Negative publicity is something most companies want to avoid at all costs because it often tarnishes the brand image and eventually leads to decrease in sales. Back in the fall of 1988 Burroughs Wellcome (BW)’s profit maximization price of AZT caused a PR nightmare for the company and the management team feared a possible adverse impact on sales of Zovirax (a prescription drug for genital herpes), and Sudafed & Actifed (over-the-counter drugs for common cold). However, I do not believe that the negative publicity of the pharmaceutical company would have a significant impact on the sales of individual drugs.
Negative publicity of BW would not adversely impact the sales of Zovirax in USA because of (1) a lack of perfect substitute and (2) the preference of physicians, the real purchase decision maker. Unlike the common cold, genital herpes is very difficult to cure and the treatment process requires applying specific drugs over a long period of time. There are not many substitutes for Zovirax and the effectiveness of substitutes is questionable. Trying a new drug may prolong the treatment and it is not a risk that patients are willing to take given genital herpes is traumatizing and causes a lot of inconvenience to a patient’s life. Preference of physicians also plays a role in protecting Zovirax’s market share. Zovirax is a prescribed drug which means the “purchase” decision makers are the physicians and not the ultimate users. Physicians, having put their reputation and career on the line when prescribing drugs, always prefer the most effective drug in the market. The fact that Zovirax is a major drug in this market proves that the drug is an effective drug trusted by many physicians. Bad publicity of BW has nothing to do with the effectiveness of Zovirax and therefore it has no impact on physicians’ purchase decision.
On the other hand, market share of Sudafed & Actifed does not seem as easy to protect. Consumers who purchase Sudafed & Actifed are not as sophisticated as physicians who recommend