Introduction and Problem definition In industrialized countries the combination of a sedentary way of living and a rich and fat

alimentation leads to an increase of weight problems in the population. People are getting fat. In the US the proportion of overweighed and obese people grew from 56% in 1994 to 64,5% in 2000. This has great consequences on health: according to the United States Public Health even moderate weight excess (10 to 20 pounds for a person of average height) increases the risk of death, particularly among adults aged 30 to 64 years.1 With its new weight-control drug Metabical, Cambridge Science Pharmaceuticals (CSP) is preparing to entry a market of $3,74 billion with great perspectives. We will first analyse the market and the product positioning of Metabical. We will than focus on strategic recommendations regarding the pricing and packaging of the product.

Analyse of the Market Situation As being the first prescription drug approved from FDA specifically for overweight people, Metabical has not direct competitors. Nevertheless overweight people who want to lose weight are confronted with a plethora of alternatives: - Alli, seen as the main competitor of Metabical, is a non prescription, FDA approved weight control drug. It is a reduced strength version of the prescription drug Orlistat and shares many of its side effects. Between 1999 and 2008 30 reports of liver damage including 6 cases of liver failure were reported by patients taking Alli and Xenical. Price $190 for 3 months supply - OTC drugs (hoodia, chromium, green tea extract, conjugated linoleic acid, chitosan, bitter orange, etc), categorized as herbal or dietary supplements, and therefore not requiring FDA testing prior market introduction. Some of these products like Ephedra were linked to serious health consequences and had to be taken out of the market. For some others their real efficiency as a substance helping people to weight loss is discussed, which is a matter of credibility loss for the whole health industry. Price $300 for 3 months supply - Weight Watchers weight-control program and meetings. Price: $120 for three months - Jenny Craig: Diet and weight-control program including pre-packaged and delivered meals. Price: between $1,000 and $1.600 for three months - Gym membership. $245 for 3 months As a dual layer combining an appetite suppressant, calosera, and a fat blocker, meditora, Metabical has much greater results than current weight control products using orlistat or sibutramine. Furthermore, Metabical only use low dose of calosera and meditora and has therefore much lower and above all less serious health consequences than its competitors. Actually the major side effect of Metabical only concerns users combining Metabical with the ingestion of meals with high level of fat and calories and therefore risk gastrointestinal discomfort.
1

Overweight and Obesity Health Concerns (January 11, 2007)- US Department of Health and Human Services, Retrieved 3/18/10, from Office of the Surgeon General website: hhtp://surgeongeneral.gov/topics/obesity/calltoaction/fact_consequences.htm

As Metabical meets de facto an unsatisfied need for safe, efficient and medically proven weight-control drug it can be qualified as a blue ocean idea.

Product positioning of Metabical Metabical will offer overweight people (BMI between 25 and 30) an interesting alternative to existing weight-control products. As CSPs marketing officer Bernard Long says, Metabical is a revolution and has a many serious advantages among its competitors: security - it will be the first prescription drug to receive FDA approval, which is a great advantage for consumers which feel unsecure about security problems related to competitors - it has much less negative side effects than its competitors, due to the low dose level diet drugs (vs. Alli) efficiency - it is an efficient and medically proven method for overweight people to lose weight (vs. herbal and dietary supplements) - due to its side effect for people having a high caloric nutrition, Metabical force people to change their food habits, which help them to maintain their weight loss convenience: - single dose per day (vs. Alli) - packaged as days-of-the-week for a better control of the medication On the other side, Metabical has to be taken at fixed hours, as the drug has to be constantly present in the blood stream Moreover, Metabical is not very recommended and also not efficient for obese adults and therefore only focus on the overweight people.

Sales Forecasting method According to the overwhelming advantages of Metabical we can here speaks about a blue ocean situation, as there arent any direct competitors providing the same performances. Therefore as we are targeting here a wide market, which is not satisfied with the current offer of weight control product and requires such a product, it makes no doubt that Metabical will meet success. Mrs Printup tries to forecast the sales of Metabical by analysing the market of overweight individuals. First approach: classical market segmentation 34% of US adults are overweight 35% of them are actively trying to lose weight 15% of them are comfortable with weight loss drugs Which makes 3,73 Mio people Printup wants to capture 10% of this group in the first year and additional 5% each year up to 30% by the fifth year Second approach: early adopters
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34% of US adults are overweight 12% of them are ready to immediately go to their doctor to become a prescription Which makes 8,53 Mio people Again, Printup wants to capture 10% of this group in the first year and additional 5% each year up to 30% by the fifth year Third approach: focus on ideal target group 4,3 Mio educated females, 35-65 of age with BMI between 25 and 30 Printup wants to capture 30% of this group in the first year and additional 5% each year up to 30% by the fifth year In each case she supposes that 60% of the people will purchase twice and 20% three times. The positive aspect on the method of Mrs Printup is that she tries to segment the market and to assign different market demand to each segment. The trouble is that she takes three completely different approaches with three completely different results, which let several issues unanswered. First of all the targeted people are very different to each other, which seems to reflect a lack of clear strategy from Mrs Printup. Secondly by focussing on the one or the other target, Printup forget a part of the population. For example, for the second approach, it seems to be obvious that a part of the people will first wait a few months before going to their health provider to have a prescription. It is predictable that word-to-mouth recommendations will play a major role to let further people thinking about adopting the product. Printup makes forecast for the next 5 years assuming a complete linear sales progression of Metabical, without taking into account, that other products or alternative scan be introduced in the market during this period and therefore impact the sales of the product she is responsible for. We ignore if this linear progression is realistic or not. As CSP is new in the market of weight loss product, Printup has no experience in the launch of similar products and bases her assumptions on her experience in the launch of other products. This might be some differences. Generally speaking, Printup doesnt seem to be interested on the market performance of the competitors even for the defined key market segments. As Alli is defined as the main competitor of Metabical, it should be appropriate to look at its main targets groups and to look how the product performs in each group. Furthermore, we have no indications about where the assumptions of Mrs Printup regarding e.g. the repurchase scenarios come from and if they are realistic or not. And last but not least, we can say that the three targeted groups defined by Mrs Printup can not be added together. Actually you can have people from target 1 which you also find in target 2 and in target 3. That is to say: as the different targeted groups are not complementary we have no indication about the total expected market and about the growing expectation of the market share.
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My recommendation would be to use the market study to define key segments for Metabical. The different target groups should than be analysed separately to determine the expectations of each group and its willingness degree to adopt the product or not. These key segments have to be complementary and should not overlap each other. This market study should include the market position and the performance of the main competitors and alternatives. Knowing this, as Mrs Printup did, I would define a performance goal and an expected growth for the next 5 years for each segment. The addition of the expected demand of each main segment would give us the total expected demand for the product.

With the information we currently have, in my opinion, Mrs Printup makes too capital failures in her second and third approach: - in the second approach, she forget to take into account that in the group of overweight people, just 35% of the people are actively trying to lose weight, so that her calculation should be: 71,06 Mio x 35% x 12% Therefore the target is reducing by a factor of 35% - in the third approach, she just not only forget to take into account the 35% of the people who are actively trying to lose weight and the percentage of those who are comfortable to take weight-loss drugs, she assume that her product will capture in the first year 30% of her target (educated females, 35-65 of age, BMI between 25 and 30). This is just unrealistic The assumptions made with the first approach appear much more realistic. Metabical targets the market of overweight adults who are actively trying to lose weight and particularly those of them who are comfortable with taking drugs to achieve their goal. We can make the assertion that Metabical targets a market of 3,73 Mio US adults. Assuming the forecasted linear progression of Mrs Printup meet the reality, my demand forecast for the next five years will be 6,7 Mio units.

Packaging For the introduction of Metabical the packaging is a major issue. There are some considerations that have to be taken into account: On the one hand: - We know from the case that health insurance are not willing to reimburse the product. As the customer has to pay everything on his own, he may be cautious to pay a large amount at once. - Unless Metabical has no direct competitors and has many advantages compared to the other options available, a big difference in the package count including a big price difference could be harmful for the product sales On the other hand - Metabical is a twelve-weeks-based treatment. Any division of this twelve weeks create the eventuality that customers step out the program before end
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(according to Mrs Printup data 60% of the people will buy a second supply and only 20% the third one), which is not only a revenue issue for CSP, but has also consequences in the efficiency of the product and therefore on its perception by the customers Any division of the logical twelve-weeks-packaging can only be argued on pricing reasons On an industrial point of view, one type of package is better, as we can reduce the diversity (=reduce costs) in the plant and simplify the inventory management

For all these reasons and regarding the fact that Metabical brings a lot of advantages compared to current solutions and has no real competitors, I will recommend to launch Metabical as a 12-weeks-pakage.

Pricing First of all, the CMO of Metabical intends to achieve a minimum of 5% ROI within 5 years. That is to say $ 21,45 Mio. According to our forecasted volume (6,7 Mio) and independently from the retail price of Metabical, this is not an issue. For the pricing of the product, Printup built three scenarios: - Take Alli as a Benchmark. The Alli starter pack for 50 days costs approximately $ 120 (i.e. $ 72 for one months) and $ 70 for a 40 days refill-supply, so that the price for 3 months use is $ 190. Taking this into account the price of a 4-week-supply should be $75 - Taking the average gross margin of CSP of 70% into account and price the 4-weeksupply at $125 - Considering that overweight people spend roughly $450 a year more than people who dont carry excess weight and therefore price the 4-week-supply at $ 150. The trouble is that the analysis of Printup does not include price sensitivity. We have no indication about how much people are willing to pay to buy Metabical. We just have the results of market study with respondents from the ideal target market (i.e. female overweight, 35-65, college educated) which says that $150 retail price for a 4-week-supply is an acceptable price. A further study, this time on the general overweight market inform us that this price is above what consumers are willing to pay, without telling us what the price limit for those customers is. Ideally we will have a curve synthesising the response of the consumer panel with a gauss curve about the price consumers are willing to pay for these products. It is therefore not easy to determine the optimal price (price/volume ratio) for the product. According to the reaction of the survey respondent when they were asking if they will buy the product at a price of $150, it seems that this price is a certain limit that we should not exceed. De facto the ideal target market is ready to pay this price but the general overweight market, including people who are not actively trying to loose weight (and probably are not well informed about the current offer) is reluctant to pay so much.

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As Metabical has no real competitor and brings tangible advantage vs. the current offer, I will anyway price the product at the maximum of $150 and after the launch phase consider using a skimming strategy by lowering the price.

Conclusion With Metabical, CSP is about to launch a product which will set a milestone in the market of weight-control-drugs. None of the current alternatives can compete with Metabical. Metabical meets de facto an unsatisfied need for safe, efficient and medically proven weight-control drug it can be qualified as a blue ocean idea. Undeniably the product is very promising and can be sold with great margins for CSP. Nevertheless the analyses of Mrs Printup to prepare the launch have to be strongly improved. A rigorous market study with precise market segmentation has to be done without forgetting insights about the competitors.

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APPENDIX

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Appendix 1: Margin Forecast

Pricing 1 75,00 25,00 50,00 25,2 24,80 50% Pricing 2 125,00 41,67 83,33 25,2 58,13 70% Pricing 3 150,00 50,00 100,00 25,2 74,80 75%

Retail price Retail Gross Margin Manufacturer Price Variable Cost Manufacturer Gross Margin

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Appendix 2: Calculation of targeted ROI (5%)

400 Mio. $ 23 Mio. $ 1,2 Mio. $ development costs Preliminary Mkt budget Fixed costs per year 400 23 6 429 Total ROI 5% 21,45 Mio. $ per year

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Appendix 3: Volume and Margin Forecast

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Appendix 4: Correction Volume and Margin Forecast

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