Name: Sukriti Grover Roll No: 2014HRLP006 AUGUSTINE MEDICAL INC.

CASE ANALYSIS INTRODUCTION The Bair Hugger Patient Warming System is marketed to hospitals in the United States. It is a device that has been designed specifically to treat hypothermia, which many patients suffer from after operations. PROBLEM STATEMENT The ultimate problem facing Augustine Medical, Inc. is how to price theses two components of the product and how to position it compared to its competitors. There are many substitutes available for hospitals to treat and prevent hypothermia. MARKET AND INDUSTRY ANALYSIS Medical research indicates that 60 to 80% of all prospective recovery room patients are clinically hypothermic. There are 31,365 postoperative recovery beds and 28,514 operating rooms in hospitals in the United States. The target market for this product is hospitals with seven or greater recovery room beds. Target market makes up 80% of all surgical operations in United States. ALTERNATIVES Option 1 They should go with Price Skimming Strategy The company could employ skimming pricing strategy and price heater/blower unit and blanket by $4000 and $20 respectively. The price skimming strategy will allow them to charge a relatively high price while entering the market for a period of time. By charging a high price initially the company can build a quality image and create some brand loyalty. High prices will help build the image of the product and company. But, pricing the product above $1500 would lengthen the purchase decision process for prospective buyers. Option 2 They should go for Price Penetration Strategy Heater/Blower to be under $1500 to avoid hospitals going through a formal review and decision process and making the buying decision easier. Heater/blower and blanket should be priced at $380 and $10.20 respectively. But the perceived quality of the product will be lower. Based on the companys research, most of the prospective buyers are price sensitive. Pricing the Bair Hugger below the market price will make the product more attractive to buyers. Strategy 1 Provide blankets free of cost (Exhibit 1) Price /blanket is much cheaper as compared to the unit Strategy 2 Provide Units free of cost (Exhibit 2) If the company gave the unit for free to the hospitals they would create a monopoly and only their disposable blankets would work effectively with the units. Units would be sold per 8 beds and number of beds are 21,650, and blankets would be sold as per number of surgeries and patients, therefore volume of sales would be much higher. RECOMMENDATIONS: It is recommended that the company should go with the price penetration strategy as the buyers are price sensitive and the company needs to focus on capturing the market keeping in mind the competition. Therefore giving the units for free as a promotional offer to launch the product will be a good move to build companys brand image. Keeping in mind that the units are sold now to hospitals and thus if Augustine medical sell them for free now as a promotional offer they will reap the profits in the following years as a huge market share would help to eliminate the potential competition in the next year.

Exhibit 1 Variable Cost/heater = $380 Variable cost/blanket = $0.85 Distributor Margin for heater = 30% Distributor Margin for heater = 40% Total No. of recovery beds = 31,365 No. of beds in hospitals less than 7 beds = 5210 Total No. of beds in the U.S. = 26,155 Units needed to be sold = 26,155/8 = 3,269 Revenue from selling 3,269 units = 3269x380 = $1,242,220

Exhibit 2 Total no. Of surgeries in the U.S. = 21 million Hypothermic patients from the surgeries = 60-80% of 21,000,000 = 14700000 No of Blankets per case = 12 Cost of case of blanket = 12x0.85 = $10.20 Blankets to be sold = 14700000/12 = 1,225,000 Total cost = 10.20x1,225,000 = $12,495,000 If the blanket case was sold for $ 24: Total Sales = 24x1,225,000 = $29,400,000. Distributor Margin @ 40% = $9.60 Total Margin = $9.60x1,225,000 = $11,760,000 Profit = $3,902,780 Sales of blankets $29,400,000 - Cost of units $ 1,242,220 - Cost of blankets $12,495,000- Distributor costs $ 11,760,000