alternative product. The impact of pharmacist recommendations on the purchase of medicine at the point-of-sale is also extremely important, as with this guidance, patients may switch to another product.

Why is performing a qualitative research prior to the quantitative research important?

To initiate a price elasticity study, first, a deeper understanding on the health landscape should be sought to structure a qualitative research. An initial qualitative research would be performed by conducting interviews with key stakeholders such as physicians, patients and pharmacists using open-ended questions. The findings from the qualitative research will help determine the key areas of focus and shape the semi-structured or structured question sets used for the comprehensive quantitative research, in which interviews with a larger sample size of key stakeholders will be conducted.

Further considerations for a successful commercial strategy

Although the four elements mentioned previously make up the core of any price elasticity study, there are several other additional considerations for a successful commercial strategy. Firstly, the intermediary costs for a product, such as fees or taxes, should be considered; as they may influence and significantly increase the price of a product at the point-of-sale. Secondly, patients may experience occasional cash flow issues due to the financial strain the treatment puts on their household finances, resulting in an unstable ability to pay. To alleviate this, individual pill sales at the pharmacies can be made available to allow patients to buy pills in smaller quantities. Finally, a strong supply chain should be ensured by increasing the number of point-of-sales, in order to ultimately increase the availability of the product to a larger population.

Price elasticity studies hold immense value in guiding the pricing strategy of a product

In conclusion, price elasticity studies are widely used tools in the pharmaceutical industry. Through the use of the correct methodology and considerations, price elasticity studies can be very effective and can help pharmaceutical companies in setting an optimal price for a medicine to increase its reach and availability for a larger pool of patients.


EMH Consultants can support organizations in gaining a deeper understanding of the market in their countries, as well as perform strategic analysis to pinpoint the challenges and identify innovative solutions to overcome them.

How can EMH Consultants support you?


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