New Product Marketing: Capstone Scenario: A leading multinational firm operating
ID: 2595819 • Letter: N
Question
New Product Marketing: Capstone Scenario:
A leading multinational firm operating within the medical industry is completing the development of adhesive drapes used primarily for pediatric burn victims. These surgical drapes reduce patient infections, are easy to use, and provide affordability and access within even the lowest of GDP emerging markets.
Currently, the only existing drapes cost the hospital $200 per set and can only be used for one procedure. It is estimated that this new product innovation will cost the hospital $10 per unit and the manufacturer will have a 20% variable cost. All products are shipped directly from the firm to the hospitals. Shipping and handling is factored into this cost-structure. Overall fixed costs are estimated at $3 million.
Miraculously, these new drapes will reduce the current infection rate of 9% by 66.67%. It is estimated that with the older drapes 20% of all such infections led to morbidity.
Based upon market analysis, it is estimated that the new product market share will be 66.67% of 30 million procedures annually. Currently, the market for drapes is segmented based upon type of application (e.g., burns, blunt injuries, and birthing), age of the patient, income/ability to pay, gender, and country of the hospital. Purchasing decisions are made by hospital buyers who are influenced by trained medical staff.
4. SLO4 - Demonstrate the role of price in planning and implementing marketing.
Question: Determine the variable cost this leading multinational firm occurs when producing each drape, and how many units (and dollars’ worth) of drapes must this firm sell in order to obtain a $1 billion profit when each drape is sold to the hospital at $10.
Explanation / Answer
Answer:
The manufacturer must produce 125,375,000 units in order to earn $ 1bn profits. The working is as under:
1.Desired net profit 1,000,000,000
2. Add: Fixed costs 3,000,000
3.We take total of desired net profits and fixed costs = 80%
because variable costs are 20% . We put the formula
as (1,000,000,000+3,000,000) / 80%
4. Thereby, we arrrive at the figure of 1,253,750,000
5. The sales figure should be 1,253,750,000
6. Per Unit price is $ 10, hence the quantity needed to be manufactured is 125,375,000 ( arrived at by dividing the desired sales by per unit price)