Marketing
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Medi-Cult, a Danish biotechnology company, established in 1987 to exploit proprietary cell culture technology, supplies the media for use in the later stages of IVF and developed IVM (in vitro maturation) during the 1990s. This process involves maturing eggs from the ovary in vitro with the help of only a single dose of maturation medium patented by Medi-Cult. The major benefit of IVM in contrast to IVF is that it does not require the woman to go through the thirty days of self-administered hormonal injections, associated with the significant side-effects. This is a drastic departure from current assisted reproductive technologies and thus represents a radically innovative product.
PROBLEM STATEMENT: Management wants to decide what price to charge Clinics for a single dose of IVM medium. The three options are 1. $4000, 2. $3000 and 3. $2000. Krogen, President, was afraid that pricing it too low could sub-optimize potential profitability and risk having the credibility of his product questioned. And by pricing it too high, he might attract only a limited number of infertile couples who eek treatment each year, while perhaps making the industry more attractive for potential competitors.
CONSUMER ANALYSIS: We can identify one consumer market (infertile couples) and five different consumer groups (patients, clinics, doctors, insurance companies and government). But due to their congruencies in use criterion, segmentation will be combined into a one all-inclusive grouping (exhibit 1). The needs of the target consumer market center around the effectiveness and overall ease of the fertility treatment. Consumers, mainly women, are sensitive to the side-effects of the fertility treatment. The government and insurance companies in the US (as given in assumption 3) neither cover the costs of the different steps in the IVF process nor the medium costs. So, they are only concerned with the use criterion, which is high, because they do not want to foot hospitalization bills. Similarly, doctors and clinics want a product that makes the treatment process hassle-free, easy to comprehend and comfortable for patients so that more patients would frequent the clinics to get treatment. Making the product prohibitively expensive might reduce the number of patients going for treatment to clinics. So doctors and clinics are moderately sensitive to price. Consumers pay most of the costs required for treatment and are willing to pay for a treatment that is easy, painless and effective. In addition, since the value attached to having a child is high, they are willing to pay a high price for an easy, painless and effective treatment. Thus, they are insensitive to price. Based on the case, the potential demand for IVM is the current demand for IVF which is 80,000 cycles a year.
COMPANY ANALYSIS: Medi-Cult is a public company that has fully-owned subsidiaries in France, Great Britain and United States and employs 53 people. Translated into marketing objectives, Medi-Cult focuses on the long-term profit maximization of its entity. However, in the pharmaceutical industry, this is accomplished by maximizing short-term returns on individual products. This is necessary due to the substantial research and development costs involved in developing and testing new products that may or may not become commercial successes. The company, which had been listed on the Oslo stock exchange since 1996, has not turned a profit in recent years. So it has an obligation to generate cash and profits for long-term survival. Thus products that are developed successfully must generate sufficient revenues so as to recoup past R&D costs as well as generate profits to compensate shareholders for their risk.
As the attributes of the market demands are technical in nature (effectiveness of the product), Medi-cults core strengths can be found in the possession of their medium patent for IVM and its partnerships with doctors, scientists and biotechnological manufacturers to staying on the cutting edge of research in this competitive field. It was this powerful R&D network that led to the development of the IVM medium. Major costs for Medi-Cult include Production costs, Sales and Marketing costs and R&D costs. Even though Medi-Cult has been in the business for over 10 years, the production costs are high (40% of net sales).
COMPETITOR ANALYSIS: Medi-Cult is likely to face two types of competition. The first is from large pharmaceutical companies that supplied hormones used in IVF. They stand to lose around $200-300 million on the sales of hormones, which are in much reduced demand for the IVM process. A second type of competition was likely to come from companies that developed and manufactured cell culture media. Medi-Cult expected to have a two to three year advantage by being the first to market but the process could be reverse engineered and similar products could be released by other competitors in a few years. Because firms are set for high production runs concurrent with the granting of a patent, capacity utilization rates keep competition high between firms.
EXTERNAL ENVIRONMENTAL ANALYSIS: As per the case, I could not see any significant external macro-environmental forces that are not covered in the 3Cs.
RECOMMENDATION: I recommend that Medi-Cult charge clinics $3000 for a single dosage of the IVM medium, a competitive strategy. The company analysis indicates that Medi-Cult is a for-profit public company. So they have the obligation to earn the return on investment for the risk taken in developing new products. Medi-Cult has made almost all of its previous years revenues from IVF products. So, given the focused product mix of Medi-Cult and the negative profits it has been earning in the last few years, it needs to maximize current profits with its existing line of products.
Consumer analysis indicates a willingness to pay the price as IVM successfully meets the consumer use criterion. Since there is no direct competitor product, the cycle cost of IVF is a good reference price for IVM. Consumer analysis reveals a willingness to pay the $8,000-$10,000 for the single cycle of the IVF treatment. Now, due to satisfying the same need and improved benefits, IVM should be priced taking IVF as reference. Let us see the True Economic value of IVM calculated in Exhibit 2. Also the total contribution of IVM has been given in Exhibit 3. Since the total revenue