Definition of the Problem
Consumers are taking advantage of price differentials for prescription drugs in other global markets by either physically crossing over to the Canadian border or ordering them from the internet.
Analysis
In an increasingly global environment, companies must become more aware of an empowered consumer. Information, such as pricing in other countries, is able to spread very quickly. American consumers often wish to be on an equal playing field with the rest of the world. This means that a service/good that is bought in the United State should be comparable in price/quality to the same good/service bought in another country. GSKoSmithKline (GSK) encountered numerous public relations and strategic issues with their decision to limit the supply of drugs shipped to Canada. Many American consumers chose to buy the cheaper versions of the drugs from Canadian pharmacies because of the significant price reduction. Many of these consumers, who were often low income or elderly, could not afford the United States drugs because of the expense.
GSK’s Responsibility to American Patients
Healthcare is a business, but it must be treated differently than other businesses. GSK has both a social and ethical commitment to produce life-saving drugs that are affordable and easily accessible to the American public. The large price differentials between drugs purchased in America and drugs purchased in Canada led many to believe that GSK was a profit-hungry corporation that did not care about human life. Like any business the role of profits were probably a part of GSK’s decision to limit the Canadian drug supply, but what many individuals did not recognize is that there was very little, if any, prescription drug subsidies offered by the American government, thus causing the dramatic price differentials. However, the public only looked at the price and did not look any deeper. They took all of their frustration out on GSK and their decision to cut off the supply of the only drugs that some people could afford.
GSK’s Price Setting Power

GSK holds immense power over their customers with their ability to control prices for products which their customers need for their health. Having a large price differential in neighboring countries was going to cause the ultimate result of Americans purchasing the cheaper drug from across the Canadian border because of the ease of access to it. A pharmaceutical company in general holds great power over customers because they provide products that customers must sometimes rely on for good health. If the prices on the drugs rise, then customers do not have any other choice but to pay for them or risk a decline in their health. This applies mostly to uninsured Americans who must pay the full price for their prescriptions as opposed to the insured population who only see the costs of their co-pays for a prescription.
Also, GSK is headquartered in London, where they have universal health care provided in a similar manner as Canada’s health care system. Given that GSK is a for-profit company, they saw America as their opportunity to make high profit margins because the price caps did not exist there. Even though this fits with their overall goal of achieving returns for their investors, it ultimately caused their brand name to be tarnished. The law of one price states that the price of a given commodity will have the same price when exchange rates are taken into consideration, and obviously, this was not the case for GSK’s pharmaceuticals.
GSK’s public image was damaged with their decision to lower the amount of drugs delivered to Canadian pharmacies to encourage a decline in across border sales as well as their threatening to completely cease delivery to Canada at all if they did not stop selling drugs across country borders. The reasoning in this decision for such a price differential is the main culprit for this damage to their brand name. GSK claims that they are promoting consumer safety due to the danger that shipping drugs across the border presents. However, a pharmacist had stated that shipping the drugs does not affect the safety of them. Because of the lack of reasoning behind their decision, campaigns were launched against the company and boycotts of their products were encouraged.
The “Safety” Excuse
It is hard to be convinced that safety was the real issue behind GSK’s retaliation movement against cross-border sales from Canada into the United States. One of the most relevant points was made by columnist Joe Graedon, “You have to assume that if you shop for your Advair at a pharmacy in Toronto, it’s going to be just as good as Advair in downtown Durham (North Carolina).” This statement raises the question of if it is safe enough to ship prescription drugs between states using online pharmacies, why is it any different than shipping prescriptions from Canada? If safety issues regarding shipping the drug were GSK’s true concern for Americans purchasing prescription drugs from Canada, it seems the safety issue should also be applied to shipping methods within the United States. If safety was truly the issue, GSK would have formed a much better argument, while saving the reputation of the company, by focusing more on the true reason Americans were reaching out to Canadian pharmacies in the first place – lower, affordable costs. The statement made by Barbara Kaufmann, “A drug that is not affordable is neither safe nor effective,” only confirms the real issue with prescription drug safety by implying that if Americans dependent on certain medications can simply not afford them when needed, pharmaceutical drug companies are not contributing to the safety of the American people. By emphasizing the importance of supporting the American economy by purchasing drugs within the country, GSK could have shifted focused from ‘denying’ Americans of their freedom to purchase affordable drugs elsewhere, by honing in on any efforts made by the company to make drugs affordable in the US.
When it is a matter of life and death for Americans, the focus of the prescription drug industry should be on looking at every possible alternative for lowering the costs. When dealing with health care issues, it is crucial to focus on the safety and quality of patient experience. The patient is at the center of every decision made in healthcare, whether it is direct care or prescription drugs to maintain a health condition. Americans should not fear for their life, at the expense of not being able to purchase drugs that are critical for their survival.
Recommendations
The strategic resources that must be committed to repair the damage caused and restore the public relations to the GSK should be focused on lowering the prices for American consumers as well as increased community involvement and charity donations for American citizens who otherwise cannot afford their prescribed medications. They must make a positive presence in America for themselves or risk further declines in their profits.
It would also be wise for GSK to support a major lobbying effort in the U.S. Congress so that prescription drug subsidies can be offered to elderly and low-income Americans. This will make the price differential much less of an issue when it comes to purchasing drugs. The company can also attempt to fix this problem internally by working on a more personal level with those individuals who are vulnerable for not being able to afford their medication.