Friday, October 16, 2009
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Saturday, October 10, 2009
Monday, October 5, 2009
In that world, shelf space is key. Eye level is where everyone wants to be and manufacturers actually count facings (number of units displayed) as they pay for such space. If a large manufacturer comes out with a new line of product or even a line extension of one product, they must pay the retailer to carry it (a listing allowance) then they must pay them for the amount of space they want, and at what level (eye level being the most expensive). Then they have to work out a deal for a promotion or end isle display etc all with volume expectations and more cost.
Now consider the retailers and drugs. The front of the store runs like above, but behind the counter, the brand manufacturer does not pay a listing allowance or anything like the above scenario. At least not to my knowledge. The store is obligated to carry the new product if a physician writes it. These products are the most expensive so they drive up the retailers inventory level and cost of goods sold. If the new product is accepted by the physician community, and takes off in sales, a larger space is required to store the product but still no manufacturer financial support for this. Unlike the front of the store, there are some extra fees the retailer charges the customer for; i.e. dispensing fees. Really the retailer is dictated to by the manufacturer of the patent protected products.
Once the product is off patent however, there is competition and the retailer gets rebates by the generics. It becomes much like the front store scenario with listing allowances, incentives or rebates. The cost of goods goes down as these products are less expensive but so too does retail sales. If they lower the price of these products they have to make up the sales dollars elsewhere as investors would hammer them if retail sales decline year over year. (a catch 22). So unlike the front store, where manufacturers pay for shelf space etc in the hope to increase sales and market share of their product, these manufacturers know that the overall market is going to decline or not grow as physicians switch to other promoted agents. And the cycle continues.