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Return management in pharma: finding the right price

Returns on drugs and medical devices are inevitable. Pricing a returned product is not an easy task for pharma and medical device companies. One important factor is the various reasons for returns. Most, but not all returns are the result of recalls. Some returns are mandatory such as when products are expired, or remaining SLED (Shelf-life) is less than the one determined by law. Complicating matters even more are two more factors that play into the pricing quandary:

  • Different laws for return management by country
  • Consideration for the typology of the return product

In many cases, laboratories have a 3rd party who is part of the return management process that includes pick up, stocking and destruction where relevant. In this case, another layer of complication is added to the return pricing process. But it’s a necessary evil for laboratories, as they should accept returns regardless of whether the sale was made through an indirect channel.

"Total annual costs associated with pharma returns average $4.8 million per company, with 1-3% of total sales returned."

HDA Research Foundation

Tedious ad nauseam

The ideal way to establish return pricing is to find the original sales order/billing document so that you can create the return order in reference to the original document, making the return price easily retrievable. Not complicated at all, right? If you work in the pharma industry you most likely know that this is mission impossible.

As mentioned, there are many changing variables to consider in return management. For example, very often in the same return order, you may receive multiple types of products that were shipped and delivered at different times. Imagine the tremendous level of time and effort that goes into manually locating and reconciling all the relevant invoices.

Making the process even more tedious is the possibility that the sale was not made directly with the same partner from which you are receiving the return. As you can see, it´s a mission impossible to determine the right price that you should credit the returned products. Very often laboratories decide to apply the last known price when crediting these returns. When you use this method of reconciliation on returns, what is it costing you as a company?

Steps to establish a pharma return pricing policy

3 ways to remedy return pricing.

  1. Track the price with granularity: Correctly apply pricing factors such as Ex-factory price/list price, mandatory/statutory discounts, and other commercial discounts. Know what products are sold by batch/lot number and customer, or at least by sales channel. Tracking these items makes it easier to identify the right return price you need to credit.
  2. Calculate an average: It may be beneficial for you to take a more simplified approach to determining the right return price. Calculating the price based on the average price sold over a period of time, such as the average over the last 18 months.
  3. Determine a set model price: In some cases, the return price is the Ex-factory price/list price minus a percentage discount which is defined by local law or by the commercial policy of the company (by BU/country/Channel).

What path will you take?

There are multiple paths you can explore for taking the tedious nature out of return management. Determining the best process to confidently approach a return should not be taken lightly. As part of the rebate program to your customers you can include an incentive for non-returns. If the customer doesn´t execute a return to the laboratory within a stated period, the customer (for example the distributor) will benefit from an additional incentive. This cannot be applied to those products where the return acceptance from the laboratory is mandatory by law, but it can be done for excluded products.

Interested in learning more about return management? Stay tuned and don´t miss our next webinar episode dedicated to return management.

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