Metabical: Pricing, Packaging, and Demand Forecasting for a New Weight-Loss Drug
Issues
The main issues presented in Metabical case study include the pricing packaging, and demand forecasting techniques for the new weight-loss drug that Cambridge Sciences Pharmaceuticals (CSP) seeks to launch in the market. The first issue is the determination of the optimal package size that CSP can use for the new drug to be launched in the market. The second issue is the issue of pricing. CSP needs to develop an appropriate pricing model than can be applied in pricing the products in the market. Concerning the pricing concern, CSP has three models that it is expected to choose from. Finally, forecasting the product demand is another issue that CSP management needs to address. Therefore, an appropriate forecasting technique is to be selected.
Factors to be considered
In addressing the issues related to price, forecasting and product packaging, CSP has to consider several factors that have an influence on the outcome of the identified concerns. While establishing the appropriate product packaging, there is the need to consider the effectiveness of the dose that is presented. It should consider the impact that the drug will have on the targeted customers. This implies that the drug is to be regularly present in the blood stream (Quelch & Beckham, 2010). Secondly, CSP needs to consider the market benchmarks. Benchmarking involves carrying out a study on the prices offered by the other producers in the market and then establishing a price that is similar to the competitors. It can achieve this by conducting an evaluation of the prices that are offered by its potential market competitors. Setting of prices should be based on what prices other producers are offering. For instance, if the substitute products are offered at cheaper costs, it should ensure that it sets a price that is lower to attract more customers. This involves carrying out a study on the prices offered by the other producers in the market and then establishing a price that is similar to the competitors (Quelch & Beckham, 2010).
The other factor that CSP should consider is the product quality. Customers are usually attracted to high quality products that meet their needs. Therefore, to ensure it captures the market attention, CSP should ensure that the product is high above what the competitors are offering. Pricing decision of the product will be based on the quality of the products it has to offer to the customers. It is also important to consider the costs involved in the production of the drug by CSP. Since product price is a function of the costs, it is important to consider the individual costs that the company incurs in manufacturing the product. As such, a higher cost of production would imply that there is a higher product pricing to compensate for the high costs incurred. Finally, on forecasting the demands, CSP should consider the market response from the potential customers upon introduction of the new product. The market demand would have an effect on the production output by the company (Quelch & Beckham, 2010).
Available options
In pricing Metabical, CSP has three options which are viable for selection. The first option is to use a benchmark manufacturer and price the drug based on the selected company’s prices. Secondly, CSP should make a comparison with other CSP drug margins that are produced by the company (Quelch & Beckham, 2010). Using the margin for the other drugs, the manufacturer should then set its price based on the selected margin. The final option relating to pricing that the company has is the value that Metabical would add to the customers upon completing the program (Quelch & Beckham, 2010). According to this option, CSP would have the highest gross margin (Exhibit 1). This would improve its level of profitability.
Forecasting the demand has three available options that CSP can adopt to determine the expected the expected demand after five years. Under the first option, it should focus on the target market which is the educated females between 35 and 65 years. The second option involves an evaluation of the overweight individuals and then determining the ones who are reducing the weights (Quelch & Beckham, 2010). Finally, in making the forecast demands, CSP has the option of using the previous movement in demand to determine the future demand of Metabical. The packaging of Metabical can be based on the days-of-the-week where CSP has an option of having a 12-week supply for a single dosage to ensure it is effectiveness.
Recommendation
Based on the evaluation of the factors to be considered and the available options, it is recommended that CSP to package the Metabical drug in a 12-week one dose supply. This would be consistent with the 12-week treatment plan whereby at the end of week 12, majority of the targeted individuals would have lost their weight. A 12-week dose would also improve the effectiveness by the continuous presence in the blood. Additionally, the selected dose (12-week dose) is also important as it assists individuals to keep track of the each pill with the corresponding day of the week, hence improving the effectiveness. The most appropriate pricing approach that the company should adopt is the concentration on the value to customers of completing the program successfully. Under this approach, it is recommended for CSP to price the drug at a retail price of $150. For $150 dose, the targeted customers would be willing to pay since it has high prescription strength medication and reduced side effects. A comparison with other drug margins in the market would also be significantly related to the selected pricing model for the drug. A consideration of the costs of production also makes $150 the most appropriate price. According to the cost available, CSP incurs $1.2 million as overhead costs and $23 million in marketing. This is relatively high and for the company to realize a relatively high margin, the prices have to be fixed at $150. Finally, CSP should apply the target market focus when forecasting the demand for its products in the market. A forecast of the product demand should be based on the consumers. As such, the future demand for the Metabical would be based on the number of units the current target market is able to demand. This will be useful in estimating the future expected demand.
Exhibit
Exhibit 1: Manufacturer’s gross margin for the three pricing options
Reference
Quelch, J. A., & Beckham, H. (2010). Metabical: Pricing, Packaging, and Demand Forecasting for a New Weight-Loss Drug. Case Study: 1 - 8
