Case Prompt
Our client operates in the medical device industry and recently introduced a new device to treat diabetic patients. This device consists of two parts: an injector and a disposable cartridge. The client seeks guidance on the best approach to selling these products for maximum profit. How would you advise them?
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Exhibit
Exhibit 1: Price and acceptance rates for the two components
|
Component |
Price ($/unit) |
Acceptance rate (%) |
|
Injector |
100 |
80 |
|
110 |
70 |
|
|
125 |
60 |
|
|
150 |
50 |
|
|
175 |
40 |
|
|
Disposable Cartridge |
Price ($/unit) |
Acceptance rate (%) |
|
60 |
80 |
|
|
62 |
75 |
|
|
64 |
70 |
|
|
66 |
65 |
|
|
68 |
60 |
Exhibit 2: Cost savings per bundle at various bundling ratios
|
# Cartridges Bundled |
Cost Savings ($) |
|
0 |
0 |
|
5 |
10 |
|
10 |
20 |
|
15 |
30 |
|
20 |
40 |
|
25 |
50 |
Background
Our client's new diabetic treatment device includes an injector and a disposable cartridge, which are directly sold to patients with prescriptions. The injector is reusable up to 20 times, while cartridges are for one-time use. The client has projected acceptance rates at different prices based on customer surveys.
Analysis
1. Setting Optimal Prices
Determine the best prices for the injector and disposable cartridge to maximize profit. Calculate profitability at each price using gross margin and acceptance rates.
2. Bundling Strategy
Explore the potential of bundling the components together to increase profitability. Calculate cost savings for different bundling ratios and assess the benefits.
3. Evaluation of Bundling Strategy
Analyze whether the client should sell the components as a bundle at a 1:20 ratio of the injector to the cartridge. Compare gross margins for various bundling ratios and assess the viability of this approach.
4. Comparative Analysis
Suggest and discuss bundling strategies adopted by other businesses in different industries.
Final Analysis
I recommend the client sell the injector for $150/unit and the disposable cartridge for $60/unit. To further enhance profitability, bundling the components at a 1:20 ratio appears promising. However, the client should conduct surveys to determine acceptance rates for each bundling ratio accurately. This approach maximizes revenue while providing a cost-effective solution for patients.
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