Metabical Pricing Packaging And Demand Forecasting Case Study

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Harvard Business Publishing (2010)
Format - .xls (see www.thecasecentre.org/filetypes) for more information
This software is to accompany the case '4183'. The abstract of the case is as follows: This case can be used separately or in conjunction with (4240) 'Metabical: Positioning and Communications Strategy for a New Weight Loss Drug'. Metabical is a new weight loss drug from Cambridge Sciences Pharmaceuticals intended for moderately overweight individuals. In anticipation of final FDA approval, the senior director of marketing, Barbara Printup, prepares for the product launch and must make several critical decisions. First, she must select the optimal packaging size for the drug which typically requires a 12-week course of treatment. Next, she must determine the appropriate pricing. Since most insurance companies do not cover weight-loss medications, price has a direct impact on the sales forecast. To establish the initial demand forecast, Printup considers three approaches based on different assumptions. Her final recommendations must consider long term profitability and meet the company's desired return on investment. Barbara Printup, senior director of marketing for Cambridge Sciences Pharmaceuticals (CSP), has been placed in charge of managing the upcoming launch of CSP's latest major drug, Metabical. Metabical will be the first prescription medication approved by the FDA specifically for moderately overweight individuals. It is April 2008, and Printup must develop demand forecasts and determine the appropriate packaging and pricing strategies in anticipation of the FDA approval and January 2009 launch. The case includes a quantitative assignment for students.
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Metabical Case Solution

Demand/Pricing Formulation Executive Summary:

There are three main demand strategy’s that make reasonable sense to

assess the demand forMetabical within the first five years. To get the most out of each demand scenario the mostoptimal pricing structure was applied to each. Scenario 2 was chosen with the lowest pricingstructure to market to a wider audience during the launch with and affordable price. Pricing canalways been tweaked and justified if the product is successful and there is respective demand bythe consumer base.

Scenario #1

The first scenario narrows down the target market by the follow process: 1

st

take the # of overweight individuals in the United States (71.06 million), 2

nd

reduce 71.06 million by 35%which is the estimated population trying to lose weight, 3

rd

reducing this by 15% which is theamount comfortable with weight loss drugs which is 3.73 million, 4

th

Metabical will capture10% in year one, 15% in year 2, 20% in year 3, 25% in year 4, and 30% in year 5. The Lowestpricing structure was chosen because the population chosen was very general and may contain alarge percentage of people who are price sensitive. I believe this is not an effective demandfunction for Metabical because the audience is too broad. This model also in theory will capturea small % of the target market in relation to the other models which makes it very difficult toattain a positive ROI. This model will only bring in 185 million in revenue and is not acceptableto create a 5% ROI. This is not even enough to cover the R&D and marketing costs.YearOverweightIn USPopulationTrying toLoseWeight(35%)Comfortable WithWeightLoss drugs(15%)MedibicalWillCapturePopulationCapturedOneSupply(20%*24.80)TwoSupply(60%*49.60)FullCycle(20%*74.40)1 71,060,000 24,871,000 3,730,650 10% 373,065 1,850,402 11,102,414 5,551,2072 71,060,000 24,871,000 3,730,650 15% 559,598 2,775,604 16,653,622 8,326,8103 71,060,000 24,871,000 3,730,650 20% 746,130 3,700,805 22,204,829 11,102,4144 71,060,000 24,871,000 3,730,650 25% 932,663 4,626,006 27,756,036 13,878,0185 71,060,000 24,871,000 3,730,650 30% 1,119,195 5,551,207 33,307,234 16,653,621Profit- 185,040,200 ROI -53% in 5 Years

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