Metabical Case Solution

10 October 2016

Since this is the first prescription drug for overweight people, reference prices are compared to many “non-exact” substitutes that will factor into the price sensitivity of the market. Additionally, unlike other drugs in CPS’ portfolio, it’s unlikely that healthcare payors will cover the cost of Metabical. Since medically, the drug is most effective when taken for a full 12 weeks and financially, profits are maximized when consumers purchase a full 12 weeks, Barbara must consider what mix of pricing and packaging will create the best balance to maximize both of these.

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Recommendations Packaging Printup must first address her packaging issue to manufacturing can commence. Given the pricing options and demand models, I recommend that CSP packages Metabical in 4-week blister packs. In any of the demand models created by Printup, CSP can expect demand to drop off for the second and third unit of sales. CSP can also expect a high ROI from the 4-week packs, provided the pricing is right. Pricing With packaging addressed, Printup must select the most effective price point for Metabical 4-week packs.

With 3 demand models and 3 price point recommendations, Printup has 9 scenarios that can be evaluated for ROI, acceptance by the market, and strength. I recommend Printup selects the $125 price point for Metabical. CSP can expect an acceptable ROI under any of the demand models and likely will at least 36%, for $1. 6 billion in profit over 5 years. (See attachment for analysis. ) Rationale Packaging 12 week vs 4 week package Even under the most aggressive demand model, the price of each unit must be $125 to create a positive ROI in a 12-week pack scenario (see attachment).

A 12-week supply package would then total $405, which I believe is well outside the acceptable range of prices customers would accept, given reference prices. To reflect this decrease in demand, in my ROI modeling (see attachment), I decreased the most aggressive demand model by half to better model this price. While a 4-week unit package would ultimately decrease the likely number of units sold, I believe that the lower price will be more acceptable to consumers, giving CSP a likelihood of a strong market share, ROI and ultimately profits. -week packaging also psychologically aligns with consumers’ idea of diet pills. Although this is a prescription drug, most consumers will be paying 100% out of pocket. A smaller price tag will make the drug more accessible and align with the packaging of other drugs. Printup herself acknowledged that while they may be able to have the 12-week package accepted by the FDA (it was within standard dosing range), the price point of that package may be “out of reach for many individuals. ” Pricing 75/unit option Only in the most aggressive of demand models (Scenario 2) does this price option deliver an acceptable ROI. This price point may indeed increase demand and market adoption of Metabical (rendering Printup’s model inaccurate), but given the analysis of demand, it’s too aggressive of an approach and will leave significant profits on the table for CSP. Printup would not be able to feel confident her recommendation knowing that 2/3 models did not delver ROI. $125/unit option

This scenario gives CSP an acceptable ROI (7-135%) ROI based in any demand model. At that price point, Metabical also has a large margin of safety, needing to sell only 4. 2 million over 5 year units to break even. Even in the most conservative model, CSP is expected to sell that many units in 2 years. When compared to reference prices, the $125 price point reflects the premium value of the drug without being outside the range of psychologically acceptable prices for consumers.

This would help optimize demand of the product, not leaving profits on the table but also not pricing out consumers who are willing to pay a reasonable price for a weight loss drug. Additionally, this price model is not only the best terms of maximizing profits, but also aligns with CSP’s historical pricing unit. While “doing it how we’ve always done it” is a bad pricing habit, in this case, the analysis confirms that $125 is the best option. This should make her recommendation easier to “sell” internally as well. 150/unit option This option is significantly higher than the reference prices used in analysis, meaning consumers are significantly less likely to purchase it. Knowing this, the 48-202% ROIs calculated the demand models seems inflated and unrealistic. I think this price point could even drop the demand in half, making the ROI look more like $125 analysis. I imagine that consumers would start to compare $150 a month to other things they pay $150 for: a week of groceries, a cell phone bill, a cable & internet bill, gas, etc.

They may have hard time justifying the value of the drug at this price point and opt for a lower priced alternative, whether it’s Alli or a gym membership. Conclusion Barbara Printup has done an adequate job creating data related to price models and demand scenarios in order to provide thoughtful analysis for Metabical pricing and packaging. Through further analysis of her models, a $125 price point and 4-week package should maximize profits for CSP and help Metabical gain market share as expected.

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