Augustine Medical Inc Case Study free essay sample

Augustine Medical, Inc. is a Minnesota corporation that develops and markets products for hospital operating rooms and postoperative recovery rooms. Company executives are now finalizing the marketing program a patient warming system, which is designed to treat postoperative hypothermia in the recovery room, called Bair Hugger Patient Warming System. It is specially designed to maintain body temperatures of patients recovering from surgery. The product consists of a heater/blower unit that is a large, square, boxlike structure that warms filters and blows air through a separate plastic cover. The unit is mounted on wheels for easy movement. A dial controls the temperature with one to four settings. Twelve warming blankets can be stored in a top loading bin for easy access. The disposable covers are packaged in 18-inch-long tubes. The blanket is made of a thin plastic layer and a layer plastic material laminated into full length channels. Inflated by a connection at the patients feet, the tubular structure arcs over the patient, and warm air flows over the patient. We will write a custom essay sample on Augustine Medical Inc Case Study or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The average warming time for a patient is two hours. The plastic cover is patented but the heater/blower unit is not. Target Market: The target market for this particular case study is hospitals with seven or greater recovery room beds. Target market makes up a total of 80% of all surgical operations in the United States. The Bair Hugger Patent Warming System is not a consumer product, in fact it is a device designed to control the body temperature of postoperative patients. The main users of this product would be businesses and hospitals. Hospitals will be in high demand as they are continuously trying to prevent diseases such as hypothermia. After completing interviews with nurses and physicians there were a great deal of responses. They believed that the Bair Hugger Patient Warming System would speed recovery for postoperative patients. They also believed that the pressure of moving patients from bed to bed was in the past. Competition: The Bair Hugger will exist in a highly competitive market. Currently, its most popular alternative is the traditional hospital blanket. These are safe, simple and at $0. 13 per pound, relatively inexpensive. There is no way of competing with this product on a cost basis, so ethical reasons such as increased patient comfort and increased recovery speed will be the main reasons for customers switching to the Bair Hugger. Water-circulating blankets are the next closest alternative. Although these products are popular, the technology has stagnated over previous years, with little product development. Considered to be slightly to moderately effective, the Bair Hugger is considered the more superior treatment. These products are priced at between $4850 and $5295, with the control system priced at $3000, with discounts of up to 40% ($1800). Reusable blankets are priced at around $200-$400, and disposable blankets are $25. In terms of direct competitors, â€Å"The Climator† made by British company Hosworth is expected to become available in the US within the next year. This reflects the need for Augustine Medical to price the product correctly at launch, so as not to be undercut by an experienced and well-established competitor. Market Potential: With approximately 21 million surgical operations in the US every year, and 60% to 80% of patients needing treatment for hypothermia, the market is a large one. There are 31,365 post op recovery rooms in the US. Research suggests that only hospitals with more than seven beds will be interested in purchasing the product. This leaves 12,546 beds. Research also suggested that one product would be needed for every eight beds. This means the market available to Augustine was, at most, 1568 purchases. This was an important factor in deciding the price of the system. It was also important to take into account the fact that any hospital purchase over $1500 was subject to a formal budget committee review, which the company or distributors would have no control over. It may be hard to convince these budget review panels of the need for the product, especially when they may already possess viable alternatives such as water-circulating blankets. Breakeven Analysis: The best way for Augustine Medical Inc. to determine their price is to carry out a breakeven analysis. This is done by finding their variable costs, fixed costs and predicted sales volume. Variable costs are calculated as estimates from subcontractors indicate that direct cost of the assembly of the heater/blower unit would be $380. The variable costs for the blankets are packaging of the plastic, cost of materials and manufacturing, which are $0. 85 per blanket which leaves a total variable cost of $380. 85. The fixed costs of the product are said to be covered by a $500,000 initial capitalization. Research indicates that there are 31,365 total postoperative beds in the United States. If one out of eight of these beds adopts the Bair Hugger system (as is believed to be possible in the case), the volume of sales will be 3,920 Bair Hugger Systems sold. Therefore, for the purposes of the break-even analysis, a sales volume of 3,920 will be used in this calculation.