Medical Case

Augustine Medical Inc

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. The Warming system is composed of two elements; there is a heater/blower unit and disposable warming covers. 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. However, there are many disadvantages to the variety of other devices which virtually treat the same condition. Augustine Medical believes that their product is superior to their competitors products. S.W.O.T analysis of The Blair Hugger Patient Warming System Strengths Medical research indicates that between 60 -80% of recovery room patients suffer from hypothermia. Although this is unfortunate for the patients it is a strength for the company as they have a target market. The product has been designed to allow nurses and doctors to have easy access to the disposable warming covers which are placed in the top of the blower unit. Also the unit is easy to transport as it can be moved easily as it is on wheels. Hospital staff see this product one that will make the patient feel comfortable and will speed up the patients recovery process. The product also does not burn the patient and water leaks are not an issue. As well as this the product reduces the risk of cross contamination as the blankets are disposable. Weaknesses The warming covers needed in order to use the product will need to be restocked a lot of the time. The warming time per patient is about two hours this could pose a problem for patients because the results of the use of the device is not seen until two hours later and patients hypothermia may have gotten worse.Also this product is the only product the company have and thus demand is vital for success. Opportunities Augustine Medical incorporated sees the opportunity to market their product to hospitals and the company believe that their

product had superior advantages over competing products. If the decide to sell the unit for free to the hospitals and the hospitals would purchase the blankets they could create a monopoly. Threats There is much competition available for hospital to use. Many cheaper alternatives exist. There are several surface warming technologies that are already on the market such as water circulating blanket and the simplest form of treatment for hypothermia is warmed hospital blankets. A main competitor that may exist in the future for the company is the Hosworth-Climator who produce a similar product in England and they could be distirbuting their product in the U.S. within the next year. However if the company price the unit and blankets too high they will be at risk of failing. Market research: Medical research indicates that 60 to 80% of all prospective recovery room patients are clinically hypothermic. There are several factors which contribute to postoperative hypothermia. These factors are: 1. Patients exposure to cold operating room temperatures 2. Heat loss due to evaporation of the fluids used to scrub patients 3. Evaporation from the exposed bowel 4. Breathing of dry anesthetic gases Market size: Research commissioned by Augustine Medical Inc. indicated that there are 31,365 postoperative recovery beds and 28,514 operating rooms in hospitals in the United States. Given the demand for the postoperative recovery room beds, the research indicates that hospitals with fewer than seven beds would not be highly receptive to the Bair Hugger Patient Warming System. The firm also projected that one system would be sold for every eight postoperative recovery room beds. Target market: 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. The Bair Hugger Patient Warming System product is not a consumer product. The main users of this product are businesses hospitals. Hospitals will always be provided with the funds necessary to prevent hypothermia and other diseases, so the demand will be common. Interviews with physicians and nurses, followed by a demonstration of

the system, returned a variety of responses. Respondents believed that the humanitarian ethic to make the patient feel more comfortable is important. Respondents also felt that the Bair Hugger Patient Warming System would speed recovery for postoperative patients. They believed that the pressure to move patients through the operating room and out of postoperative is greater than in the past. Efficiency is the byword. Capital expenditures in hospitals were subject to budget committee approval. Although the amounts varied, expenditures for equipment over $1,500 were typically subject to a formal review and decision process. 4ps: Product: Bair Hugger Patient Warming System is designed to control the body temperature of patients after surgery. Specifically the products is designed to treat hypothermia (a condition defined as a body temperature of less than 36 degrees Centigrade or 96 degrees Fahrenheit) experienced by patients after operations. The Bair Hugger system consists of a heater/blower unit and a separate inflatable plastic/paper cover, or blanket. There are many advantages of this product. Place: The Blair Hugger Patient Warming System would be sold by and through medical products distributor organizations in various regions around the country. These distributor organisations would call on hospitals, demonstrate the system, and maintain an inventory of blankets. The margin paid to the distributors would be competitively set at 30% of the delivered selling price on the heater/blower unit and 40% of the delivered price on the blankets. Promotion: Currently Augustine Medical Inc is relying on distributors to push their products. Augustine Medical Inc also is promoting their products by creating sales literature for the Bair Hugger Patient Warming System, where features and benefits of the product are detailed. Augustine Medical Inc personal experience indicated that all of these features would be welcomed by nurses and patients alike. Price:

Heater/Blower must be under $1500 to avoid hospitals going through formal review and decision process. Only 80% of the hospitals have enough hospital rooms to have use for the Bair Hugger. Investor interest in Augustine Medical Inc and the medical technology it provided produced an initial capital of $500,000. These funds include R&D, staff support, facilities and marketing. It was believed that this initial investment would cover the fixed costs of the company during its first year of operation. Variable Cost = $380 per heater and $.85 per blanket. Margin paid to distributors would be 30% of delivered selling price of the heater/blower and 40% of the delivered price on the blankets, less discounts for both. There are 31,365 recovery beds minus the hospital that have less than seven beds. 31,365 1,608- 3,60326,155 recovery beds in the U.S. Unit one system will be sold for every eight recovery beds. Therefore, 26,155 divided by eight = 3,269 units to be sold The blanket come in packs of twelve and the demand for these depends on the amount of surgical procedures in hospital as well as the number of patients that could become hypothermic. The cost of the unit is $380. If the company gave the unit for free to the hospitals they would create a monopoly and only theredisposible blankets would work effectivley with the units. The cost of this would be ($380 muliplied by the units to be sold 3,269 units) = $1,242,220 The 30% distributor cost is irrelevant here as the unit was not sold for a price. Blankets There are 21million surgical operations per year in the U.S. between 60 and 80% of these become hypothermic therefore14,700,000 patients per year. divide this by the number of blankets per case i.e.12 now we potentially have sales of 1,225,000 disposible blankets. The cost of the blankets are $0.85 each multiply by 12 =$10.20 cost of case of blankets. Plan to sell 1,225,000 cases of blankets at a cost of $10.20 = Total cost for year $12,495,000 If these case of 12 blankets were sold to hospital at $24 each the distributor cost would be 40% of that which is $9.60 per amount sold ($9.60*1,225,000=$11,760,000) Sales made would be (1,225,000 * $24.00)= $29,400,000. The hospital would virtually see it as paying as little at 2 euro per blanket.

Finally: Sales of blankets $29,400,000 Cost of units $ 1,242,220 Cost of blankets $12,495,000- Distributor costs $ 11,760,000Total profit $ 3,902,780 Recommendations: Augustine Medical Inc to sell their products mainly relies on distributors to demonstrate, promote and advertise their products across the country. It has limited marketing as they are only preparing literature on the product for their distributors. Since Augustine Medical Inc is an R&D company, they should continue to develop new products. We believe that Augustine Medical Inc is doing well promotionally, since they have targeted the right target market, which doesnt need to be segmented. The problem is that the units will not be desired at a high cost atthe minute it is evident that the units should be given to hospitals for free. This will create a buzz around the product and will be desired by all hospitals as the only cost they have is the disposible blankets which each costs them only 2 dollars $24 in total per case. It is evident that the hospital will need ot restock these disposible blankets all the time and thus Augustine Medical will earn huge profits on the blankets as it only costs $0.85 * 12 = $10.20 to produce and are sold at $ 24.00. However the companyin our opinion should be making a lerger profits but the problem is the distribution costs of 40% are extremly high and if these could be lowered it would make the company more profitable. One must also remember 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 they will no longer have the cost of selling the units for free and will have gained a huhe market share which should help to elliminate the potential english competition in the next year.