Augustine Medical, Inc Research Proposal

Pages: 4 (1190 words)  ·  Bibliography Sources: 0  ·  File: .docx  ·  Level: College Senior  ·  Topic: Business - Advertising

Augustine Medical must determine how to price their new Bear Hugger thermal system, used to treat hypothermic post-op patients. Several factors will play into the decision. In preliminary surveys, response to the system was positive but it was indicated that price will be a factor in purchase decisions. The most direct competitive product is marketed at $4,000 in England, but is not available in the U.S. market. Water-based competitors are priced between $2,999 and $4,735. The Bear Hugger represents superior technology to the water-based competitors. Competitors offering disposable blankets price them between $20 and $24.

Another factor of importance is the limit for independent purchasing decisions. Any capital purchases over an average of $1,500 are subject to approval from budget committees. Thus, if Augustine prices below $1,500, they are liable to see an increase in sales as a result. Another factor to consider is discounting. Discounting is a common practice in the industry, so the list prices quotes for competing products are unlikely to represent the average sale price. Some in the survey indicated that they would be willing to accept a free machine and then pay for the blankets. Blankets, however, are often discounted at 50% of list price. Some units, such as the $2,999 manual units, are discounted as much as 40%.

The size of the market can be calculated by first determining the market size for each segment. Each Bear Hugger unit is expected to serve 8 beds. Thus, we take the average size of the hospital in each segment and divide be eight to determine the number of units for each segment. The results are as follows:

7-11 beds

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1281 hospitals

1409 units

12-17 beds

18-22 beds

23-28 beds

29-33 beds

33 (avg used 35)

Therefore the total potential demand in the United States is 2742 units.

Research Proposal on Augustine Medical, Inc. Assignment

The blankets are disposable. This means that one blanket will be required for every surgery. We have estimated our sales based on the two largest segments of the market, hospitals with 7-11 beds and those with 12-17 beds. This will give us the most efficient use of our sales dollars. These two segments represent, in total, 60% of all surgeries. The total number of surgeries is 12,600,000 per year at these hospitals. Of these surgeries, 60-80% result in hypothermic patients. We will use the conservative estimate, which gives us a total potential market for blankets of 7,560,000 per year. Of these, we must remember that the Bear Hugger will not be used for infants, on whom heat lamps are typically used to combat post-op hypothermia. We do not know the exact percentage of surgeries that are performed on infants, but we should understand that this fact reduces the potential target market somewhat.

In order to set the price, we must consider the cost of competing products. Warmed hospital blankets cost $0.13 per pound to launder. Even at two applications per surgery, this is the least expensive option because the blankets are reusable. However, this is also the least effective option. Thermal drapes are another inexpensive, but inefficient option. The Bear Hugger technology is vastly superior and should not be considered competitive with these two options. Those options may reduce our total market potential, but that will not affect our contribution calculation unless our market potential drops so low that we do not cover the $500,000.

Doctors have indicated that making the patient feel more comfortable is important, meaning that demand is relatively price inelastic when compared with these low-end solutions. Evidence shows, however, that demand is highly price elastic when compared to similarly-effective solutions.… [END OF PREVIEW] . . . READ MORE

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