Great Lakes Pharmaceuticals, Inc. (GLPI), produces both prescription and over-the-counter medications. In January, GLPI introduced a new prescription drug, Capestan, to relieve the pain of arthritis.
The company spent more than $50 million over the last 5 years developing the drug, and advertising alone during the first year of introduction will exceed $10 million. Production cost for a bottle of 100 tablets is approximately $12. Sales in the first 3 years are predicted to be 500,000, 750,000, and 1,000,000 bottles, respectively. To achieve these sales, GLPI plans to distribute the medicine through three sources: directly to physicians, through hospital pharmacies, and through retail pharmacies.
Initially, the bottles will be given free to physicians to give to patients, hospital pharmacies will pay $25 per bottle, and retail pharmacies will pay $40 per bottle. In the second and third year, the company plans to phase out the free distributions to physicians and move all other customers toward a $50-per-bottle sales price.
Comment on the pricing and promotion policies of GLPI. Pay particular attention to the legal and ethical issues involved.