70352227

AUGUSTINE MEDICAL, INC.

The Bair Hugger Sufferer Warming System Winston Rivero MK 4900 Prof. L.

Barksdale August 16th, 2012

Industry Analysis:

• Many competitive technologies are available for the prevention and remedying of postoperative hypothermia. The get caught in the two groups: o Surface Warming? Warmed up hospital blanket? Water-circulating quilts? Air-circulating blanket and mattresses? Thermal window treatments? Infrared heating lamps? Incomplete warm-water concentration? Increased space temperature Inner Warming? Heated up and humidified air (used with intubated patients)? Warmed intravenous (I. V) liquids? Drug remedy.
• Approximately 21 million surgical operations performed in the United States or 84, 1000 operations per average day time. ¢ Roughly 5, 500 Hospitals include operating rooms and postoperative recovery bedrooms in the U. S u 31, 365 postoperative clinic beds u 28, 514 operating bedrooms in hostipal wards.

Company Evaluation:

• Augustine Medical, Incorporation. s a strong that develops and markets products to get hospital working rooms and postoperative recovery rooms.
• Founded by Doctor Scott Augustine, an anesthesiologist. His personal experiences in the field of medicine have helped Dr . Augustine develop a product that presented all the features that nurses and patients would prefer the most.
• First capitalization of $500, 1000 that will be used to cover fixed costs such as: salaries, rented space, and promotional advertising during their first year of procedure.
• The Bair Hugger Individual Warming Program: The Bair Hugger Affected person Warming system has a number of advantages above other therapies:? Warm air makes patients comfortable feeling and they quit shivering nearly immediately.? The device does not cause burns? The system can be used safely and securely around electrical equipment? Throw away blankets get rid of the risk of cross-contamination? The system would not require the sufferer to be raised or rolled. o Includes a heater/blower product and individual inflatable addresses or covers (12 in total).

The warming time per patient is approximately two several hours. o Plastic-type covers will be patented. Heater/blower unit does not have a patent. to Subcontractors determined the costs in the components being:? $380 heater/blower unit? $0. 85 every plastic throw-away blanket. u The system comes through medical product supplier organizations about the country. The margins paid to the vendors are:? thirty percent of the sent selling price on the heat/blower product.? 40% from the delivered selling price on the covers

¢ Competitive Products: (Exhibit 1) |Advantage |Disadvantage | |Warmed Clinic blankets |Simple, safe, and inexpensive |Cool quickly | | | |Only insulation | |Water-Circulating Blanket |Slightly to moderately effective |Heavy, expensive | |Average Prices: | |Can trigger burns | |Auto: $5, 072. zero (4, 850+5, 295) | |Leaks around electrical equipment | |Manual: $1800 following 40% lower price | | | |Disposable blankets: $23 | | | |Reflective Thermal Window treatments |Simple, secure |Preventive evaluate | |Average Price $6. 3 (head, drape, |Inexpensive |Only efficiency, no heat transfers. | |leggings) | | | |Air-Circulating Blanket |Safe, lightweight |Products certainly not widely found in the U. S. | |Average Value $4, 000 |More effective than medical center blankets | | | |and water-circulating blankets | |

Trends Analysis:

¢ The Bair Hugger Patient was created to control body’s temperature of postoperative patients and to treat hypothermia experienced simply by some patients after functions. o Medical research claims that 60-80% of postoperative patients encounter hypothermia.

¢ The company projected that 1 program would be marketed per almost eight postoperative recovery room beds. Exhibit a couple of Number of Postoperative Beds |Number of Clinics |Projected Product Sales |Projected Sales (# of | | | | |hospitals x Device 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 | |&gt, 33 (approx. 50) |17 |6 |102 products | |1, 888 Private hospitals | |2, 826 devices total |

¢ Promoting Research: Research commissioned by the firm suggested that hospitals with less than seven bedrooms would not likely be interested in Bair Hugger Affected person Warming System. Potential Marketplace: 1, 888 hospitals accounting for about 70 % of surgical functions in the U. S. to Projected sales demand of two, 826 heat/blower units

¢ Trend of interview reactions after item demonstration: o Belief to make the patient experience more comfortable um Belief the product would speed up restoration for postop patients o Free trial of product to Belief the fact that product is price sensitive to other less expensive methods to Purchase decisions need to be submitted for authorization (above $1, 500) Analysis suggested that introducing this device to hostipal wards would be a time consuming process that might go through stages. The Hosworth-Climator is a merchandise very similar to the Bair Hugger Patient Heating System in fact it is predicted this product could possibly be distributed in the us next year.

Difficulty Definition: The main problem pertaining to Augustine Medical Inc. is determining the selling price to hospitals to get the Bair Hugger Individual Warming System. The system is definitely comprised of two components: the heater/blower product, and the plastic blankets. Deciding the product’s selling price features utmost importance since: it will influence the demand for the item among possible buyers, identify the business’s cash flow, permit the firm to organize its promotional marketing/advertising budget, and it will give essential information to its distributor companies. Alternative Evaluation: The problem that Augustine Medical Inc. h experiencing is definitely determining the right price due to its product. The dilemma boils down to two significant pricing strategy alternatives: Transmission pricing technique and skimming pricing approach. The two alternatives have strengths and weaknesses for the firm.

¢ Costs of different products per treatment: u Warmed hospital blankets: (Exhibit 3) |Price per pound |Weight per blanket |# Of quilts per |Total Cost per application | | | |application | | |$0. 13 |2 lbs. |7 |$1. 82 | to Water-circulating covers: (Exhibit 4) Control Units |Average Value |Blankets |Average Price | |Automatic |$5, 072. 55 |Reusable |$271. 50 | |Manual |$1, 800. 00 |Disposable |$23. 00 |

¢ Automatic control devices from $4, 850 to $5, 295

¢ Manual control products are $3, 000. Discount 40%

¢ Reusable blanket from $168 to $375

¢ Throw-away blankets coming from $20 to $26 um Reflective Thermal Drapes: (Exhibit 5) | |Average Selling price | |Adult Head cover |$0. being unfaithful | |Drapes |$3. 24 [($2. 50/$3. 98)/2] | |Leggings |$3. 00 [$1. 50 x two legs] | |Total |$6. 73 | u Hosworth-Climator: costing $4, 000 Penetration Pricing Strategy option: this strategy consists of lowering prices to attract customers and gain market share.

Advantages to the organization: o Study suggests that the price for this product is definitely elastic in comparison to other alternatives so lowering the price is an excellent incentive for customers to make an effort the product. Competitive advantage more than competitors such as the Hosworth-Climator. o The product is usually not totally protected simply by patents therefore competitors can create a similar item Disadvantages for the firm: to The organization must sell more units to break-even

Reduce profitability Computations:

¢ Heater/blower unit: o Number of private hospitals with more than seven beds: one particular, 888 to Projected Sales in units: 2, 826 units um Unit value: $494? $380 cost every unit + $114 distribution markup to Projected Sales: $1, 396, 044? (2, 826 units)*($494) o Cost of Units: $1, 073, 880? (2, 826 units)*($380) o Cost of Unit distribution (30% of unit selling price): $322, 164? (2, 826 units)*($114)

¢ Blankets: Potential target market: 13, 700, 1000 cases of postoperative individuals with hypothermia.? (21 million)*(70%)= 14, seven hundred, 000 circumstances? 1, 225, 000 stacks of 12 blankets each.

¢ [14, seven-hundred, 000/12 blankets]#@@#@!? $10. 20 cost per doze blanket piles.

¢ [$0. eighty five x doze blankets]#@@#@!? Cost of blankets: $12, 495, 000

¢ (1, 225, 000 stacks)*($10. 20) to 12 quilt stack value after division: $21 u Cost of circulation cost per stack (40% of collection selling price): $8. 40? ($21)*(0. 40)=$8. 40? ($8. 40)*(1, 225, 000 stacks)= $10, 290, 000 o Total cost of distribution: $10,50, 612, 164? $10, 290, 000+$322, 164 o Projected Sales via blankets? $25, 725, 500

¢ (1, 225, 500 stacks)*($21 advertising price) Demonstrate 6 Sales from blanket |$25, 725, 000 | |Sales by units |$1, 396, 044 | |Total Sales |$27, 121, 044 | |Cost of quilts |- $12, 495, 500 | |Cost of products |- $1, 073, 880 | |Cost of distribution |-$10, 612, 164 | |Total Revenue |$2, 940, 000 |

o The calculations present that the organization is successful under this strategy. Part of the approach is offering the heater/blower device for a reduced price of $494 ($380+$114). This kind of price just takes into account the syndication cost and the cost to manufacture the heater/blower device, no earnings margin continues to be added to this selling price. Research recommended that physicians and rns would want to try the product before attempting to make a obtain decision. The stack of disposable blanket is priced at $21. The value would cover the production and syndication costs of $10. 20 and $8. respectively, going out of $2. forty five per blanket contributing to income.

The purpose of this tactic is to entice potential customers and gain business. In this technique, sales income and profitability are powered by quilt sales since the heater/blower is known as a durable item and quilts are non reusable products. Inside the short-run, earnings will reduce in size as a result of fixed and variable costs of the units, however in the long run the firm will probably achieve it is market share aim. In addition , the combined rates for both the device and the quilts are less $1, 500, permitting hospitals for making faster order decisions without a budget committee approval.

The discounted product price of $494 is a great bonus for healthcare professionals and doctors that search for a durable merchandise that is successful, yet inexpensive. Skimming Prices Strategy substitute: this strategy includes setting prices high in order that fewer product sales are necessary to break-even. Positive aspects to the company: o The firm could sell fewer units to break-even u The Bair Hugger Affected person Warming Strategy is perceived to obtain better value in comparison to competitive products o Research suggests that affected person would retrieve faster using this product. um The product’s technology is not traditionally used in the United States so the company can position this as a superior quality product. Disadvantages for the firm: to Research suggests that the product is definitely price elastic because of its less costly substitutes. The organization could fail to find its wanted market share as a result of prices being too high? There is not patent pertaining to the heater/blower unit. Competitors could very easily replicate the heater/blower’s technology.

Measurements:

¢ Heater/blower unit: to Projected Product sales in Units: 2, 826 heater/blowers o Unit selling price: $3, 500 o Forecasted Unit Sales: $9, 891, 000? (2, 826 units)*($3, 500) to Cost of unit: $380 um Projected Cost of unit: $1, 073, 880? (2, 826 units)*($380) to Cost of division per unit: $1, 050 per device? ($3, 500)*(30% distribution margin) o Expected Cost of unit distribution: $2, 967, 300? ($1, 050 unit distribution)*(2, 826 units)

¢ Blanket: Potential target market: 14, 700, 000 instances (70% of 21 million operations)? you, 225, 1000 stacks of 12 blankets each (12 blankets every case) um Stack of blanket selling price: $25 u Projected blanket sales: $30, 625, 1000? (1, 240, 000 stacks)*($25) o Expense per bunch: $10. 20= ($0. 85)*(12 blankets every stack) to

Projected Expense of blankets: $12, 495, 1000? (1, 240, 000 stacks)*($10. 20) um Cost of distribution per bunch of covers: $10 per stack? ($25)*(40% distribution margin) o Expected Cost of umbrella distribution: $12, 250, 000 o Total cost of division: $15, 217, 300? $12, 250, 000+$2, 967, 300= $15, 217, 300 Show 7 Product sales from blankets |$30, 625, 000 | |Sales from units |$9, 891, 500 | |Total Sales |$40, 516, 1000 | |Cost of quilts |$12, 495, 000 | |Cost of units |$1, 073, 880 | |Cost of syndication |$15, 217, 300 | |Total Profit |$11, 729, 000 | The skimming strategy enables the company to sell fewer units to break-even. The calculations indicate that the organization will be very rewarding if it accomplishes its preferred 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 one of the most comparative product).

This price is attractive since is considerably less than water-circulating blankets’ rates that could range between $4, eight hundred fifty to $5, 295. It really is justifiable since the technology with the Bair Hugger Patient Warming System is perceived as more effective, and safer than other alternative strategies. It is not widely used in the United States therefore the firm can position it as a leading edge product. The unit’s value more than fulfills its costs of manufacturing and distribution with all the remaining going straight to income. Under this tactic the non reusable blankets are the driving force of sales earnings because they are throw-away and they are a complimentary product to the heater/blower device.

In the long run the demand for heat/blower units is going to decline and the demand for non reusable blankets will continue to maximize or stay constant. Stacks of doze blankets are priced at $25 which will cover make and division costs of $10. 20 and $10,50 respectively going out of almost $5 ($4. 80) contributing to revenue. Recommendation Assertion: The company’s problem is determining the price of the Bair Hugger Individual Warming Program used to deal with postoperative individuals suffering from hypothermia. Based on the analysis with the two alternatives: Penetration and skimming costs strategies, I use come to the conclusion which the skimming charges strategy would be the most efficient in generating revenue for the firm.

Advice Arguments: Study commissioned simply by Augustine Medical Inc. ndicated that nurses and medical professionals interviewed believed that producing the patient feel more comfortable is very important. They also thought that the Bair Hugger Affected person Warming System would increase the restoration of postoperative patients. Which means that the see value inside the product and in my opinion may not mind spending a price of $3, five-hundred per heat/blower unit and $25 every 12-blanket collection for a technology that is secure, more efficient, and not widely used in the usa. The unit-selling price is significantly more economical than any other alternative methods such as water-circulating systems and $500 less than the different air-circulating merchandise competitor.

Several interview participants felt the fact that product was price delicate to other alternative strategies. The technique reflects that by costs the blanket stacks by $25, inside the $20-26 cost range of identical products. Over time sales via heat/blower units will fall or stay constant while the majority of earnings will be motivated by blanket sales because of the disposable employ. I believe this can be a most effective substitute for pricing the Bair Hugger Patient Heating System because it allows the firm to optimize profits in the short run by selling heat/blower products while at the same time ensuring that future income cash goes come from the sale for disposable quilts.