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October

24

Case Analysis #4
Mario Heredia
Metabical: Pricing, Packaging and Demand Forecasting for a New Weight Loss Drug

Marketing Management Course KATZ School of Business

1. How does Metabical compare to current weight-loss options? Metabical is a revolutionary product and forecasted to be the first FDA approved prescriptive drug for overweight individuals with weight-loss goals. Previous prescriptive drugs had negative side effects that out weighed its positives. Metabical, on the other hand, did not display as many negative effects in its trial runs and thus was being strongly endorsed by the medical community.

Current weight-loss drugs can be classified as Prescriptive Drugs or Over-thecounter (OTC) remedies. OTC Drugs were not as popular among overweight individuals due to lack of regulation and safety concerns. OTC drugs lost out to diet plans, exercise plans and meal replacement/weight management products, as they were safer options.

Metabical was to compete in the Prescriptive drug market, where there were only a few drugs available but these drugs were mainly approved for obese and severely obese individuals. The only drug that was approved by the FDA for over-weight individuals was Alli. Alli used to block the bodys absorption of fat, leading to weight loss. However, it had a lot of side effects, which could cause dangerous medical situations. Metabical, on the other hand, was a dual layer, controlled release formulation. It acted as an appetite suppressant and also had a fat blocker and calorie absorption agent. The over-all product was far superior in achieving weightloss, over its competitors, for over weight individuals but not for obese and severely obese individuals.

Therefore, Metabical was a unique product, which was focused towards a particular segment of the market, the over weight segment. It was the first of its kind and had that advantage. There were other products, but they were not as popular in the market segment Metabical was targeting. It was pictured as a low-risk, high returns drug and had built good support in the medical community, who were needed to prescribe this drug.

2. What are the pros and cons of the forecasting methods presented by Printup? Forecasting Method 1 Pros: 1. The Method is very structured. 2. The whole over-weight market is considered in the forecast and very little data is assumed. Most data comes form market research. Cons: 1. Considering it is the first of its kind, full value is not being leveraged. 2. The estimate is spread very broad. It is hard to predict the behavior of such a broad segment of customers. 3. May not be accepted as easily by the low-income groups as compared to the high-income groups. 4. Hard to create a brand across multiple demographics. Forecasting Method 2 Pros: 1. The Method is aggressively priced and estimated. 2. Leverages the uniqueness of the product. 3. Will create an image of uniqueness and something that works outstanding. Cons: 1. May not be able to meet forecasted results due to aggressive pricing. 2. The estimate is still spread very broad. It is hard to predict the behavior of such a broad segment of customers.

Forecasting Method 3 Pros: 1. The Method is aimed at a particular segment i.e. women above 35. 2. Aggressively priced, but portrayed as a niche brand. 3. A clear picture of the market they are targeting and attractive pricing in relation to the benefits the product is delivering. Cons: 1. There is very small room for failure as it is being promoted as a niche product. 2. Gender bias may mean loss of half the segment in a single shot.

3. What pricing strategy approaches would you suggest Printup explore? What are the advantages and disadvantages of each strategy?

a) Benchmarking against market competition Pros: A base for pricing is present. Goals are easy to meet. Cons: positioned as similar to other competitors in the market. Hard to market the products full value. b) Measuring Value Proposition Pros: Full value is extracted. A niche feeling is built. Cons: May be too aggressively priced. Highly dependent on consumer behavior. c) Leveraging product position market Pros: Product is valued well. A niche product idea. Cons: Full value is not extracted. Broad market segment may not pay for the value of the product. Highly dependent on

What price would you recommend? (Use options grid in answering this question for financial attractiveness refer to question 4 below). Pricing -> Options Description of option Overall Assessment Benchmark against Leveraging Product market competition position Pricing for a 4 week supply of Metabical at $75 Pricing for a 4 week supply of Metabical at $125 Measuring Value Proposition Pricing for a 4 week supply of Metabical at $150 Do not recommend y Pricing is too high as market research indicates y This pricing may alienate many consumers from considering Metabical

Do not recommend Recommend y Competitor based y Aligns with pricing may corporate backfire strategy y Metabical does y Pricing is just not have to right to compete compete at all in unique market price points that a segments while consumer wants communicating value of the product

Strategic fit

Does not fit well with CSPs corporate strategy y While Metabical will be able to gain a large user base initially the option does not fit the strategic goal of 70% margins over the long term y Being a more effective product in the market place, Metabical loses the edge without any reason. Financial Not attractive. Attractiveness y ROI is negative (25%) y Target market size is too low compared to other two methods , hence generates lower overall revenues over 5 years NPV of $709.5 million y

y y

Pricing makes Metabical a premium quality product in line with product effectiveness Fits well with y company strategy Although revenues are lower in the short term, Metabical will be able to y project itself as a premium product over the long term

Given the high starting price, the product may not attain required market share Product may not be able to compete effectively given the intense competition in the market.

y y

y Noteworthy risks y Product will end up competing against products that are not even y

Attractive Recommended ROI is close to 75%, which surpasses the expected minimum ROI of 5% by a large margin Pricing is sensible, in line with market expectations NPV of approx. $1.5 billion Product may not be accepted readily given the higher than

Attractive not recommended y Although ROI is 126%, pricing is unrealistic y Pricing a new product at $150 a per week could be a non-starter in a highly competitive marketplace.

y y

Very high entry price point Revenue expectations

y y

in the same segment Brand message could be confusing Revenues not attractive Assumption is that the this market portion is not highly segmented

average price point of the drug Revenue expectation could y be exaggerated due to point estimate value of market size. y Assumption is that the this market portion is y not highly segmented

more unrealistic compared to other pricing strategies ROI although attractive may be unachievable Product will not gain market share easily. Assumption is that the this market portion is not highly segmented

4. What impact does your pricing decision have on profitability? What is the ROI over the first five years of your pricing? (complete (a) forecasting questions; (b) gross margin forecast; (c) calculate ROI.) The spreadsheets are given on Courseweb to help you with your analysis. Ideal Consumer Segment: Educated females, 35-65 of age with BMIs between 25 and 30 looks to be the most attractive. The financial calculations indicate that pricing the product at $125 for a 4-week supply will be ideal as results show a forecasted 5-year gross profit margin of $859,858,960; The ROI in this case is 75.94%. The ROI exceeds the initial expected minimum ROI value of 5% within five years of the new products launch. Hence, the strategy employed in method 3 seems to be the best and most promising because it is targeting a niche customer base and the pricing is based on the research data of CSPs Outcomes Research Group. Research also suggests that pricing Metabical-4 week supply at $150 was higher than what consumers in the overweight category were willing to pay. Forecast method2 shows higher profit margin than our proposed strategy on both price levels, $125 & $150 and their ROIs seem attractive from the financial calculations. However, the method is relative to CSPs existing product line success rate, which doesnt seem like a viable option. A new product entering the segment for the first time is influenced by current market state, existing competition, and varied market dynamics. Hence, forecasting a new product based on older product success might not be a reliable indicator to decide on a product launch strategy. The ROI calculations are listed below: $75 Retail Price ROI - Method 1 ROI - Method 2 ROI - Method 3 $125 Retail Price ROI - Method 1 ROI - Method 2 ROI - Method 3

64.17% 18.10% 24.94% $150 Retail Price ROI - Method 1 ROI - Method 2 ROI - Method 3

16.01% 91.98% 75.94%

8.08% 147.03% 126.39%