Medi-Cult Finalversion PDF
Medi-Cult Finalversion PDF
Medi-Cult Finalversion PDF
In introducing the In Vitro Maturation (IVM) procedure and medium, Medi-Cult faces two
We decided that a penetration (i.e. relatively low price) strategy in combination with regional
price harmonization would be most advantageous. For the US market, skimming is optimal.
In the long run, the price should be lowered in response to the competitive situation.
Qualitative Analysis
Financial Aspects
Setting the prices relatively low at, say, $1,000 per dose, would reduce the overall profit. It is
doubtful, to say the least, that the increased volume could hold profits even. We believe it to be
inherent in the nature of medical products, that prices play a secondary role. Especially in
countries, in which the government or insurance companies pay all or much of the cost, the
price elasticities can reasonably be expected to be low. On the other hand, there is something to
be said for penetrating the market and establishing IVM as the routine procedure. However, a
learning-curve-effect argument for lower prices and higher market shares can be neglected,
since the production cost are extremely low to begin with (a maximum of about two percent,
Marketing Aspects
The number one question from a marketing standpoint would be concerning the price fairness
of a high price policy. While production cost can certainly not be used to argue for a higher
price, high R&D expenditure can. Also, the value is crucial. The innovation saves U.S.
customers more than $3,000 while customers in the rest of the world save about $1,500. Prices
below these levels can easily be defended with overall savings (e.g. through reduced costs for
hormones). Further, high launch prices help establish a quality prestige. The high quality of the
procedure for the women also deserves mentioning. With such significant improvements, lower
overall cost for the procedure will not be expected (compared to IVF). For clinics, it is
important to be at the cutting edge, dismissing the importance of prices. Also, it is certainly
easier to reduce prices later than having to raise them, as customers value losses stronger than
gains. Finally, consideration has to be given to the issue of ethics and the the price of a child?
The higher the market share of IVM, the more will producers of hormones suffer from the fact
that the new procedure only needs ten percent of the hormones compared to IVF. Those multi
million dollar companies will be less likely to retaliate aggressively if Medi-Cult captures a
relatively lower fraction of the market. Especially in markets like the U.S., where the expected
penetration rate lies below two percent for the first year, Medi-Cult might be able to operate
underneath the radar of the big hormone producers and build up financial resources for later
court battles. Also, Medi-Cult can build on its first mover advantage and gradually reap the
On the other hand, lower prices would have the advantage of making the segment
appear less attractive for possible entrants. However, the possibility of reducing prices later
might threaten potential entrants sufficiently. Also, governments and insurance companies that
subsidies the treatment can be expected to pressure Medi-Cult for lower prices.
The most important argument for a multi national pricing strategy is the likely presence of
different price sensitivities since the respective governments and insurance companies differ in
the degree to which they subsidize the treatment. It could for example be expected that French
clients are less price sensitive, with the government paying for the first four treatments, than
UK clients. On the other hand, a number of factors promote a more standardized pricing
decision. The integration of the EU will make it hard to effectively hold up several price levels
within the union. Since the value/ shipping-cost ratio is relatively high for the product,
arbitrage possibilities exist and the market will harmonize prices automatically. For this reason,
we recommend to adopt a relatively narrow price range for the European market. The U.S.
market in contrary can be considered to be somewhat separate. The differing currency, higher
shipping cost, and regulations imposed by the FDA make arbitrage activities more costly and
hence, Medi-Cult should attempt to push for a higher price level in the U.S.
Quantitative Analysis
The IVF medium sells for about $50 per dose. Of this, about 30% or $15 are variable
production cost. The variable selling expense can only be estimated to be lower than $35 since
the Medi-Cult would otherwise have no short-run incentive to sell the medium. The variable
cost for IVM aren’t much higher; So even in a scenario of very low cost ($700), the
contribution margin would be about 93% of the revenues. For more realistic price- (over
$1,000) and cost levels (below $50), we can treat the entire revenue as contribution.
The revenue maximizing price (based on expert opinions) for Denmark is the ‘low price’,
equivalent to about $1,250. In France, the greatest revenues can be realized at the ‘high price’
of about $1,430. However, since the realistic price range for Denmark is significantly higher
than for France, Denmark’s ‘low price’ is not far below France’s ‘high price’. For the UK,
revenues hit a peak at the ‘medium price’ of $1,165. Because the price difference between the
UK and France would be substantial and because Danish clients are the most price sensitive,
the analysis indicates a price near the Danish price level of $1,250. The U.S. market for IVM is
totally price inelastic. Therefore, the price should be set near the high end of $2,200. The final
decision depends on how difficult arbitrage activities are, due to the regulations for the
Strategic View
Price Competitors Customers
Strategic view
The issue of cannibalizing different players from the value chain that are not necessarily
4000000
2
y = -3x + 6440x
3000000
2000000 2
y = -1.28x + 2644.84x
Profits in $
1000000
2
y = -0.44x + 1112.83x
0
0 1000 2000 3000
-1000000
-2000000 Denmark
UK
-3000000
Price pe r Dose $ France
Exhibit 3 shows price-profit functions based on expert predictions from within Medi-Cult.
$1,100
$20
variable
costs
1st year 3rd year Time
Good price for couples, Market position of Reap consumer surplus until
market share, and insurance M-C is stabilized competitor enters the market
companies; Combined with against hormone => First Mover Advantage;
advertisement that there is producers; Market Then lower prices drastically
something new without knows IVM; Still – IVM already amortized
hormones much advertisement R&D expenses
=> price will rise
Elasticity
This table contrasts the different price elasticities in the four countries in question. We can see
that the totally inelastic demand in the US maximizes profits at the highest possible price.