Sunrise Medical Case Solution

1、Evaluate the attractiveness of the wheelchair industry in 1993, and assess if and how the industry attractiveness and profitability is likely to change in the future. (20 points)

Solution: According to the case materials, we can evaluate the wheelchair industry based on the Porters’ Five Force framework.

A. Threat of New Competition: In this industry, barriers to entry are not very high. First, products are manufactured in a labor-intensive cutting, bending, welding and assembly process, fully integrated manufacturing only requires a 1$ million investment in machine tools. Second, no competitor has a significant patent. Furthermore, assemblers could enter with only a $300,000 investment if they purchased prefabricated parts.

B. Threat of substitute products or services: Invacare and Quickie almost had products offered at all the same retail prices, so it may cost nothing to switch from one wheelchair to the other, and differences between manufacturers’ chairs in each category are not significant. Manufacturers can quickly response to others’ entry into a new category by some acquisition. Since some wheelchairs are qualified for Medicare reimbursement, most users replaced their primary wheelchairs every two to five years, so it’s hard to lock customers in or build significant brand loyalty.

C. Bargaining Power of Customers: 75% of wheelchair sales in the U.S. were at least partially covered by insurance. Medicare is the leader and other insurance carries often followed Medicare’s guidelines. Until 1993, Medicare usually allowed for full reimbursement of only basic standard models and basic lightweight standard wheelchair. For more expensive models, Medicare only covered the portion of the price. So manufactures have to set suggested retail prices of those two models to conform to Medicare guidelines. Furthermore, discounts at the wholesale level were more common than retail discount, the nation’s 10,000 dealers only pay 60% of the suggested retail price to the...