Metabical Case Analysis

Metabical Case Analysis Problem Statement: Metabical was introduced by the Cambridge Sciences Pharmaceuticals as a prescription drug for safe and effective weight loss. Although it was still awaiting the approval of the FDA, it was created to promote weight loss for moderately overweight individuals. The most significant problem currently facing Metabical is that the product is scheduled to launch in January (2009) but no positioning/pricing strategy or demand forecasting has been developed. Metabical has to recover the $400 million that was spent on research and development and the FDA approval. To do this, Metabical needs to evaluate their positioning within the market, and based on demand forecasting, choose a target with the most forecasted demand in order to cover the $400 million in startup costs. For the rest of this analysis I will explain three strategies to try and estimate Metabical demand for its first five years of operation. Alternative Evaluation: 1. The first option for selecting an appropriate target market is the following process: I. II. III. IV. Take the number of overweight people in the US (71.06 million) Multiply this by 35% (estimated population wanting to lose weight) – 24.87 million Multiply this number by 15% (amount comfortable with weight loss drugs)- 3.73 million Metabical can estimate that they will capture 10%, 15%, 20%, 25%, and 30% in years 1-5. In this example, I chose to select the lowest pricing structure due to the fact that this specific population is extremely vague and will have a significant number of consumers heavily influenced by price. This could prove to not be the most efficient way to estimate demand for Metabical, being that this consumer group is very general. It is very likely that this model will only capture a small amount of Metabical’s target market, which makes achieving a positive ROI almost impossible. By using this demand forecasting model we can estimate that this option only produces $185 million in revenue dollars, which will not accomplish the 5% ROI needed by management, or the R&D costs Year People “overweight” in US 1 71,060,000 2 71,060,000 3 71,060,000 4 71,060,000 5 71,060,000 Population People not People Captured One wishing to opposed to Metabical people Supply lose weight loss captures (expected) (20% x weight prescriptions (expects) $24.80) (35%) (15%) 24,871,000 3,730,650 10% 373,065 1,850,40 2 24,871,000 3,730,650 15% 559,598 2,775,60 4 746,130 3,700,80 24,871,000 3,730,650 20% 5 24,871,000 3,730,650 25% 932,663 4,626,00 6 24,871,000 3,730,650 30% 1,119,195 5,551,20 7 Profit is $185,040,200. Which produces an ROI of -53% after 5 years 2. A more aggressive strategy is also available for Metabical: I. Take population of the United States (209 million) Two Supply (60% x $49.60) Full Cycle (20% x $74.40) 11,102,41 4 16,653,62 2 22,204,82 9 27,756,03 6 33,307,23 4 5,551,207 8,326,810 11,102,41 4 13,878,01 8 16,653,62 1 II. III. IV. Take 34% of this (people who are overweight) - 71.06 million. Take 12% of this (Target market of Metabical) – 8.527 million Metabical can estimate that it will capture 10%, 15%, 20%, 25%, and 30% in years 1-5. I chose to select the lowest pricing option here because this demographic is likely to choose other wait loss alternatives like weight watchers. From assessing this model we can see that it achieves a ROI of 5.7%. This will satisfy the desires of management. This particular demographic is composed of people that are willing to take a pill to lose weight. It is not possible for marketers to fully predict how a consumer group is going to react to a product, so a wide audience approach can create a big opportunity for a significant amount of money from this target market, and others. Year US Population 1 209,000,00 0 209,000,00 0 209,000,00 0 209,000,00 0 209,000,00 0 2 3 4 5 Overweight people (34%) 71,060,000 71,060,000 71,060,000 71,060,000 71,060,000 Target Market (12%) 8,527,20 0 8,527,20 0 8,527,20 0 8,527,20 0 8,527,20 0 Metabical Captures Captured 10% 852,720 15% 1,279,080 20% 1,705,440 25% 2,131,800 30% 2,558,160 One Supply Two Supply x (20% x (60% 49.60) 24.80) $4,229,491 $25,376,94 7 $6,344,237 $38,065,42 1 $8,458,982 $50,753,89 4 $10,573,72 $63,442,36 8 8 $12,688,47 $76,130,84 4 2 Full Cycle x (20% 74.40) $12,688,47 4 $19,032,71 0 $25,376,94 7 $31,721,18 4 $38,065,42 1 Profit comes out to $422,949,120 leading to an ROI of 5.7% after 5 years. A 5.7% ROI reveals gradual expansion for Metabical and is aligned well with the demands of management for the company. If Metabical were to go with this scenario, a lot of potential customers would be targeted and captured. Recommendation: I believe that it is in Metabical’s best interest to target educated females within the 35-65 age group that are also overweight (BMI of 25-30). This target is equal to 4.3 million people. Metabical estimates that it will capture 30%, then 40%, 45%, and 50% in that order for the next 4 years. Based on the demographic selected here, the highest pricing tier was selected for this analysis. It can be assumed that females 35-65 have a fair amount of disposable income, and will be more willing to pay for weight loss products and prescriptions. A high price point can also be justified by the fact that this product is also prescribed and has been approved by the FDA. In this analysis, this recommendation provides an approximate ROI of 67%, which is the case possible. This pricing model and demand prediction is actually very realistic, because this product has the potential to improve, and even save lives. It should also be noted that Metabical is also a pioneer product being so innovative within the prescription weight loss industry. This recommendation does not come free of problems. An ROI this high does seem to be a little bit unrealistic, especially when management has an ROI of 5% as its goal. It could prove to be completely unreasonable to try and reach 50% of a unique market over 5 years. Certainly the price can be decreased, but this is a very reasonable price for the target consumer, and it is very possible that dropping the price is going to hurt the brand image of the prescription and lead to it not being perceived as an elite product in the eyes of this target. Year Market Size 1 2 3 4 5 4,300,000 4,300,000 4,300,000 4,300,000 4,300,000 Percent Captured 30 35 40 45 50 Capitalization $1,290,000 $1,505,000 $1,720,000 $1,935,000 $2,150,000 One Supply (20% x 74.80) $19,298,400 $22,514,800 $25,731,200 $28,947,600 $32,164,000 Two Supply (60% x 149.60) $115,790,400 $135,088,800 $154,387,200 $17 3,685,600 $192,984,000 Full Cycle (20% x 224.2) $57,895,200 $67,544,400 $77,193,600 $86,842,800 $96,492,000