STUDY OF PRICING

STRATEGY OF
JOHNSON &
JOHNSON FOR
PHARMA PRODUCTS

BARKHA AGARWAL A10

SOUMYA SHARMA A11
ADITYA KUMAR SINGH A32
AKHIL KUMAR A34

Submitted to:

Dr. Supriti Agarwal

 INTRODUCTION

Every company which survives, sustains and creates a name for itself and begets consumer
confidence, has something to do with more than looking at businesses as only a means to
amass profits. The company takes care to build and nurture a long standing relationship with
all its stakeholders. In this way, it becomes a trustworthy and socially responsible business
entity with an ability to capture not only investor confidence, but also the same from its
customers and its people who work for it.

One name which readily comes to mind in this context is that of Jonson and Johnson
(J&J), which has emerged as one of the most iconic and trustworthy household name in
every part of the globe ( wherever they do business) in the field of pharmaceuticals and
consumer packaged goods, and especially in the area of baby care products.

BACKDROP

Johnson & Johnson (J & J) is a Fortune 500 pharmaceutical and consumer packaged goods
manufacturer multinational company, founded in 1886 by three brothers, Robert Wood
Johnson, James Wood Johnson and Edward Mead Johnson. The Head Quarter of J & J is
New Brunswick, New Jersey. It has 250 subsidiary companies with operations in over 57
countries and products sold in over 175 countries. Johnson & Johnson had worldwide
pharmaceutical sales of $65 billion for the calendar year of 2011 (Johnson & Johnson
Reports 2011 Fourth-Quarter and Full-Year Results, sited at jnj, 2013). It has been ranked at
the top of Harris Interactive’s National Corporate Reputation Survey for seven consecutive
years up to 2005, was ranked as the world’s most respected company by Barron’s Magazine
in 2008, and was the first corporation awarded the Benjamin Franklin Award for Public
Diplomacy by the U.S. State Department in 2005 for its funding of international education
programs.
J & J put its first imprint in India in 1947. In 1948, Johnson’s Baby Powder which was
manufactured by a local company, British Drug House, in Mumbai, had been released in
market. In September 1957, a new company - Johnson & Johnson Limited was created and
registered with 12 employees on its payroll. The company was licensed to manufacture a
broad range of consumer and hospital products.

In the 1960s, J & J experienced a mammoth manufacturing growth. The first Ethicon plant was
set up in Dharavi in Mumbai to manufacture Catgut sutures. In 1966, the Bhandup plant in
Mumbai was set up to manufacture feminine hygiene products. The Ortho Diagnostics’
manufacturing unit was set up in 1970 and shifted to Deonar in Mumbai. In 1975, Ethnor
Limited (merged with Johnson & Johnson in 1994). set up a plant for manufacturing
pharmaceutical and ethical products of Ortho-McNeil Laboratories and Cilag Chemie. A
second manufacturing plant for personal products started in Bhandup in Mumbai. The state-of-
the-art Ethicon plant in Aurangabad became operational in 1991. The latest addition to the
family is the manufacturing facilities in Baddi in Himachal Pradesh, which caters to both
medical and consumer sectors. Currently, the manufacturing plants are at Baddi (2), Mulund,
Aurangabad, Deonar and offices at Mumbai (4), Chennai, Delhi, Kolkata, a pharma R&D
Centre in Mulund, a Global Clinical Operations (GCO) office in Powai, Mumbai, and a
Business Knowledge Centre in Pune & Bengaluru. In the last 50 years Johnson & Johnson
Limited has gained a reputation for delivering high-quality products in India.

PRODUCT RANGE OF J & J

J & J is the world’s most inclusive and broadly-based manufacturer of health care products
as well as a provider of related services for the consumer, the world over. A wide variety of
products across a diverse range of categories are continuously innovated, manufactured and
marketed to help people across the globe to lead healthy and happy lives.
MEDICAL DEVICES & DIAGNOSTICS

Their medical devices & diagnostics businesses provide help to doctors, nurses and hospitals
with enabling technologies to cure patients who suffer from some of the world’s most
pervasive and chronic conditions.

PHARMACEUTICALS

The Pharmaceutical segment’s broad portfolio focuses on unmet medical needs across several
therapeutic areas: oncology; infectious disease; immunology; neuroscience; cardiovascular and
metabolism. It includes products in the anti- infective, antipsychotic, cardiovascular,
contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology,
pain management, urology and virology fields.

MAJOR COMPETITORS OF J & J

Johnson & Johnson’s major competitors include 3M Health Care, Abbott Laboratories, Merck,
and Novartis. In the medical devices space, its competitors include Medtronic (MDT) and
Boston Scientific (BSX). In the orthopaedic implants segment, it competes with Zimmer
Holdings (ZMH) and Stryker (SYK). Its other competitors include Abbott Laboratories;
Affymetrix, Inc.; Alberto-Culver Company; American Home Products Corporation; Amgen
Inc.; Aventis; Bausch & Lomb Incorporated; Baxter International Inc.; Bayer AG; Beckman
Coulter, Inc.; Becton, Dickinson & Company; Bristol-Myers Squibb Company; Carter-
Wallace, Inc.; Colgate-Palmolive Company; Dade Behring Inc.; The Dial Corporation; Eli
Lilly and Company; Genentech, Inc.; The Gillette Company; Glaxo Welcome plc; Kimberly-
Clark Corporation; L’Oréal USA, Inc.; Minnesota Mining and Manufacturing Company;
Nestlè S.A.; Perrigo Company; Pfizer Inc.; Pharmacia Corporation; The Procter & Gamble
Company; Roche Holding Ltd.; SmithKline Beecham plc; St. Jude Medical, Inc.; Unilever;
United States Surgical Corporation (wikipedia,2013)
COMPANY STRUCTURE

Johnson & Johnson has more than 250 companies located in 57 countries around the world. It
has a decentralized structure. The family of companies is structured in three major lines of
business: Consumer; Pharmaceutical; and Medical Devices & Diagnostics, as discussed above.
Each business segment is organized into franchises to focus on target customers and better
services. The diversification of product lines spread among the three business units has helped
J&J to become much more than a consumer products company. The Executive Committee is
the principal management group which is responsible for the operations and allocation of
resources. Its Family of Companies is organized into several business segments comprised of
franchises and therapeutic categories. The business segments are as follows:

CONSUMER HEALTH CARE

The Consumer segment includes a broad range of consumer health and personal care products
in the beauty, baby, oral care and women’s health categories, as well as nutritional products
and over-the-counter medicines and wellness and prevention platforms.

MEDICAL DEVICES & DIAGNOSTICS

The Medical Devices & Diagnostics segment focuses on technologies, solutions and services in
the fields of cardiovascular disease, diabetes care, orthopaedics, vision care, wound care,
aesthetics, sports medicine, infection prevention, minimally invasive surgery, and diagnostic.

PHARMACEUTICALS

The Pharmaceutical segment’s broad portfolio focuses on unmet medical needs across many
therapeutic areas: oncology; infectious disease; immunology; neuroscience; cardiovascular and
metabolism. It includes products in the anti- infective, antipsychotic, cardiovascular,
contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology,
pain management, urology and virology fields
Johnson & Johnson is a highly diversified company with 230 subsidiaries, which it calls as
the “Johnson & Johnson Family of Companies”. Some of these subsidiaries include :Johnson
& Johnson group of consumer companies Inc; Johnson & Johnson Health Care Systems Inc;
Pfizer Consumer; ALZA corporation; Baby centre L.L.C.

The decentralized structure still is one of the company’s biggest commitments. The
operating units are usually independent as to how they manage their businesses. However,
the corporate top executives carefully monitor J&J’s overall structure to assure an optimized
balance between the headquarters and the operating units worldwide. J&J believes that the
authority should be in the hands of the managers who are close to the marketplace and the
corporate top executives should focus on broader aspects of both the health care industry
and people management.

The corporate headquarters, located in New Brunswick, New Jersey, serves to centralize just
only those activities needed to leverage J&J’s size and create the right synergies and
efficiencies among the family of companies. J&J Corporate confines its assistance to the
autonomous operating units, providing guidance and services in critical areas such as human
resources, finance, environment, advertising, law, and quality management.

In contrast, the operating units are spread all over the world. Primarily, host country
nationals (HCNs) of the countries in which they are located run the international settings.
Sometimes they have such deep and long-term connections with their home markets that
local people consider the company to be domestic. For example, Brazilians consider J&J to
be a Brazilian corporation, and British people often assume the company was founded in the
U.K (Nash, 1988). This shows the company’s ability to identify itself to the host country and
its people which act as a great point of strength for the company when it comes to
acceptability in that particular country.
Each operating unit has a chairman, president, general manager or managing director who
reports directly or through a line executive to the Group Operating Committee at headquarters.
Only the financial goals are discussed between the corporate and their units, while explicit
performance goals mandated by headquarters are avoided, giving the management team near
the market full autonomy

Specific mission statements emphasize the autonomy of the operating units. Each unit has its
own mission statement, outlining the focus of that particular business. Thus J&J Corporate
also avoids overlapping of business targets that can cause unhealthy competition among the
units.
 LITERATURE REVIEW

Kotler Philip; Gary Armstrong, Veronica Wong, John

Saunders (2008). Marketing is the process that creates interest among customers in goods or
services. It generates the strategy that underlies sales techniques, business communication
and business developments. It is a process by which companies build strong customer
relations and create questionable value for their customers and for themselves.

Karen L. Stewart and Whiton S. Paine (2002). The authors of this research are of opinion
that on parity with competition Johnson and Johnson tries to bring new products in a new
market so that their marketing doesn’t leave the race. For economic value determining the
products or services. Creation of tiered offerings to drive growth and margin. Using price
analytics to identify opportunities for policy and process change. Managing negotiations to
avoid the “price trap”.

Daniles and Jane (2009) a pricing strategies with in the baby product industry”, the study
of baby product market can be very congested with many different brands depending on the
product and it can be hard for a consumer to distinguish between the multiple brands.
Marketers need to assist consumers through the distraction of all the various brands and lead
the consumers to their particular brand considering various factors like price.
 RESEARCH PROBLEM

Businesses in any industry can dramatically improve their understanding of what drives the
customer buying decision with Pricing Research & Analytics. Armed with greater insights, our
healthcare clients execute value-driven Pricing Strategies that optimize profits.

This study focuses on study of pricing strategies adopted by Johnson and Johnson . It is
necessary for any industry to have an appropriated and well structer pricing strategy.

RESEARCH OBJECTIVES

To study of pricing strategies adopted by Johnson and Johnson for its pharmaceutical products.

RESEARCH DESIGN

Exploratory research has been used to study the pricing strategy. Descriptive research has been
used for collecting the feedback from parents about the affect of price on choice of
pharmaceutical product.

DATA COLLECTION
The data type for the research is secondary data.

Sources of Secondary data: The Secondary data were collected from:

 Research Papers
 Journals
 Internet websites
 Sales By Segment
Others, 7%

Consumer , 18%
Medical Devices,
42%

Pharmaceutical,
33%

Medical Devices Pharmaceutical Consumer Others

Consumer Segment Sales

7%
11%
Pharmaceutical and Neutrition
1%
48% Womwns Health
Wound Care
26%
Skin Care
7% Baby Care
Oral Care
Pricing strategy of Johnson and Johnson
• Johnson & Johnson is a renowned brand and still it has maintained its pricing to an
affordable rate so that the common man can buy the products. Johnson & Johnson
follows a very well planned pricing policy in its marketing mix pricing strategy,
mainly keeping it in the range of the consumer price index. As we know the major part
of the company’s market is from consumer products so it keeps in mind the
affordability criteria of the consumers in the market before setting its pries.
• Johnson & Johnson has also followed a psychological pricing technique keeping its
prices in the multiples of 99 or 49. Although Johnson & Johnson products are known
for its superior quality with proper packaging etc, the company has decided on
affordable prices.
• In its medical products category, working along with government they have priced
them thee products at a reasonable rate. This also depicts the companies socially
responsible intentions.
• There are certain Johnson & Johnson products like the baby care products and
consumer goods where the prices charged are little high. This is because people
buying such products are ready to pay even a certain high price given good quality and
good health for their family.
Prisoners Dilemma
• Johnson & Johnson set the stage for a price war in one of the most lucrative segments
of the pharmaceuticals industry, as it announced its intention to discount its top-selling
arthritis drug following the introduction of a cheaper version.
• “We’re ready to compete in every channel, trying to bring patients the most affordable
option in every situation,” Joaquin Duato, J&J’s worldwide chairman of
pharmaceuticals, said on Tuesday, a day after Pfizer announced it would start selling a
copycat of Remicade from next month.
• Remicade, an anti-inflammatory drug for conditions including rheumatoid arthritis, is
J&J’s best-selling medicine by far, generating $5.3bn of sales in the first nine months
of this year.
• Pfizer’s drug Inflectra will go on sale with a list price of $946.28 a vial, a 15 per cent
discount to Remicade. But the negotiated price for either drug is certain to be much
lower as both companies offer big discounts to health insurers and pharmacy benefit
managers to bolster their market share.
• Shares in J&J fell 2.6 per cent in New York trading.
 DATA ANALYSIS

• Which brand do you prefer? J&J or Pfizer?

RESPONSE

45%
55%

J&J P&G

 Does price matter to you? Or brand value and brand name is important?

RESPONSE
Yes No

25%

75%
• Do you think prices charged by these companies provide value for money?

Response

0%

35%

65%

Yes No

• Is the price charged by J&J affordable by you?

RESPONSE

No
0%
20%

Yes
80%

Yes No
Demand elasticity for medicines
• These medicines will have some elasticity of demand, and buyers will be price
sensitive. The demand for these medicines will be inelastic, and the need for
the medicines will make buyers less price sensitive.
 ANALYSIS & INTERPRETATION

In the current study, after collection of the data the same has been arranged and managed on
Microsoft Excel and analysed using Frequency distribution, Bar graphs and Pie-charts.

The world's largest drug maker just gave us a better idea of how drug price hikes impact its
business.

Johnson & Johnson list price compared to its average net price after rebates and discounts.
The companies' drugs had an average list price increase of 8.5% in 2016 while its net price
increase was just 3.5%. To recap, the list price is the amount a drug maker sets, and it's often
the most publicly available number, while a net price is the amount it actually receives in
return for the drug after factoring in any rebates or discounts.

The reports are part of an effort to diffuse criticism faced by the entire industry that drug
prices are out of control. While it has been a hotly covered topic for several years, President
Donald Trump has been raising the stakes, saying that drug companies are “Getting away with
murder”.

Thus, Johnson & Johnson like other pharma companies adopts Penetration Pricing so asto
not to loose market share from the competitors and this also is one way they keep be
government interference in the industries not affect their net worth.

That makes the essential medicine easily accessible to the masses so keeping the profit
margin lower they target all segments of the market , ever since health care is imperative for
all.