Business and Management
Submitted By vinny92703
The key decision facing Krogen is what pricing strategy to employ. Regardless of the pricing strategy chosen, Krogen must decide whether to select a global launch price or to vary the prices across regions and/or countries.
The ability to achieve and maintain a pregnancy is a desire most couples expect to have in their lifetime. However, infertility affects about 10% percent of the US population. With new advances in reproductive technology, all couples can have the opportunity to conceive and deliver a new life into the world.
In Vitro Fertilization (IVF) treatment involves the use of a fertility drugs to stimulate the ovaries in order to collect mature eggs. In a natural cycle one follicle usually ovulates and releases an egg and the others disappear. The drug protocol can take anything from 2-6 weeks and is typically associated with side effects, such as minor mood changes, headaches and nausea, swelling of the ovaries and death to name few. Multiple eggs increase the potential availability of multiple fertilized eggs and ultimately increase the probability of conception. IVF procedure is costly ($5,000 - $10,000 / per cycle), usually constitutes more than one cycle and typically not covered by insurance.
In Vitro Maturation (IVM) is the collection of eggs from ovaries, which have not been stimulated with any hormone injections, and attempt to mature the eggs in the laboratory. The advantage is minimizing the woman's exposure to hormone treatment. The egg that reaches the appropriate stage of maturation will be fertilized, cultured for a couple of days and then implanted into the mother. By bypassing the hormonal treatment, the cost is significantly less ($3,000 - $6,000 / per cycle), also may constitute more than one cycle and one avoids the majority of the side effects caused by IVF.
Added value: In Vitro Fertilization vs In Vitro Maturation:
1) IVM treatment, no drugs are necessary to stimulate the growth of follicles in the ovary and avoids the side-effects of hormonal medications. IVF treatment, drugs are needed to stimulate the ovaries in order to produce a large number of mature eggs (possible serious side effect). IVM increase the quality of life of the customer during the treatment.
2) IVF maturation period is longer than IVM. Single embryo transfer with IVM where as IVF is multiple embryo transfer (cause for twins, triplets, etc).
3) IVF can demand too high a price, where as IVM is simpler and cheaper since the hormonal treatment is bypassed.
4) MediCult IVM is less costly. Therefore, saving your customers money could actually increase your sales and as a consequence possible gain more customers, which in the end could of course translate to even more profit.
5) Improving a process by reducing costs while always maintaining or increasing client satisfaction (price & product) is the added value MediCult should focus on with IVM.
Charge the highest initial price that the customer will pay, stating that this is a high quality product, with the company objective of maximizing profit margins (early Life Cycle when demand is inelastic). When the demand is satisfied, the company begins to lower prices to attract other price-sensitive customer. There are enough infertile couples willing to pay for the product at highest initial price if the person is not price sensitive, level of urgency to become pregnant and wants to avoid the downside of IVF (cost / side effects). The downside to this strategy is competition and customer loyalty. Competition will see the high margin and will want to enter quickly which will cause prices to fall due to an increase in supply. If the company begins to lower its price and there are no enhancements in the product, the earlier customers may think they were cheated. This could have a negative effect on customer / brand loyalty.
Set prices relatively low compared to those of similar products in the hope that they will secure a greater market share (large market, elastic demand, economies of scale) that will allow the company to increase brand loyalty rather than short term profit maximization, as skimming pricing states. At the same time, possibly discourage competition from entering the market because the low prices (cost analysis). The downside to this is that if the company begins to increase prices over time or at specific intervals with a dramatic increase in price, this may affect customer / brand loyalty.
But from time to time, external factors beyond ones control may come into play and make a company rethink its pricing strategies. These factors can include changes in economic conditions, supply & demand, and competitor's prices, all of which will have a dramatic affect on how the company will price the product. Thus, customers would possibly embrace the price increase with justifiable documentation.
Company bases its price in relation to the competitor's price of a similar product. The advantage of this strategy is that no analysis/market research is needed on the product to select your price target. The disadvantage is that if the company does not already have strong company/brand recognition in the market, it may work against you because you are not really differentiating yourself from your competitors.
MediCult should select a Penetration Strategy.
Penetration pricing is a strategy that MediCult should employ in introducing IVM into the marketplace. The initial price of IVM should be set relatively low in hopes of "penetrating" into the marketplace quickly and securing significant market share when you believe the product is of good quality and beneficial to the customer, but does not yet have vast brand recognition. MediCult expects strong competition very soon after introduction since large pharmaceutical company may put pressure on supporters of IVM or develop their own product via "reverse engineering", as stated in the MediCult case. A low penetration price may perhaps discourage competitors from entering the market (using lower price as a barrier of entry), therefore using that period to gain brand loyalty. Once the product has secured a "desired" market share and there is a great presence of brand loyalty, MediCult can then review their business outlook and decide whether to alter the price.
MediCult should use a regional pricing strategy plan to outline how they can directly influence the growth potential of IVM within the countries market structure: market-to-market pricing.
Company Internal Factors
- Profitability; transportation costs, tariffs, taxes, production costs, distribution costs
Countries Market Factors
- Income levels, buyer power, competition, culture, demographics, etc.
- Foreign Exchange, inflation rates, price control, gov't intervention
Based on Exhibit 4 of the case, MediCult should price IVM somewhere between medium/low pricing strategy (still well below IVF prices) to gain customer loyalty and market share. They should also concentrate mostly in Europe, which has the highest positive volume changes as the price goes from High to Low, since it seem Europe is more price sensitive. In the US, it seems customers are less price sensitive as the price changes from High to Low but volume did not change. MediCult would need to analyze the US market and find out why there are no new customers purchasing the product as price changes.…...