Marketing Management

Case study 4
MSc in Marketing
Sakhvadze Salome
3.11.2018

Metabical:
Pricing, Packaging and Demand Forecasting for a New Wight-loss Drug
Company & Metabical overview
Cambridge Sciences Pharmaceuticals (CSP) is one of the most successful international
healthcare companies. In the year of 2007, their sales amounted to $25 billion. CSP focused on
developing, manufacturing and marketing medicaments that treated different metabolic-related
issues and other health problems. After ten years of testing and spending of $400 million dollars
in research and development, in April 2008 the CSP newest prescription drug Metabical became
the first weight-loss drug that received Food and Drug Administration approval. That means that
after this approval the company has an opportunity to enter the $3.74 billion market for weight-
control products in the United States. Therefore, the idea to produce the Metabical was part of
the strategic initiative. The reason for the high potential of this market in the United States was
the fast-growing problem related to excess weight. By 2008, over 65% of the 230 million adults
have weight problems, like overweight, obese or severe obese. As a result of such weight
problems, the percentage of other diseases has also increased (e.g. cancer, heart disease, type II
diabetes, etc).
Regarding the competitors in the same market, people could use some drugs, like Alli (non-
prescription, FDA approved weight loss drug) and OTC weight-loss solutions (not approved by
FDA), but because of the lack of regulations and safety, many overweight individuals preferred
to use diet plans, exercise plans, meal replacement programs, etc. Accordingly, the advantages of
using Metabical are vivid: it is safer, approved by the FDA, has medical community
endorsement, has fewer side effects, and must be taken once a day.
Problem Statement
At the beginning of 2009, the company has to launch a new product-Metabical on the market.
Barbara Printup, Senior director of marketing for CSP, has 9 months to make crucial launch-
strategy decisions. She has to choose price strategy and has to define packet size for the
medicament. She knows that price and package design (how many pills should be in one
package) would have a direct effect on the sales forecast. She develops three primary models for
pricing, but before she chooses one of these models, “she would have to establish initial demand
forecasts for the product in its first five years and ensure that her pricing recommendation met
the company’s desired ROI.” (5 percent ROI within five years of the new product’s launch).
Recommendation
The company has already spent 400$ million dollars on research and development for Metabical
and that should be recouped. Also, we know that fixed annual manufacturing costs for drugs and
additional details for production comprise $1.2 million. The preliminary marketing budget is
almost $23 million and what’s even more important is that CSP wants to achieve 5percent ROI
within five years of the new product’s launch. Accordingly, during the thinking process about the
price, packaging, and target, the company should take into account all the above mentioned
financial data.
Price&Packaging:
In the case study, there are three different price models indicated. In case of the first option,
when the price is 75$ for four weeks, on the one hand, the advantage is low price and
accordingly, the demand might be high, but if the price will be close to Alli’s ($63.3 monthly)
there may be a risk that in peoples mind the new product will be perceived as having the same
quality that Alli’s has. It will be hard for a consumer to believe that in the same price they have
the opportunity to buy a medicament which is approved by the FDA. Also, in case of 75$
financial return might be lower. A different situation will be in case of the second model when a
price is $125 for four weeks. This price is higher compared to the price of Alli’s product. In case
of $125 people will perceive Metabical as a premium drug and I agree with Printup that
“individuals should be willing to pay significantly more for a prescription-strength medication
that limited damaging side effects.” This factor should be taken into account by the company.
Also, a financial return will be higher than in the case of the first price model. Concerning the
disadvantages, there is a chance that the company will lose an opportunity to have a maximum
price. In case of the third price model $150 for four weeks the company may have a chance to
receive maximum profit on the one hand, but this price might be higher for consumers to afford
and therefore and the demand may be low on the other hand. Also, we know that when price
$150 was tested with the general overweight market, the price exceeded the amount the
consumers were willing to pay.
Regarding the packaging, there are two options: packaging for 12 weeks and for 4-weeks. Both
versions have advantages and disadvantages. In the case of 12 weeks, the main problem should
be the total cost for one package. For example: if the price will be 125 USD for 4-weeks it means
that people will be forced to pay $375 for one package. In this situation, there is a risk that
customers will not be ready to pay such a huge amount of money at one time. As Printup says:
“the company has to find a balance between the person’s ability to pay and maximizing the
chance that they complete the entire 12-week regimen.” On the other hand, if customers will buy
it, the reduced effectiveness will be avoided because there will be a less chance that consumer
will skip a day. If we take into account the possible results of 12-week packaging I would
recommend to the company to choose 4-week packaging. Firstly, they avoid a problem with an
individual’s ability to pay more than affordable. This type of packaging has one main advantage.
I think that it will attract more customers. While Metabolic is a prescribed drug, it is still a new
drug and consumers would not want to take the risk of paying a large amount and buying the 12-
week package when they are not quite whether the drug would have a positive effect for them or
not.
As it is mentioned in the case study, Printup has three different approaches to demand
forecasting. Based on these approaches we can conclude that potential users range is from 0.37
million to 1.29 million. Assume that all of them will buy 3 packs of metabolic. With a price of
$125 for each pack. The company would be able to earn between $139.87 million to $483
million USD during the first year. If the price will be 125USD for one pack (4-week), my
recommendation is “forecast 2” which entails people within BMI range 25-30, who would
immediately go to a healthcare provider for Metabical. Additionally, repeated consumptions
would also apply to this estimate scenario.