Short Analysis of Augustine Medical, Inc

I. Major Issue:

How to price the new patient warming system, Bair Hugger®?

II. Alternative Courses of Action:

A. Skim pricing: Set the price high ($5000/-) for Heater/Blower unit and $13 per blanket. Such price strategy is possible as there is no such product currently in the market, thus no competition and there is a patent with the blanket.

1. Advantages

a. Increased cash flow to the company as the product is unique

b. Build high quality image of the product as the product is new and innovative.

c. Room to lower the price, which can be done easily than raising the price.

2. Disadvantages

a. Reduced sell volume due to high price

b. Will attract competition into the market as there is no patent on the heater/blower unit.

c. Can adversely affect the market share

B. Penetration pricing: Set the price low ($830 for Heater/Blower unit and $2.74 for blanket comparable to the cost associated with warmed hospital blankets)

1. Advantages

a. Low price will allow great market penetration

b. As the price per unit is less than $1500/-, no formal review or decision necessary from budget committee.

c. Easier purchasing decision by hospital staff

d. The price will break even i.e. break-even price.

2. Disadvantages

a. Raise question about quality of the product due to very low cost.

b. As the heater/blower units are durable, difficult to continue the market share to meet the break even

c. It will be difficult to raise the price of the blanket in the future.

d. No advantage to the company from the patented product.

C. Product-Line Pricing: Price of the blower/heater unit to be kept competitive with other similar products ($3900/-) and keep the price of the blanket at $2.74.

1. Advantages

a. Increased cash flow to the company

b. Both products can be sold together

c. Once the demand for heater/blower unit slows down, price of the blanket can be increased

d. Competitive price will be easier to penetrate the market

e. Help to maintain the quality...