Nov 19, 2020 in Case Studies

Price Increase
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Ethical Case Analysis

Question 1

 

As the CEO, I deeply concern with the poor public image that may arise from the allegations being made against the company. Currently, some consumers and even the lawmakers feel that the price increase is unjustified and actually unethical. If the allegations continue, the market may eventually believe that they are true, and start viewing the company as unable to fulfill their need for the product. The impact is already being felt because when the shares value and returns become increased due to the price increase, the company experiences a stock tank of more than 12% and about $3 billion in market cap (Kozarich, 2016). This must have certainly emanated from the feeling that the company was making unjustified profits, and some consumers, at least those who could, must have moved to avoid the product. With the recent outcry of lawmakers, more consumers will have their attention drawn to the issue and may further ignore the product. Even though the competitor is currently not doing as well having only a tiny proportion of the market, it should not be overlooked that it could gain from the companys current woes. If this happens, recapturing the market in the future may prove to be very difficult. The public image issue has been further worsened by exposure of information regarding the company CEOs links with a senator and the leader of a board that oversees schools. There may thus be a general perception that the company is gaining certain favors from these parties. This may be contributing to the feeling that there is some conflict of interest in the way things are being done. An example is the move by Gayle Manchin, who is the founder of the companys CEO, to officially require from schools to stock EpiPens (Kozarich, 2016).

Question 2

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The ethical responsibility that I have towards the organization is taking measures that ensure that the price of the drug does not increase further or that it is reduced to make it affordable to consumers. A price increase of over 400 percent since 2007 (Kozarich, 2016) is certainly the issue generating the controversy, and as such, the organizations leader has a duty to address the issue. It is also worth noting that the drug is a life-saving treatment. This means that inability to afford the drug can cause death, and if this happens, the company will to some extent have failed in its social responsibility.

 
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The responsibility also stems from the need to clear the ethical controversy facing the company. One regards the CEOs links to the Senator and the National Association of State Boards of Education. The CEO has to clarify that the company is not taking advantage of any existing links to these parties and using them to exploit consumers. She will thus need to take the responsibility and communicate to consumers and the public in general that all profits the company is getting are justified. Thus, she will clear the name of the company and keep the market from assuming that there are unethical transactions taking place between it, the Senator, and the head of the educational association. The CEO also has an ethical responsibility to justify her salary increase and seemingly extravagant life so that these two are not used as a basis to judge the company. In fact, the salary has increased up to 671% whereas the lawmakers questioned why the CEO had to use a private jet (Kozarich, 2016). There may be a need to accept a salary cut to convince the consumers that the CEO is not gaining advantages from the drugs price increase whereas she may need to reduce some of her personal expenditure so that people will not assume they are extravagantly funded by the company.

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Question 3

A key component of the strategy will be communication to the public in order to clear any existing misconceptions. The first issue to be addressed is the price increase, whereby the company will explain the cost of the drug, namely to justify why price had to be raised. The CEO already did it and tried to show that the company was sonly getting $50 for every piece of the drug (Kozarich, 2016), but there are still doubts that she was giving correct figures. As such, the communication should be accompanied by the relevant documentation as reference in order to raise the credibility of the information provided. Furthermore, the company should address the perceived links between its CEO, the Senator, and the head of the association. As mentioned earlier, she needs to clarify that the company does not gain undue advantage from the links, and actually show that it only benefits in a way similar to what other companies do. On the issue of the market near-monopoly, the company should explain that it had no intention to provoke such a state, and that it has only strived to ensure its product stands high in quality and standards. This form of communication will help maintain the consumers trust in the brand. If such trust is absent, consumers will turn to the competitors searching for their ideal one (Gleeson, 2012). Secondly, the company will look for additional measures of reducing the cost of drug producing. This may involve negotiation for lower prices of raw materials or maximizing the productivity of employees. The cost savings will then be shown to the consumers in the form of lower product pricing. The company may also seek price control of its product by recommending a retail price and indicating it on the product. Consequently, consumers will understand that the high cost is not imposed by the company.

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