Augustine Medical Short Case Study

Major Issue/Problem:

How should August Medical, Inc. price the Bair Hugger Patient Warming System as it is initially brought to market?

ALTERNATIVE COURSES OF ACTION

Alternative I:

Utilize a skimming price strategy in introducing product line and price the Heater/Blower unit at $4000 and the Disposable Blanket at $26

Advantages:

1. Perceived value in utilizing this system versus other products that are currently offered.

2. Higher than average prices could help build product image of the product and company

3. Allows the company to generate funds quickly to recover its initial investment and finance future R&D

4. Initial high prices will allow for future/bulk pricing discounts

Disadvantages:

1. Perceived high price may force Augustine Medical, Inc. out of the market as a result of numerous available substitutes.

2. Could potentially lengthen the purchasing process for prospective buyers as a result of Capital Expenditure review process at hospitals

Alternative II:

Utilize a penetration pricing strategy and price the Heater/Blower unit at $380 and the Disposable Blanket at $18.05.

Advantages:

1. Takes into consideration the price sensitive nature of hospitals, making it a more appealing purchase option.

2. Pricing strategy avoids Capital Expenditure review by the hospital to implement system

3. Allows Augustine to recover initial $500,000 investment in the first year

4. Sets prices lower than competitors, providing opportunity to gain significant market share

Disadvantages:

1. Perceived lower quality of product line and blanket as a result of low initial pricing

2. Could result in insufficient production and distribution capabilities as a result of overwhelming demand

3. Competition could potentially reduce their prices significantly in response and eliminate Augustine’s competitive advantage

RECOMMENDATION:

I recommend Augustine Medical, Inc. utilize Alternative II for its initial...