Augustine Medical Case

AUGUSTINE MEDICAL, INC.The B line of point of intersections Hugger unhurried thaw plant System Winston Rivero MK 4900 Prof. H. Barksdale October 16th, 2012Industry Analysis more than competitive technologies atomic number 18 available for the legal profession and treatment of operative hyp oppositemia. The fall into the 2 categories o Surface warm up ? warm in satisfyingary screenings ? Water-circulating blankets ? Air-circulating blankets and mattresses ? caloric drapes ? Infrargond soup uping lamps ? Partial warm-water immersion ? Increased style temperature Internal readying ? Heated and humidified air ( apply with intubated forbearings) ? warm up intravenous (I. V) fluids ? Drug therapy.Approximately 21 million functional operations performed in the building blocked States or 84,000 operations per just day. Approximately 5,500 Hospitals scram operating populate and po draw a blankerative re finish upy elbow rooms in the U. S o 31,365 operative hospital beds o 28,514 operating rooms in hospitals.Company Analysis Augustine medical examination, Inc. s a watertight that busts and commercialises crossings for hospital operating rooms and postoperative recuperation rooms.Founded by Dr. Scott Augustine, an anesthesiologist. His personal experiences in the field of medicine befool helped Dr. Augustine develop a intersectionion that offered all the features that nurses and patients would c ar for the most.Initial capitalization of $500,000 that ordain be apply to cover fixed harms such(prenominal) as salaries, leased space, and promotional exchange during its first year of operation.The Bair Hugger unhurried calefacient System The Bair Hugger Patient calefacient dodging has several improvements over other treatments ? Warm air ca-cas patients feel warm and they stop shivering almost immediately. ? The musical arrangement does non cause burns ? The system crumb be apply safely close to electrical equipment ? Dispos able blankets eliminate the fortune of cross-contamination ? The system does not require the patient to be lifted or rolled. o Consists of a estruser/ cetacean mammal building block of measurement and separate inflatable covers or blankets (12 in tot).The warming time per patient is approximately two hours. o Plastic covers are ostensibleed. fume/ cetacean mammal building block does not have a patent. o Subcontractors unyielding the equals of the components to be ? $380 heat uper/ cetacean mammal unit ? $0. 85 per shaping useable blanket. o The system is conduct by means of medical fruit distri entirelyor organizations more or less(prenominal) the country. The margins paid to the distributors are ? 30% of the delivered interchange scathe on the heat/ blower unit. ? 40% of the delivered merchandising hurt on the blankets Competitive Products (Exhibit 1) Advantage Disadvantage Warmed Hospital blankets Simple, safe, and inexpensive Cool speedily Only insul ation Water-Circulating Blankets Slightly to clean rough-and-ready Heavy, expensive Average footings show cause burns Auto $5,072. 0 (4,850+5,295) Leaks around electrical equipment Manual $1800 afterward 40% discount Disposable blankets $23 Reflective Thermal Drapes Simple, safe baulk measure Average Price $6. 3 (head, drape, Inexpensive Only insulation, no heat transfers. leggings) Air-Circulating Blankets Safe, lightweight Products not widely put in in the U. S. Average Price $4,000 much effective than hospital blankets and water-circulating blankets Trends Analysis The Bair Hugger Patient is designed to manage body temperature of postoperative patients and to treat hypothermia experienced by many patients after operations. o Medical seek states that 60-80% of postoperative patients experience hypothermia. The tauten intercommunicate that 1 system would be sold per 8 postoperative recovery room beds. Exhibit 2 Number of surgical Beds Number of Hospitals communicate social unit gross trades communicate sales ( of hospitals x Unit gross sales) 7-11 1,281 1 1,281 units 12-17 391 2 782 units 18-22 135 3 405 units 23-28 47 4 188 units 29-33 17 4 68 units 33 (approx. 50) 17 6 102 units 1,888 Hospitals 2,826 units total Marketing Research Research fit out by the potent indicated that hospitals with fewer than seven-spot beds would most likely not be interested in Bair Hugger Patient thawing System. electromotive force Target Market 1,888 hospitals explanation for about 80 % of all surgical operations in the U. S. o communicate sales command of 2,826 heat/blower units Trend of interview responses after product demonstration o Belief in making the patient feel more comfortable o Belief that the product would speed up recovery for postop patients o Free trial of product o Belief that the product is bell bare-ass to other cheaper methods o Purchase decisions contract to be submitted for approval (abo ve $1,500) Research suggested that introducing this product to hospitals would be a time-consuming forge that would go through stages. The Hosworth-Climator is a product very similar to the Bair Hugger Patient warm up System and it is predicted that this product could be distributed in the United States next year.Problem Definition The main line of work pertaining to Augustine Medical Inc. is determining the merchandising price to hospitals for the Bair Hugger Patient warm up System. The system is comprised of two components the heater/blower unit, and the plastic blankets. Determining the products merchandising price is of utmost importance since it lead influence the demand for the product among prospective buyers, determine the tightens silver flow, allow the inviolable to prepare its promotional securities industrying/advertising budget, and it allow raise essential information to its distributor organizations. alternate Analysis The problem that Augustine Medical I nc. s experiencing is determining the appropriate price for its product. The dilemma boils down to two major determine dodging substitute(a)s perspicacity price outline and skimming determine strategy. The two alternates have strengths and weaknesses for the unfluctuating. greets of Alternative products per treatment o Warmed hospital blankets (Exhibit 3) Price per quid Weight per blanket Of blankets per keep down constitute per application application $0. 13 2 lbs. 7 $1. 82 o Water-circulating blankets (Exhibit 4) hold up Units Average Price Blankets Average Price Automatic $5,072. 50 Reusable $271. 50 Manual $1,800. 00 Disposable $23. 00 Automatic control units from $4,850 to $5,295 Manual control units are $3,000. discount rate 40% Reusable blankets from $168 to $375 Disposable blankets from $20 to $26 o Reflective Thermal Drapes (Exhibit 5) Average Price Adult intellect cover $0. 9 Drapes $3. 24 ($2. 50/$3. 98)/2 Leggings $3. 00 $1. 50 x 2 legs h eart $6. 73 o Hosworth-Climator priced at $4,000 Penetration Pricing system alternative this strategy consists of lowering prices to attract customers and clear up market share.Advantages to the firm o Research suggests that the price for this product is resilient compared to other alternatives so lowering the price is a vertical inducing for customers to try the product. Competitive advantage over competitors such as the Hosworth-Climator. o The product is not entirely defend by patents so competitors piece of ass manufacture a similar product Disadvantages to the firm o The firm must sell more units to break-evenLower profitability Calculations Heater/blower unit o Number of hospitals with more than seven beds 1,888 o Projected gross sales in units 2,826 units o Unit selling price $494 ? $380 cost per unit + $114 dispersal markup o Projected Sales $1,396,044 ? (2,826 units)*($494) o comprise of Units $1,073,880 ? (2,826 units)*($380) o toll of Unit dispersion (30% of unit selling price) $322,164 ? (2,826 units)*($114) Blankets Potential target market 14,700,000 cases of postoperative patients with hypothermia. ? (21 million)*(70%)= 14,700,000 cases ? 1,225,000 lade of 12 blankets each. 14,700,000/12 blankets ? $10. 20 price per 12 blanket flocks. $0. 85 x 12 blankets ? Cost of blankets $12,495,000 (1,225,000 scores)*($10. 20) o 12 blanket stack selling price after diffusion $21 o Cost of diffusion cost per stack (40% of stack selling price) $8. 40 ? ($21)*(0. 40)=$8. 40 ? ($8. 40)*(1,225,000 stacks)= $10,290,000 o gibe cost of distribution $10,612,164 ? $10,290,000+$322,164 o Projected Sales from blankets ? $25,725,000 (1,225,000 stacks)*($21 selling price) Exhibit 6 Sales from blankets $25,725,000 Sales from units $1,396,044 Total Sales $27,121,044 Cost of blankets - $12,495,000 Cost of units - $1,073,880 Cost of distribution -$10,612,164 Total Profit $2,940,000 o The calculations show that the firm is moneymaking under this str ategy. Part of the strategy is offering the heater/blower unit for a discounted price of $494 ($380+$114). This price scarcely takes into consideration the distribution cost and the cost to manufacture the heater/blower unit, no profit margin has been added to this price. Research suggested that physicians and nurses would postulate to try the product before attempting to rat a purchase decision. The stack of available blankets is priced at $21. The selling price would cover the manufacturing and distribution be of $10. 20 and $8. respectively, divergence $2. 40 per blanket contributing to wampum.The designing of this strategy is to attract potential customers and gain market share. In this strategy, sales gross and profitability are impelled by blanket sales since the heater/blower is a durable product and blankets are useable products. In the short-run, dough will shrink as a ending of fixed and variable costs of the units, but in the long run the firm will likely ach ieve its market share goal. In addition, the combined prices for two the unit and the blankets are less $1,500, allowing hospitals to make instant(prenominal) purchase decisions without the need of a budget committee approval.The discounted unit price of $494 serves as a great incentive for nurses and physicians that look for a durable product that is efficient, yet economical. Skimming Pricing Strategy alternative this strategy consists of setting prices tall so that fewer sales are needed to break-even. Advantages to the firm o The firm could sell fewer units to break-even o The Bair Hugger Patient Warming System is sensed to have better valuate when compared to competitive products o Research suggests that patient would recover faster using this product. o The products engineering is not widely used in the United States so the alliance can position it as a premium quality product. Disadvantages for the firm o Research suggests that the product is price elastic because of it s cheaper substitutes. The company could fail to gain its craved market share because of the prices being overly high ? There is not patent for the heater/blower unit. Competitors could easily simulate the heater/blowers applied science.Calculations Heater/blower unit o Projected Sales in Units 2,826 heater/blowers o Unit selling price $3,500 o Projected Unit Sales $9,891,000 ? (2,826 units)*($3,500) o Cost of unit $380 o Projected Cost of unit $1,073,880 ? (2,826 units)*($380) o Cost of distribution per unit $1,050 per unit ? ($3,500)*(30% distribution margin) o Projected Cost of unit distribution $2,967,300 ? ($1,050 unit distribution)*(2,826 units) Blankets Potential target market 14,700,000 cases (70% of 21 million operations) ? 1,225,000 stacks of 12 blankets each (12 blankets per case) o tummy of blanket selling price $25 o Projected blanket sales $30,625,000 ? (1,225,000 stacks)*($25) o Cost per stack $10. 20= ($0. 85)*(12 blankets per stack) oProjected Cost of blankets $12,495,000 ? (1,225,000 stacks)*($10. 20) o Cost of distribution per stack of blankets $10 per stack ? ($25)*(40% distribution margin) o Projected Cost of blanket distribution $12,250,000 o Total cost of distribution $15,217,300 ? $12,250,000+$2,967,300= $15,217,300 Exhibit 7 Sales from blankets $30,625,000 Sales from units $9,891,000 Total Sales $40,516,000 Cost of blankets $12,495,000 Cost of units $1,073,880 Cost of distribution $15,217,300 Total Profit $11,729,000 The skimming strategy allows the firm to sell fewer units to break-even. The calculations indicate that the firm will be very profitable if it achieves its desired demand of 2,826 heater/blower units and 1,225,000 stacks of blankets. The heater/blower is priced at $3,500 ($500 less than the most proportional product).This price point is attractive because is substantially less than water-circulating blankets prices that could range from $4,850 to $5,295. It is justifiable because the technology of the Bair Hu gger Patient Warming System is perceived as more effective, and safer than other alternative methods. It is not widely used in the United States so the firm can position it as a acidulous edge product. The units selling price more than satisfies its costs of manufacturing and distribution with the remaining going straight to profits. chthonian this strategy the disposable blankets are allay the driving force of sales revenue because they are disposable and they are a complimentary product to the heater/blower unit.In the long run the demand for heat/blower units will decline and the demand for disposable blankets will continue to extend or remain constant. Stacks of 12 blankets are priced at $25 that will cover manufacture and distribution costs of $10. 20 and $10 respectively leave almost $5 ($4. 80) contributing to profit. good word Statement The companys problem is determining the price of the Bair Hugger Patient Warming System used to treat postoperative patients suffering from hypothermia. Based on the abridgment of the two alternatives Penetration and skimming pricing strategies, I have come to the decisiveness that the skimming pricing strategy would be the most efficient in generating profits for the firm.Recommendation Arguments Research commissioned by Augustine Medical Inc. ndicated that nurses and physicians interviewed believed that making the patient feel more comfortable is important. They also believed that the Bair Hugger Patient Warming System would speed up the recovery of postoperative patients. This means that the see value in the product and in my ruling would not mind paying a price of $3,500 per heat/blower unit and $25 per 12-blanket stack for a technology that is safe, more efficient, and not widely used in the United States. The unit-selling price is considerably more economical than other alternative methods such as water-circulating systems and $500 less than the other air-circulating product competitor.Some interview respo ndents entangle that the product was price sensitive to other alternative methods. The strategy reflects that by pricing the blanket stacks at $25, inside the $20-26 price range of similar products. In the long run sales from heat/blower units will decline or remain constant eyepatch the majority of revenue will be driven by blanket sales because of their disposable use. I believe this is the most effective alternative to pricing the Bair Hugger Patient Warming System since it allows the firm to maximize profits in the short run by selling heat/blower units while at the same time ensuring that future(a) revenue cash flows come from the sale of disposable blankets.