Biopure Case
1. Executive Summary
This paper analyzes possible scenarios of Biopure’s products launching and provides marketing plan of the recommended one. The study shows that Biopure should immediately launch Oxyglobin rather than wait for Hemopure's FDA Approval then launch both products simultaneously. The proposed price for Oxyglobin is $300 per unit with promotion campaign from time to time. With this set price of immediate launch, Biopure will reach breakeven point for Oxyglobin in year 2000 with the amount of 2.13 million USD. Targeting market for Oxyglobin is emergency care practices as a higher price of blood substitute is more acceptable amongst pet owners. Direct sales method to emergency care practices in big city area is preferable to maximize profit while emergency care practices in medium-to-small city area will be approached by distributors to increase sales.
The advantages and disadvantages of both scenarios are identified, along with barriers to success, and market attractiveness analyzed using Porter’s five-force model. SWOT analysis has been used with product offering attributes in order to suggest the appropriate strategy relating to the targeting market, which is introduced in the last section. The recommended market strategy is analyzed in accordance with the market objectives, financial objectives, and the 4Ps marketing mix.
2. Marketing Recommendation for Biopure
In regarding to the decision of which product should Biopure launch first, there are two scenarios that Biopure could take: first scenario is to immediately launch Oxyglobin follow by Hemopure whenever it has received its FDA approval and the second scenario is to wait for Hemopure's FDA approval then launch both product simultaneously. In order to evaluate and make a decision, we analyze the blood substitute markets along with the analysis of the two scenarios.
2.1 Market attractiveness analysis
According to five forces analysis of human and animal blood market [Exhibit 1], we have summarized key points of market attractiveness as follows: Positive | * Few rivalries - Since there are not many players in this market, it is still many opportunities for the company to capture large market share before more number of players may arise. * Profitability earning - As there are still few players competing in this market, the company possess higher chance to earn more profit from differentiated products offering, especially from the product breakthrough. * Higher demands than supplies - Because the demands of bloods are over the supplies, there are still many rooms of opportunities. For example, the company can charge higher price along with launching many more products to fill the gap of needs. | Negative | * Highly invest in research and development - In the pharmaceutical industry, the high technology and intense know-how are strongly required to establish a company and developing a product. It can be very challenging to the new comers to compete with the big other existing firms, not only due to their larger resource, but also from reputation and professional trust. * The FDA approval for the blood substitutes - The process of approval for medical is very complicated and time consuming. The company must provide the supporting data to FDA to prove their product condition and quality to ensure that their products can use as the blood for medical treatment and this process may take in years. * Limited access to international channels – Due to the need of approval process, it makes the inconvenience for the company to launch their products in any other country. Specific regulations on medical products vary locally and the process also may take long. |
2.2 Barriers to success in both in human blood market and animal blood market
The first barriers to success of blood substitute is the products themselves as they have never been widely used, therefore the firm still lack of information about Oxyglobin’s and Hemopure’s real outcomes and how well they can be effective. Although Oxyglobin has been placed on a number of clinical trial for FDA approval, its long term side effect has never been investigated. These two products need to prove themselves of their effectiveness in blood transfusion market. Moreover, allergy to blood substitute have to be considered. If the products are sold nationwide and severe allergic cases are discovered, this will drastically affect sales of Oxyglobin and Hemopure. Besides, the bovine source can be skeptical for compatibility of usage in human and other animals. Is there any effect of using bovine red blood cells in human? Uncertainty of market acceptance of blood substitute as they confront deeply rooted blood transfusion treatment, which is proved to be very effective.
Pricing strategy is also essential to the success of products. Normally in animal blood transfusion market, the price a customer buys blood substitute from veterinary practice is double the price that the manufacturer sells to that veterinary practice. So if prices are set too high, a lot of customers will not be interested in trying blood substitute. They will still use blood transfusion. Without strong establishment of effective result of using blood substitute instead of blood transfusion, the firm cannot go for premium prices in these markets.
Furthermore, how well the firm is able to segment the market, target and tackle it, e.g. focus on emergency care practices first and then primary care practices or practices in big cities versus practices in small cities. Which distribution channel the firm will use also play a significant role in determining the firm success in introducing new products to market. Being the first mover in animal blood substitute imply that the firm has to take a risk on uninformed customer behavior. These products have to penetrate into blood market where a strong competitor, blood donation and transfusion system, still exist. So the firm needs to develop a strategy as well as alliance to emerge its products to the market. The firm has to persuade hospitals and practices to use blood substitute instead of blood transfusion which will be the hardest step since customers may resist to a huge change. Even though blood substitute provide more benefits than blood transfusion, its effects still be skeptical and unconvincing.
2.3 Scenarios Analysis: Advantages vs. disadvantages
Scenario 1: Immediately launch Oxyglobin Pros | * The industry for animal blood substitute is not yet explored. Currently, the demand for animal blood substitute is large while the supply of animal blood is relatively small; therefore, there are plenty of opportunities for the company to explore. * Since Biopure is the first company who attained a FDA approved animal blood substitute, there are no current potential competitors in the industry. The company can enjoy a period of being a monopoly in the market. * Since Biopure will be the first to penetrate the animal blood substitute market, Biopure owns the first mover-advantage. In addition to that, Oxyglobin is an innovative product in which Biopure has the power to position Oxyglobin as a premium product, therefore, can charge at a higher price. * Biopure has been investing in R&D in the past years without actual revenue generation, the immediate launch of Oxyglobin will allow the company to essentially generate revenue to support the financial activities in the company. | Cons | * When the markets of Oxyglobin and Hemopure are compared, the market size of animal blood substitute is relatively smaller than the human blood substitute market which means that the sales volume for Oxyglobin will be smaller. * Though Oxyglobin will be positioned as a premium product for animal blood substitute, however, when compared the price to human blood substitute, Oxyglobin's price range is relatively low in which it could negatively affect Hemopure's price when it is launched in the future. * Since Oxyglobin is for animals, the profit margin will be lower than Hemopure's profit margin. |
Scenario 2 : Wait for Hemopure's FDA Approval then launch both products simultaneously Pros | * The company can charge a higher price and earn higher profit margin from Hemopure. | Cons | * Hemopure is still under Phase 3 development in which FDA Approval is currently uncertain. If the company wish the launch both products simultaneously, the uncertainty of FDA approval for Hemopure may cause delays and prevent the company to capture the current opportunities in the animal blood substitute market. * There are several competitors in the human blood substitute market in which they are all in the process of FDA approval. The competitors are as follows: * Hemeassist : Currently under phase 3. Blood substitute produced from human blood. * Polyheme: currently under phase 3. Blood substitute produced from human blood. * With a number of possible competitors in the market, the company may need to lower its price in order to be competitive in the market. |
From the sets of pros and cons above, we can see that there are more advantages from immediately launching Oxyglobin. Though the company will earn higher profit margin from selling Hemopure in the human blood substitute market, however, there are other uncertainties from Hemopure that affect the timing of product launch, thus, preventing the company to generate revenue. In conclusion, since the FDA approval for human blood substitute is still uncertain, Biopure should immediately launch Oxyglobin. Biopure will be the first one to break through the animal blood substitution market given that Biopure currently is the only company who attains the FDA approval for animal blood substitute. We see that it is crucial for Biopure to seize this opportunity immediately by launching Oxyglobin. Biopure can enjoy low level of competition and gain first mover advantages. Biopure can gain a good reputation from Oxyglobin, which can then create a positive impact on Hemopure when launched in the future.
2.4 How will the marketing of Oxyglobin and Hemopure affect each other?
From the analysis, if Oxyglobin is launched first, the price of Oxyglobin will affect Hemopure proportionally. In case Oxyglobin succeed in animal blood market, Biopure can use some aspects of the success model to apply in the human market. Without having a real and wide use in animal, labs product cannot be proved of its effectiveness. If Oxyglobin works well on animal, not only the firm actually builds its product reputation and trust amongst new users but also establish a solid evidence of effectiveness. Then Biopure’s next launching product, Hemopure, is able to ask for a higher price in human blood market especially in autologous blood transfusion patients. Besides, Biopure will set up a convincing justification of price differentiation between Oxyglobin and Hemopure for clinics, hospitals and insurance firms. On the other hands, if Oxyglobin does not work well in animal or drawback is founded, Biopure will have a chance to improve Oxyglobin and delay a launch of Hemopure. Hemopure is very similar to Oxyglobin, therefore, a drawback of Oxyglobin will directly affect the price of Hemopure and it will definitely increase possibility of product failure.
3. Market plan for Oxyglobin : Market analysis
3.1 Market segmentation & Target market
The blood price charge per unit by emergency care practices normally higher than primary care practices around $50. Thus, We considered that the animal blood substitute market should categorized into two segments, i.e. * Emergency care practices * Primary care practices
Both veterinary practices are located throughout the country. However, the clinic that located in big city, especially in the area of rich people lived (i.e. Beverly Hills, Manhattan) could charge the animal’s medical fee to pet owner in the higher price than other areas. Thus, all practices can sub-segment into two segments base on demographic as follow: * Big city area: the pet owners in this area have more purchasing power and are able to pay higher medical fee for their pets. Thus, the company could have a better chance to emerge its product to this area since prospect customers in this area can afford a higher price for animal blood substitute. * Medium-to-small city area: pet owners who are middle-class income are less affordable the premium price.
Because the blood substitute is the standard product that have to be concurrent with FDA conditions and cannot be differentiated, so the company can sell this item to every customer at the same quality with the same price. However, emergencies care practice mainly accepted only critical cases, which required a huge amount of blood. Therefore, the company should target the segment of “emergency care practices” which could drive more sales volume and generating more revenue since pet owners are willing to pay higher for their pets on emergency cases. Thus, offering more benefits than traditional blood transfusion would be more preferable alternative for pet owners. Longer shelf life is also an advantage for veterinary practices since donor animals are rare and blood unit expires in short period. This will make practices keep blood substitute for longer period of time.
Then we should target each sub-segment with different distribution channels in order to maximize profit. To gain higher margin for segment of “Big city area”, the company should use direct sales approach. This approach would help firm to save 30 percent of distribution cost charged by distributors. But, we would sell through distributors for the segment of “Medium-to-small city area”.
3.2 Market positioning
To succeed in the marketplace, the company should create a unique brand position by differentiated itself and also understanding the consumer needs and competitive action. The company should posit itself as a provider of the best animal blood substitute quality and product differentiation. This was due to the two main reasons as follows: * Product benefits: This animal blood substitute offer better benefits when compare with real blood. Firstly, the substitute blood is free of infectious agents and contamination. Secondly, substitute blood has a longer shelf-life, which is two years. Finally, this product also 100% efficient at transport oxygen. * Differentiated products: Because the company was a first provider of animal blood substitute, so we offer consumers the product that different from the one that existing in the market. To ensure that our product would be succeed, the company should create brand awareness of our product by launched Oxyglobin at the time that FDA approved.
3.3 SWOT Analysis
Strengths | * The first FDA approved manufacturer of animal blood substitution * State-of-the-art manufacturing facility * Product differentiating advantages; no require cold storage with possessing of longer shelf-life * The main raw material (bovine) is easier to find at minimal cost comparing to the real animal blood. | Weaknesses | * Biopure has no experience of selling in blood transfusion industry, especially to animal. * It has limited customer database and connections, since it is the first mover. * Biopure does not have its own distribution channels. The company has to rely on distributors also. Hence, parts of revenue will be shared. * The bovine source can be skeptical for compatibility of usage comparing to the dogs’ bloods. | Opportunities | * Large room to grow. Very blue ocean. * As Biopure is the first mover of the industry, it has a chance to create strong brand awareness as the leader of animal blood substitution. * Biopure as pioneer has ability to set price of this kind of product in the market * Opportunity for business and management practicing for the future launch of Hemopure. * Veterinary blood supply is in lack since it requires blood donation. Hence, the demand in animal blood transfusion is still high. * Oxyglobin enhances creditability and trust to the future launch Hemopure since human could feel more ensured that the product has been actually proved well with animals already. * 84% vets still dissatisfy with other alternatives of animal blood transfusions available in the market. * 15% of veterinary practices do not offer animal blood donor system. * 85% of the offering practices perceived it is effective, yet quite costly. | Threats | * Since veterinary is a small price-sensitive market, it is possible that the erroneous pricing strategy implemented can lead to failure of product launch and trials. * Jeopardize ability to set appropriate price to Hemopure in the future in the case of mispriced. * Possibility for competitors to imitate the products. They can replicate to make similar or even better product development. * Certainly arising competition after at least 5 years. The limitation is from FDA approval process. * The perception of 84% dissatisfying vets to use alternatives of animal blood transfusions can still be difficult to overcome. * Since this is the very first product of this technology, long term consequence when applied to various animals may still be unclear. This can be one of the attack point Biopure may receive from rivalries and protagonists. |
3.4 Product Offerings
Oxyglobin is an hemoglobin-based oxygen carrier aiming to function similarly to hemoglobin in terms of transporting oxygen to all cells and organs of living animals. This blood substitution protein is extracted from bovine source and chemically modified to eliminate the infectious agents, purified, and stabilized to be applicable to other animals. Major attributes of the Oxyglobin include two-year durability, no potential contamination, flexibility in applying to all blood type, and consistency of usage.
4. Market plan for Oxyglobin: Market strategies
4.1 Market Objectives * To create product awareness nationally on Oxyglobin as being an equally or better alternatives for blood transfusion. * Inform potential customers the benefit of Oxyglobin over conventional animal blood donor and blood banks, to initialize product acceptance. * Achieve minimum trial of Oxyglobin from both small-animal primary and emergency care practices at least 50% in 6 months and 60% within year 1999, especially from well-known and trusted veterinary practices. * Attract and gain at least 5 trusted and related sponsors, such nutrient pet food brand, to create brand image as being a company that truly concern about the health of animal.
4.2 Financial Objectives
By setting financial objective, we come up with two alternatives for Oxyglobin (see Exhibit 2 for more detail). However we will only consider in dogs because dog patient is accounted to be approximately 50% of total patient volume from 15,000 small-animal veterinary practices in the U.S. However, the sales growth is estimated to be slow because of the consistence number of household pet ownership, 59%-61% in year 1996-1998 (see Exhibit 3), and as the point that the product can be substituted with conventional one with low switching cost.
By comparing both alternatives, it is clear that introducing the standard price at 300$/unit for both primary and emergency care practices is the better choice. As we are the only player in the animal blood substitute industry, or Blue Ocean, we can set the price as high as we desire because of no competition in price. For Alternative 2, we decide to discount the price to 150$/unit for primary and emergency care practices to attract customer in the first 2 years and invest in 30% of revenue for marketing with more channels and to in-need customers. By introducing this, Biopure will reach breakeven point at year 2000 with net profit of positive 2.13$ Million, whereas net profit of Alternative 1 is negative 3.16$ Million in year 2000. Although, net profit from Alternative 2 will be negative in year 1998 and 1999, this is only because the discounted price of Oxyglobin is introduced to attract more potential customers. As we decide to raise the unit price to a standard price, at 300$/unit for primary practice, in year 2000, Biopure will face a downfall in sales growth by estimated 15% and will gradually increase due to the differentiated benefit of the products over conventional ones, whilst maintaining willingness to trial from veterinary practices because most practices already accept Oxyglobin.
4.3 Marketing Mix
What do you recommend about timing, pricing, distribution etc. for Oxyglobin?
When – Biopure should launch Oxyglobin into the market as soon as it is ready, given that the product has already been approved by the FDA. Moreover, as of right now, there will be no potential competitors for the next 2-5 years, since there is no one engaging in animal blood substitute practices. The opportunity cost of not entering the market as a monopoly with Oxyglobin outweighed the risk of jeopardizing pricing opportunity when launching with Hemopure. As a result Biopure should launch itself into the market with Oxyglobin, not only because the market is small and still attractive, but also can generate revenue and possibly profit for further investment. Moreover, though it is true that Hemopure is in the last process of FDA, anything could happen and the company should not make any projection or plan based on uncertain prospects.
Price – At least 300 USD per unit, in fact, the company could charge even higher as appropriate (because demand is high, and supply is low). The Oxyglobin blood substitute is a newly innovated product, which just had been approved by the FDA. Assuming that Biopure launches Oxyglobin right away, where there is no competitor existing in the market yet, the company will automatically become a monopoly. Differentiated product allows a monopoly to set the price “as appropriate”, meaning that the company somewhat have flexibility in price setting. Our recommendation is at least 200 dollars per unit, because the company cannot effort any lower price, in order to recoup the investment cost (eg. R&D, marketing, production, etc.). At the same time, cannot risk mispricing by charging too high either, given that there is a close substitute like donor blood available in the market, charging at 80 to120 dollars per unit for noncritical, and 130 to170 dollars for critical cases. Though, donor blood is a close substitute for Oxyglobin, the products themselves is different. More specifically, the extra benefits for the consumer like the free of infectious, no risk of mismatching blood type, the longer shelf life, and blood with 100% efficient at transporting oxygen, allow Oxyglobin to be charged at higher price compared to donor blood. (Biopure can choose to do market survey about the pricing if excess budget is available, or can do trial & adjusting however is not recommended because delivering consistency is also important).
*Notes* - Giving supplying capacity of the company, if Biopure can somehow accurately forecast the demand of Oxyglobin, an economist can easily calculate profit maximizing price and quantity for this product.
Place – Biopure should focus on distribution channels where there is high demand. The company can identify potential geographical regions with high demand, by following the population of veterinary clinics. Assuming that clouded areas, there will be higher traffic of the patients, thus will also be higher demand for our product as well. Furthermore, once successfully identifying potential locations, the company should attack both large customer (distributor), and small customer (veterinary practices) associated with our target areas. The company can enjoy the high sales volume and established networks (for geographic coverage) from the large distributors, while being affluence with high contribution from low bargaining power customer like the veterinary practices.
Product – Recent innovated product, Oxyglobin has somewhat more value compared to the ordinary donor blood. Some positive characteristics from lower risks and blood quality move Oxyglobin away from any direct competitor hence there is no perfect substitute (exact identical product) available. The high demand of blood transfusion creates opportunities and higher chance of success for the Oxyglobin. Though it is true that there is not yet any direct competitive product any the moment, the market is still very attractive. Biopure can expect more and more competitors entering the market trying to offer the same product, especially after successful launch of the Oxyglobin. Consequently the company soon has to further develop Oxyglobin, strengthen its unique characteristics, while ensuring the quality of the product, to move away from potential competitors. Without having both “served customer” and “expressed benefit” for product, one might argue that Biopure practices of developing, initiating new product, extending boundary of industry is a blue ocean strategy scheme. For the case of Oxyglobin (first mover), extra “unexpressed” benefits will be introduce to the consumers.
Promotion * Promote the benefits : Company should promote the extra value of Oxyglobin to the users like the veterinarians by effectively communicate, educate, and illustrate of the usage. Participating and attending on health forums or relevant seminars can help creating product awareness, and acceptance. Moreover, Biopure can also run workshop and make presentations, educating, training future generation veterinarians, targeting respectable, high acceptance, big influencing institutions. Getting acceptance from leading veterinary schools, like the Harvard veterinary school, can create trust and confidence for the final consumer, as well as speed up product acceptance. * Promote the sales : Company should affordably discount the price for long-term contracts, in order to create promising sales, especially in the first years, with uncertainties and fluctuations. As the product is new to the consumer (as well as to the world), company must spend lots of time educating benefits, creating awareness, therefore constant income is necessary for further marketing campaign, QC, R&D, etc. * Promote the usages : According to market surveys (Table A: Biopure company records), final consumer (pet owner) facing noncritical cases have less tendency to trial new product, Oxyglobin. The company can increase the usage by attacking this segment with promotion campaigns like, contract with veterinarians to promote the use of Oxyglobin.
Branding – recommended order of branding activities after launching Oxyglobin, as below. 1. Create awareness – That Oxyglobin is not only approved by the FDA, but also more effective than the regular currently available donor blood. This is very important, as creating awareness is necessary to be the first activity of the list, because the customers (distributor, vet. etc.) as well as final consumer still do not know about this newly innovated product. The company must communicate effectively, educate veterinarians and possibly promote the use of the product. 2. Increase availability and accessibility – After acquiring product awareness, Biopure must expand its market and increase distribution channels, especially where there is high demand. The company should target big buyers like distributors as well as veterinarians. Moreover, the company should ensure availability by supplying enough goods for the established customer. 3. Advertise product and develop brand – Once customer is aware of our product, and have accessibility to buy our product, Biopure must then increase the tendency to try out Oxyglobin by advertise, or promotion, at the same time start developing a well respectable veterinary brand. In developing the right brand, enhancing good reputation, the company must competence itself towards the key success factors associated with the industry. 4. Provide consistency – Biopure must then be obligated to deliver customer satisfaction by not only provide consistent product quality, but also through reliable services. To do so, it must ensure efficient operations, which require effective process and engaging performing human resources. Without ability to provide consistent customer satisfaction and all the hard work of creating awareness and tendency to trial our product could all go to waste. 5. Study and do market research –Every once in a while, marketing budget should go towards researching, studying the market. Conducting market surveys, studying customer reactions, attitudes, and behavior as well as predicting future trends are needed, in order to adapt and develop towards to right direction. By understanding the market, customer, and final consumer, Biopure can then effectively make projections and future marketing plan accordingly. With continuous improvement according to the situation, Biopure not only will allocate marketing spending more efficiently, but also will perform more effectively.
Exhibit 1:
Five forces analysis-Human blood market
Rivalry<Weak> | * Products of rival sellers are strongly differentiated (weak)Products offering in this market are human donating blood and human blood substitutes, which are differentiated by their identical characteristics and production sources. Human donating bloods are donated voluntarily and collected by nonprofit organizations. But due to the low rate of donation and the relative short-life of RBCs, the experiences periodic shortages of RBCs for utilizing in medical facilities always happen during the winter and summer holidays. While the human blood substitutes or hemoglobin-based blood substitutes are developed by using the outdated human RBCs or cattle blood which give the longer shelf-life and also the universal blood substitutes that eliminate the need of blood typing and cross-matching. For the human blood substitutes, there are diverse group of sellers which willing to find new innovative to approach the market. For example, Baxter International and Northfield Laboratories relied on human blood as their source of hemoglobin by developing a new technology to extract raw hemoglobin from outdated human RBCs. On the contrary, Biopure utilizes the cattle blood as its source of hemoglobin. * Buyer cost to switch brands are high (weak)The human blood substitutes are new in this market. Buyers will be hesitant to use these new products because of the anxiety on the quality and reliability of the products. * Exit barriers are high (weak)The new technology for developing the products to compete in this market is very essential. Firms need to do research & development and do the experiment several times to ensure their product efficient before asking for the approval from FDA. This approval process will spend long time at least 2 or 3 years. | New entrants<Weak> | Barrier of new entrant strong barriers * FDA approval (strong barrier)Before launching the products, firms have to receive FDA approval to guarantee the quality and reliability of the products that can use in human without any harm. The process for this approval may spend more than 3 years. This delay approval will impact the firm’s revenue. * Limited new access to distribution channels (strong barrier) Because the products are related to the medical treatment, the requirement of licenses and permissions are needs. And regulations are differing in each country, thus before expanding the distribution channels in any countries, firms have to ask the permissions every time. * High capital requirement (strong barrier) The requirements on the new technology and high innovative machine to develop the products are very necessary for the potential entrant. Moreover, the strong finance condition is also needed to support research and development the product as well as the introductory advertising. | Substitutes <weak> | No substitute product in this case | Suppliers | In this case, we will categorize supplier into two groups; supplier of human donating blood, which mean the blood donators, and suppliers for human blood substitutes.Human donating blood suppliers strong * Supplier products are in short supply (strong)According to the case study, it mentioned that there is low rate of donation which is one of the RBCs shortages. The reasons for people who not donating including the fear of needles, lack of time, and also the misconception about risk of disease transmission from donating. Human blood substitute suppliers weak * There is a surge in the availability of suppliers and industry members’ switching costs to alternative suppliers are low (weak)There are many suppliers (cattle farms) available in this market. Thus, if any one supplier attempts to raise prices by more than the costs of switching, firms will change the supplier. * The item being supplied is a commodity (weak)The suppliers of commodities are in a weak position to set the premium price because firms can readily obtain essential the same item at the same price from many other suppliers. | Buyers | In this case, we will analyze the buyers as the intermediate buyers which mean to doctors and final buyers which mean the patients.Intermediate buyers (doctors) moderate * Sellers’ products are differentiated (weak)As mentioned above that the products is in this market are different, so buyers have to concern more on the quality and utilization that they will use to the medical operations. And they do not have much power to negotiate the prices since the products are not the same. * Buyers are well informed about the quality, prices, and cost of sellers (strong)Doctors who directly use the products for the medical operations have specialized in this area. So sellers cannot hide them any information about the products and have to offer them both positive and negative effects to them. Since this is related to human lives, if there is any mistakes occur, not only the reputation of the doctors but also the reliability of firm will be destroyed and it will difficult for them to recall their trusts.Final buyers (patients) weak * Sellers’ products are differentiated (weak)The most important thing for the patients is the qualities and reliabilities of products that will be proper with their cure. The sellers in this market also provide the products which are different by characteristics and sources. Thus, buyers have to consider on these various points rather than products’ prices. * Buyers are small and numerous relative to sellers (weak)The demands on human blood are very high but there are only few firms that provide the products in the market. Thus, buyers do not have many options to negotiate with sellers. Especially in the emergency case, buyers have to accept the seller conditions. * Buyers are not very price-sensitivity (weak)Since this case is related the fatality, the first priority must be the patients’ lives. Although, sellers charge the very high price, the patients still need bloods for their treatment. |
Five forces analysis-Animal blood market Rivalry <Weak> | * Products of rival sellers are strongly differentiated (weak)In this market, animal donating blood and animal blood substitutes are the competitors. Animals’ RBCs have the similarity role as human. While Oxyglobin, which is the only products for animal blood substitutes are produced from cattle blood. * High exit barriers (weak)Before requesting FDA for product approval, firms have to invest on research and development to initiate the new products. This process needs the strong financial condition to encourage all processes come through. | New entrants <Weak> | Barrier of new entrant strong barriers * Approval from FDA (strong barrier)The approval from FDA is needed for firms before launching the blood substitutes in the market. The length of time for approval processing may take more than 2 or 3 years. This also impacts on the company’s revenue due to the late launching products. * Limited new access to distribution channels (strong barrier)As FDA’s approval is necessary for medical products and the different regulations in each country causes the restriction on product distribution. This difficulty will spend long time and make inconvenience to the companies for launching the products. * High capital requirement (strong barrier)Developing the new technology to improve the products’ quality is very necessary for competing in this market. Hence, the financial status must be strong to support research and development and do the advertisement to introduce the products to the customers. | Substitutes <weak> | No substitute in this case | Suppliers | In this case, we will categorize supplier into two groups; supplier of human donating blood, which mean the blood donators, and suppliers for human blood substitutes.Animal donating blood suppliers strong * Supplier products are in short supply (strong)The demand for animal blood is higher than the supply that is available in the blood bank. So the suppliers have more power to the sellers. In this case, the actual donor animals are pets. But they cannot go to the blood bank to donate their blood; their owners have to take them for it. Therefore, the blood bank and related organization have to give them some benefit or do some campaigns to motivate them to bring their dogs for donating bloods.Animal blood substitute suppliers weak * A surge in the availability of suppliers and low switching cost(weak)Since blood substitutes is developed by using cattle bloods and there are a large number of suppliers providing this sources in the market. So suppliers cannot charge the extra cost to the sellers because they can switch to buy from the other suppliers. * The item being supplied is a commodity (weak)There are indifferent by using the cattle bloods from the different suppliers. So the suppliers cannot charge higher price than the others. | Buyers | In this case, we will analyze the buyers as the intermediate buyers which mean to professor and final buyers which mean the patients.Intermediate buyers (veterinarian) * Sellers’ products are differentiated (weak)Since there are donating blood and blood substitutes in the market which have the different conditions and sources. The buyers must consider the qualities as their priority. * Buyers are well informed about the quality, prices, and cost of sellers (strong)Sellers have to give all the information to the veterinarians to consider whether the products will be suitable to their patients (e.g. dogs or cat). Final buyers (pet owners) * Sellers’ products are differentiated (weak)The efficient from using the blood substitutes to medical treatment is the first things that the pet owners concern. And the products in this market are only donating blood and blood substitutes. * Buyers are small and numerous relative to sellers (weak)Sellers in this market are donating blood organization (e.g. blood bank) and private organization (Biopure). But the needs of blood are very high over the available products. So the sellers have more bargaining power. * Buyers are not very price-sensitivity (weak)The most important thing for the pet owners is how to cure their pet to become healthy and they do not care about the price too much. |
Exhibit 2:
Alternative 1
For this alternative, we will set the price to 100$/unit for both primary and emergency care pracetices then rise the price up to 150$/unit for primary and emergency cares from year 2001 onward.
Assumption: * Assuming that having ‘critical case’ representing emergency care practice is the minimum units we can sell. We can even achieve more revenue, if there are some critical cases in primary care practices. Although some primary practice’s cases might not be included as non-critical cases, number of blood substitute units used in blood transfusion purpose is still far less than critical cases * We want to price the product equally to the conventional blood donor, 100$/unit for primary care practice, to initially attract customer to buy our products. * Only mid year to the end of 1998 is considered here because the product was just approved in year 1998. * Only veterinarians’ reported willingness to trial Oxyglobin is considered here, not accounting for willingness from pet owners because the doctors are able to convince pet owners to use Oxyglobin. * 50% of potential unit that can be sold is identified for the first year from the total of potential 354,750 units. * Price per unit of Oxyglobin will increase in 2001 to 150$ for primary practice, as the product has already created its acceptance and awareness to customers. More people will know about and recognize the brand, the brand can be set to higher prices. But the demand of the product will decrease as a result. However, bounce back to a positive growth in the following years due to its differentiation over other conventional blood donor and blood banks. * We account the distribution fee to be approximately 80% of total distribution cost because we would like to direct sales approximately 20%, which is approximated to be the commision fee.
Assumption: * Commision 5% of total revenue for wage and logistic cost to set up a direct sales team, which is estimated by making the commission cost close to 20% of total distribution cost. * Distribution cost will be reduced to 20% in year 2001 onward, as the product is no longer a new product. * Estimated marketing cost being 10% of the sales revenue because we want to let the product sell by itself and spend very little in marketing activities.
Alternative 2
For this alternative, we will set the price to 300$/unit for primary and emergency care practices as a standard price, then discount these price 50% to 150$/unit for primary and emergency care practices in the first 2 years. By setting the price high, we will invest in marketting activities more intensively with maximum budget of 30% of total sales revenue. We will plan to overcome the high price issue of the products by: 1. Discount price first 2 years to attract more customers, then sell at 300$/unit for primary and emergency care practices onward. 2. Establish sales promotion especially for large batch order, for instance buy a batch of 100 units will receive 10 extra units for free, and give sample to attract more customers. 3. Set up sales representative team to educate the beneficial factors over conventional and stress the disadvantages of conventional blood donor, especially to big veterinary practices. 4. Expand to areas where there are few or in-need of blood donor
* Since we invest intensively in marketing activities, we believe that we can raise the percentage willingness of veterinarian to trial Oxyglobin to 70% for primary care and 95% for emergency care, especially after big veterinary practices use our products. Also, maintaining the estimated units that can be sold to approximately 50% for the first year, similar to Alternative 1. However, we believe that we can bounce the price back to standard, 300$/unit for primary and emergency care practices, in year 2000 because of our intensive marketing plan.
* Price per unit of Oxyglobin will increase in 2001 to 300$ for primary practice, as the product has already created its acceptance and awareness to customers. More people will know about and recognize the brand, the brand can be set to higher prices. But the demand of the product will decrease as a result. However, bounce back to a positive growth in the following years due to its differentiation over other conventional blood donor and blood banks.
- Distribution cost will also be reduced to 20% in year 2001 onward, as the product is no longer a new product.
- Marketing cost is set to 30% of total sales revenue, because of our intensive marketing plan.
Exhibit 3:
Household Pet Ownership, 1990–2004
(as a percentage of total U.S. households)
| 1990 | 1992 | 1994 | 1996 | 1998 | 2000 | 2002 | 2004 | Dog | 57% | 58% | 56% | 59% | 61% | 62% | 62% | 63% | Cat | 33 | 32 | 30 | 32 | 32 | 34 | 34 | 34 | Freshwate fish | 8 | 10 | 10 | 11 | 9 | 12 | 13 | 13 | Bird | 6 | 6 | 6 | 6 | 6 | 7 | 6 | 6 | Small animal | 4 | 5 | 5 | 5 | 4 | 5 | 5 | 5 | Reptile | n.a. | n.a. | 3 | 3 | 3 | 4 | 4 | 4 | Equine | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | 4 | Saltwater fish | .5 | .7 | .6 | .6 | .5 | .7 | .7 | .7 |
Source: American Pet Products Manufacturers Association, 2005-2006 National Pet Owners Survey
This paper analyzes possible scenarios of Biopure’s products launching and provides marketing plan of the recommended one. The study shows that Biopure should immediately launch Oxyglobin rather than wait for Hemopure's FDA Approval then launch both products simultaneously. The proposed price for Oxyglobin is $300 per unit with promotion campaign from time to time. With this set price of immediate launch, Biopure will reach breakeven point for Oxyglobin in year 2000 with the amount of 2.13 million USD. Targeting market for Oxyglobin is emergency care practices as a higher price of blood substitute is more acceptable amongst pet owners. Direct sales method to emergency care practices in big city area is preferable to maximize profit while emergency care practices in medium-to-small city area will be approached by distributors to increase sales.
The advantages and disadvantages of both scenarios are identified, along with barriers to success, and market attractiveness analyzed using Porter’s five-force model. SWOT analysis has been used with product offering attributes in order to suggest the appropriate strategy relating to the targeting market, which is introduced in the last section. The recommended market strategy is analyzed in accordance with the market objectives, financial objectives, and the 4Ps marketing mix.
2. Marketing Recommendation for Biopure
In regarding to the decision of which product should Biopure launch first, there are two scenarios that Biopure could take: first scenario is to immediately launch Oxyglobin follow by Hemopure whenever it has received its FDA approval and the second scenario is to wait for Hemopure's FDA approval then launch both product simultaneously. In order to evaluate and make a decision, we analyze the blood substitute markets along with the analysis of the two scenarios.
2.1 Market attractiveness analysis
According to five forces analysis of human and animal blood market [Exhibit 1], we have summarized key points of market attractiveness as follows: Positive | * Few rivalries - Since there are not many players in this market, it is still many opportunities for the company to capture large market share before more number of players may arise. * Profitability earning - As there are still few players competing in this market, the company possess higher chance to earn more profit from differentiated products offering, especially from the product breakthrough. * Higher demands than supplies - Because the demands of bloods are over the supplies, there are still many rooms of opportunities. For example, the company can charge higher price along with launching many more products to fill the gap of needs. | Negative | * Highly invest in research and development - In the pharmaceutical industry, the high technology and intense know-how are strongly required to establish a company and developing a product. It can be very challenging to the new comers to compete with the big other existing firms, not only due to their larger resource, but also from reputation and professional trust. * The FDA approval for the blood substitutes - The process of approval for medical is very complicated and time consuming. The company must provide the supporting data to FDA to prove their product condition and quality to ensure that their products can use as the blood for medical treatment and this process may take in years. * Limited access to international channels – Due to the need of approval process, it makes the inconvenience for the company to launch their products in any other country. Specific regulations on medical products vary locally and the process also may take long. |
2.2 Barriers to success in both in human blood market and animal blood market
The first barriers to success of blood substitute is the products themselves as they have never been widely used, therefore the firm still lack of information about Oxyglobin’s and Hemopure’s real outcomes and how well they can be effective. Although Oxyglobin has been placed on a number of clinical trial for FDA approval, its long term side effect has never been investigated. These two products need to prove themselves of their effectiveness in blood transfusion market. Moreover, allergy to blood substitute have to be considered. If the products are sold nationwide and severe allergic cases are discovered, this will drastically affect sales of Oxyglobin and Hemopure. Besides, the bovine source can be skeptical for compatibility of usage in human and other animals. Is there any effect of using bovine red blood cells in human? Uncertainty of market acceptance of blood substitute as they confront deeply rooted blood transfusion treatment, which is proved to be very effective.
Pricing strategy is also essential to the success of products. Normally in animal blood transfusion market, the price a customer buys blood substitute from veterinary practice is double the price that the manufacturer sells to that veterinary practice. So if prices are set too high, a lot of customers will not be interested in trying blood substitute. They will still use blood transfusion. Without strong establishment of effective result of using blood substitute instead of blood transfusion, the firm cannot go for premium prices in these markets.
Furthermore, how well the firm is able to segment the market, target and tackle it, e.g. focus on emergency care practices first and then primary care practices or practices in big cities versus practices in small cities. Which distribution channel the firm will use also play a significant role in determining the firm success in introducing new products to market. Being the first mover in animal blood substitute imply that the firm has to take a risk on uninformed customer behavior. These products have to penetrate into blood market where a strong competitor, blood donation and transfusion system, still exist. So the firm needs to develop a strategy as well as alliance to emerge its products to the market. The firm has to persuade hospitals and practices to use blood substitute instead of blood transfusion which will be the hardest step since customers may resist to a huge change. Even though blood substitute provide more benefits than blood transfusion, its effects still be skeptical and unconvincing.
2.3 Scenarios Analysis: Advantages vs. disadvantages
Scenario 1: Immediately launch Oxyglobin Pros | * The industry for animal blood substitute is not yet explored. Currently, the demand for animal blood substitute is large while the supply of animal blood is relatively small; therefore, there are plenty of opportunities for the company to explore. * Since Biopure is the first company who attained a FDA approved animal blood substitute, there are no current potential competitors in the industry. The company can enjoy a period of being a monopoly in the market. * Since Biopure will be the first to penetrate the animal blood substitute market, Biopure owns the first mover-advantage. In addition to that, Oxyglobin is an innovative product in which Biopure has the power to position Oxyglobin as a premium product, therefore, can charge at a higher price. * Biopure has been investing in R&D in the past years without actual revenue generation, the immediate launch of Oxyglobin will allow the company to essentially generate revenue to support the financial activities in the company. | Cons | * When the markets of Oxyglobin and Hemopure are compared, the market size of animal blood substitute is relatively smaller than the human blood substitute market which means that the sales volume for Oxyglobin will be smaller. * Though Oxyglobin will be positioned as a premium product for animal blood substitute, however, when compared the price to human blood substitute, Oxyglobin's price range is relatively low in which it could negatively affect Hemopure's price when it is launched in the future. * Since Oxyglobin is for animals, the profit margin will be lower than Hemopure's profit margin. |
Scenario 2 : Wait for Hemopure's FDA Approval then launch both products simultaneously Pros | * The company can charge a higher price and earn higher profit margin from Hemopure. | Cons | * Hemopure is still under Phase 3 development in which FDA Approval is currently uncertain. If the company wish the launch both products simultaneously, the uncertainty of FDA approval for Hemopure may cause delays and prevent the company to capture the current opportunities in the animal blood substitute market. * There are several competitors in the human blood substitute market in which they are all in the process of FDA approval. The competitors are as follows: * Hemeassist : Currently under phase 3. Blood substitute produced from human blood. * Polyheme: currently under phase 3. Blood substitute produced from human blood. * With a number of possible competitors in the market, the company may need to lower its price in order to be competitive in the market. |
From the sets of pros and cons above, we can see that there are more advantages from immediately launching Oxyglobin. Though the company will earn higher profit margin from selling Hemopure in the human blood substitute market, however, there are other uncertainties from Hemopure that affect the timing of product launch, thus, preventing the company to generate revenue. In conclusion, since the FDA approval for human blood substitute is still uncertain, Biopure should immediately launch Oxyglobin. Biopure will be the first one to break through the animal blood substitution market given that Biopure currently is the only company who attains the FDA approval for animal blood substitute. We see that it is crucial for Biopure to seize this opportunity immediately by launching Oxyglobin. Biopure can enjoy low level of competition and gain first mover advantages. Biopure can gain a good reputation from Oxyglobin, which can then create a positive impact on Hemopure when launched in the future.
2.4 How will the marketing of Oxyglobin and Hemopure affect each other?
From the analysis, if Oxyglobin is launched first, the price of Oxyglobin will affect Hemopure proportionally. In case Oxyglobin succeed in animal blood market, Biopure can use some aspects of the success model to apply in the human market. Without having a real and wide use in animal, labs product cannot be proved of its effectiveness. If Oxyglobin works well on animal, not only the firm actually builds its product reputation and trust amongst new users but also establish a solid evidence of effectiveness. Then Biopure’s next launching product, Hemopure, is able to ask for a higher price in human blood market especially in autologous blood transfusion patients. Besides, Biopure will set up a convincing justification of price differentiation between Oxyglobin and Hemopure for clinics, hospitals and insurance firms. On the other hands, if Oxyglobin does not work well in animal or drawback is founded, Biopure will have a chance to improve Oxyglobin and delay a launch of Hemopure. Hemopure is very similar to Oxyglobin, therefore, a drawback of Oxyglobin will directly affect the price of Hemopure and it will definitely increase possibility of product failure.
3. Market plan for Oxyglobin : Market analysis
3.1 Market segmentation & Target market
The blood price charge per unit by emergency care practices normally higher than primary care practices around $50. Thus, We considered that the animal blood substitute market should categorized into two segments, i.e. * Emergency care practices * Primary care practices
Both veterinary practices are located throughout the country. However, the clinic that located in big city, especially in the area of rich people lived (i.e. Beverly Hills, Manhattan) could charge the animal’s medical fee to pet owner in the higher price than other areas. Thus, all practices can sub-segment into two segments base on demographic as follow: * Big city area: the pet owners in this area have more purchasing power and are able to pay higher medical fee for their pets. Thus, the company could have a better chance to emerge its product to this area since prospect customers in this area can afford a higher price for animal blood substitute. * Medium-to-small city area: pet owners who are middle-class income are less affordable the premium price.
Because the blood substitute is the standard product that have to be concurrent with FDA conditions and cannot be differentiated, so the company can sell this item to every customer at the same quality with the same price. However, emergencies care practice mainly accepted only critical cases, which required a huge amount of blood. Therefore, the company should target the segment of “emergency care practices” which could drive more sales volume and generating more revenue since pet owners are willing to pay higher for their pets on emergency cases. Thus, offering more benefits than traditional blood transfusion would be more preferable alternative for pet owners. Longer shelf life is also an advantage for veterinary practices since donor animals are rare and blood unit expires in short period. This will make practices keep blood substitute for longer period of time.
Then we should target each sub-segment with different distribution channels in order to maximize profit. To gain higher margin for segment of “Big city area”, the company should use direct sales approach. This approach would help firm to save 30 percent of distribution cost charged by distributors. But, we would sell through distributors for the segment of “Medium-to-small city area”.
3.2 Market positioning
To succeed in the marketplace, the company should create a unique brand position by differentiated itself and also understanding the consumer needs and competitive action. The company should posit itself as a provider of the best animal blood substitute quality and product differentiation. This was due to the two main reasons as follows: * Product benefits: This animal blood substitute offer better benefits when compare with real blood. Firstly, the substitute blood is free of infectious agents and contamination. Secondly, substitute blood has a longer shelf-life, which is two years. Finally, this product also 100% efficient at transport oxygen. * Differentiated products: Because the company was a first provider of animal blood substitute, so we offer consumers the product that different from the one that existing in the market. To ensure that our product would be succeed, the company should create brand awareness of our product by launched Oxyglobin at the time that FDA approved.
3.3 SWOT Analysis
Strengths | * The first FDA approved manufacturer of animal blood substitution * State-of-the-art manufacturing facility * Product differentiating advantages; no require cold storage with possessing of longer shelf-life * The main raw material (bovine) is easier to find at minimal cost comparing to the real animal blood. | Weaknesses | * Biopure has no experience of selling in blood transfusion industry, especially to animal. * It has limited customer database and connections, since it is the first mover. * Biopure does not have its own distribution channels. The company has to rely on distributors also. Hence, parts of revenue will be shared. * The bovine source can be skeptical for compatibility of usage comparing to the dogs’ bloods. | Opportunities | * Large room to grow. Very blue ocean. * As Biopure is the first mover of the industry, it has a chance to create strong brand awareness as the leader of animal blood substitution. * Biopure as pioneer has ability to set price of this kind of product in the market * Opportunity for business and management practicing for the future launch of Hemopure. * Veterinary blood supply is in lack since it requires blood donation. Hence, the demand in animal blood transfusion is still high. * Oxyglobin enhances creditability and trust to the future launch Hemopure since human could feel more ensured that the product has been actually proved well with animals already. * 84% vets still dissatisfy with other alternatives of animal blood transfusions available in the market. * 15% of veterinary practices do not offer animal blood donor system. * 85% of the offering practices perceived it is effective, yet quite costly. | Threats | * Since veterinary is a small price-sensitive market, it is possible that the erroneous pricing strategy implemented can lead to failure of product launch and trials. * Jeopardize ability to set appropriate price to Hemopure in the future in the case of mispriced. * Possibility for competitors to imitate the products. They can replicate to make similar or even better product development. * Certainly arising competition after at least 5 years. The limitation is from FDA approval process. * The perception of 84% dissatisfying vets to use alternatives of animal blood transfusions can still be difficult to overcome. * Since this is the very first product of this technology, long term consequence when applied to various animals may still be unclear. This can be one of the attack point Biopure may receive from rivalries and protagonists. |
3.4 Product Offerings
Oxyglobin is an hemoglobin-based oxygen carrier aiming to function similarly to hemoglobin in terms of transporting oxygen to all cells and organs of living animals. This blood substitution protein is extracted from bovine source and chemically modified to eliminate the infectious agents, purified, and stabilized to be applicable to other animals. Major attributes of the Oxyglobin include two-year durability, no potential contamination, flexibility in applying to all blood type, and consistency of usage.
4. Market plan for Oxyglobin: Market strategies
4.1 Market Objectives * To create product awareness nationally on Oxyglobin as being an equally or better alternatives for blood transfusion. * Inform potential customers the benefit of Oxyglobin over conventional animal blood donor and blood banks, to initialize product acceptance. * Achieve minimum trial of Oxyglobin from both small-animal primary and emergency care practices at least 50% in 6 months and 60% within year 1999, especially from well-known and trusted veterinary practices. * Attract and gain at least 5 trusted and related sponsors, such nutrient pet food brand, to create brand image as being a company that truly concern about the health of animal.
4.2 Financial Objectives
By setting financial objective, we come up with two alternatives for Oxyglobin (see Exhibit 2 for more detail). However we will only consider in dogs because dog patient is accounted to be approximately 50% of total patient volume from 15,000 small-animal veterinary practices in the U.S. However, the sales growth is estimated to be slow because of the consistence number of household pet ownership, 59%-61% in year 1996-1998 (see Exhibit 3), and as the point that the product can be substituted with conventional one with low switching cost.
By comparing both alternatives, it is clear that introducing the standard price at 300$/unit for both primary and emergency care practices is the better choice. As we are the only player in the animal blood substitute industry, or Blue Ocean, we can set the price as high as we desire because of no competition in price. For Alternative 2, we decide to discount the price to 150$/unit for primary and emergency care practices to attract customer in the first 2 years and invest in 30% of revenue for marketing with more channels and to in-need customers. By introducing this, Biopure will reach breakeven point at year 2000 with net profit of positive 2.13$ Million, whereas net profit of Alternative 1 is negative 3.16$ Million in year 2000. Although, net profit from Alternative 2 will be negative in year 1998 and 1999, this is only because the discounted price of Oxyglobin is introduced to attract more potential customers. As we decide to raise the unit price to a standard price, at 300$/unit for primary practice, in year 2000, Biopure will face a downfall in sales growth by estimated 15% and will gradually increase due to the differentiated benefit of the products over conventional ones, whilst maintaining willingness to trial from veterinary practices because most practices already accept Oxyglobin.
4.3 Marketing Mix
What do you recommend about timing, pricing, distribution etc. for Oxyglobin?
When – Biopure should launch Oxyglobin into the market as soon as it is ready, given that the product has already been approved by the FDA. Moreover, as of right now, there will be no potential competitors for the next 2-5 years, since there is no one engaging in animal blood substitute practices. The opportunity cost of not entering the market as a monopoly with Oxyglobin outweighed the risk of jeopardizing pricing opportunity when launching with Hemopure. As a result Biopure should launch itself into the market with Oxyglobin, not only because the market is small and still attractive, but also can generate revenue and possibly profit for further investment. Moreover, though it is true that Hemopure is in the last process of FDA, anything could happen and the company should not make any projection or plan based on uncertain prospects.
Price – At least 300 USD per unit, in fact, the company could charge even higher as appropriate (because demand is high, and supply is low). The Oxyglobin blood substitute is a newly innovated product, which just had been approved by the FDA. Assuming that Biopure launches Oxyglobin right away, where there is no competitor existing in the market yet, the company will automatically become a monopoly. Differentiated product allows a monopoly to set the price “as appropriate”, meaning that the company somewhat have flexibility in price setting. Our recommendation is at least 200 dollars per unit, because the company cannot effort any lower price, in order to recoup the investment cost (eg. R&D, marketing, production, etc.). At the same time, cannot risk mispricing by charging too high either, given that there is a close substitute like donor blood available in the market, charging at 80 to120 dollars per unit for noncritical, and 130 to170 dollars for critical cases. Though, donor blood is a close substitute for Oxyglobin, the products themselves is different. More specifically, the extra benefits for the consumer like the free of infectious, no risk of mismatching blood type, the longer shelf life, and blood with 100% efficient at transporting oxygen, allow Oxyglobin to be charged at higher price compared to donor blood. (Biopure can choose to do market survey about the pricing if excess budget is available, or can do trial & adjusting however is not recommended because delivering consistency is also important).
*Notes* - Giving supplying capacity of the company, if Biopure can somehow accurately forecast the demand of Oxyglobin, an economist can easily calculate profit maximizing price and quantity for this product.
Place – Biopure should focus on distribution channels where there is high demand. The company can identify potential geographical regions with high demand, by following the population of veterinary clinics. Assuming that clouded areas, there will be higher traffic of the patients, thus will also be higher demand for our product as well. Furthermore, once successfully identifying potential locations, the company should attack both large customer (distributor), and small customer (veterinary practices) associated with our target areas. The company can enjoy the high sales volume and established networks (for geographic coverage) from the large distributors, while being affluence with high contribution from low bargaining power customer like the veterinary practices.
Product – Recent innovated product, Oxyglobin has somewhat more value compared to the ordinary donor blood. Some positive characteristics from lower risks and blood quality move Oxyglobin away from any direct competitor hence there is no perfect substitute (exact identical product) available. The high demand of blood transfusion creates opportunities and higher chance of success for the Oxyglobin. Though it is true that there is not yet any direct competitive product any the moment, the market is still very attractive. Biopure can expect more and more competitors entering the market trying to offer the same product, especially after successful launch of the Oxyglobin. Consequently the company soon has to further develop Oxyglobin, strengthen its unique characteristics, while ensuring the quality of the product, to move away from potential competitors. Without having both “served customer” and “expressed benefit” for product, one might argue that Biopure practices of developing, initiating new product, extending boundary of industry is a blue ocean strategy scheme. For the case of Oxyglobin (first mover), extra “unexpressed” benefits will be introduce to the consumers.
Promotion * Promote the benefits : Company should promote the extra value of Oxyglobin to the users like the veterinarians by effectively communicate, educate, and illustrate of the usage. Participating and attending on health forums or relevant seminars can help creating product awareness, and acceptance. Moreover, Biopure can also run workshop and make presentations, educating, training future generation veterinarians, targeting respectable, high acceptance, big influencing institutions. Getting acceptance from leading veterinary schools, like the Harvard veterinary school, can create trust and confidence for the final consumer, as well as speed up product acceptance. * Promote the sales : Company should affordably discount the price for long-term contracts, in order to create promising sales, especially in the first years, with uncertainties and fluctuations. As the product is new to the consumer (as well as to the world), company must spend lots of time educating benefits, creating awareness, therefore constant income is necessary for further marketing campaign, QC, R&D, etc. * Promote the usages : According to market surveys (Table A: Biopure company records), final consumer (pet owner) facing noncritical cases have less tendency to trial new product, Oxyglobin. The company can increase the usage by attacking this segment with promotion campaigns like, contract with veterinarians to promote the use of Oxyglobin.
Branding – recommended order of branding activities after launching Oxyglobin, as below. 1. Create awareness – That Oxyglobin is not only approved by the FDA, but also more effective than the regular currently available donor blood. This is very important, as creating awareness is necessary to be the first activity of the list, because the customers (distributor, vet. etc.) as well as final consumer still do not know about this newly innovated product. The company must communicate effectively, educate veterinarians and possibly promote the use of the product. 2. Increase availability and accessibility – After acquiring product awareness, Biopure must expand its market and increase distribution channels, especially where there is high demand. The company should target big buyers like distributors as well as veterinarians. Moreover, the company should ensure availability by supplying enough goods for the established customer. 3. Advertise product and develop brand – Once customer is aware of our product, and have accessibility to buy our product, Biopure must then increase the tendency to try out Oxyglobin by advertise, or promotion, at the same time start developing a well respectable veterinary brand. In developing the right brand, enhancing good reputation, the company must competence itself towards the key success factors associated with the industry. 4. Provide consistency – Biopure must then be obligated to deliver customer satisfaction by not only provide consistent product quality, but also through reliable services. To do so, it must ensure efficient operations, which require effective process and engaging performing human resources. Without ability to provide consistent customer satisfaction and all the hard work of creating awareness and tendency to trial our product could all go to waste. 5. Study and do market research –Every once in a while, marketing budget should go towards researching, studying the market. Conducting market surveys, studying customer reactions, attitudes, and behavior as well as predicting future trends are needed, in order to adapt and develop towards to right direction. By understanding the market, customer, and final consumer, Biopure can then effectively make projections and future marketing plan accordingly. With continuous improvement according to the situation, Biopure not only will allocate marketing spending more efficiently, but also will perform more effectively.
Exhibit 1:
Five forces analysis-Human blood market
Rivalry<Weak> | * Products of rival sellers are strongly differentiated (weak)Products offering in this market are human donating blood and human blood substitutes, which are differentiated by their identical characteristics and production sources. Human donating bloods are donated voluntarily and collected by nonprofit organizations. But due to the low rate of donation and the relative short-life of RBCs, the experiences periodic shortages of RBCs for utilizing in medical facilities always happen during the winter and summer holidays. While the human blood substitutes or hemoglobin-based blood substitutes are developed by using the outdated human RBCs or cattle blood which give the longer shelf-life and also the universal blood substitutes that eliminate the need of blood typing and cross-matching. For the human blood substitutes, there are diverse group of sellers which willing to find new innovative to approach the market. For example, Baxter International and Northfield Laboratories relied on human blood as their source of hemoglobin by developing a new technology to extract raw hemoglobin from outdated human RBCs. On the contrary, Biopure utilizes the cattle blood as its source of hemoglobin. * Buyer cost to switch brands are high (weak)The human blood substitutes are new in this market. Buyers will be hesitant to use these new products because of the anxiety on the quality and reliability of the products. * Exit barriers are high (weak)The new technology for developing the products to compete in this market is very essential. Firms need to do research & development and do the experiment several times to ensure their product efficient before asking for the approval from FDA. This approval process will spend long time at least 2 or 3 years. | New entrants<Weak> | Barrier of new entrant strong barriers * FDA approval (strong barrier)Before launching the products, firms have to receive FDA approval to guarantee the quality and reliability of the products that can use in human without any harm. The process for this approval may spend more than 3 years. This delay approval will impact the firm’s revenue. * Limited new access to distribution channels (strong barrier) Because the products are related to the medical treatment, the requirement of licenses and permissions are needs. And regulations are differing in each country, thus before expanding the distribution channels in any countries, firms have to ask the permissions every time. * High capital requirement (strong barrier) The requirements on the new technology and high innovative machine to develop the products are very necessary for the potential entrant. Moreover, the strong finance condition is also needed to support research and development the product as well as the introductory advertising. | Substitutes <weak> | No substitute product in this case | Suppliers | In this case, we will categorize supplier into two groups; supplier of human donating blood, which mean the blood donators, and suppliers for human blood substitutes.Human donating blood suppliers strong * Supplier products are in short supply (strong)According to the case study, it mentioned that there is low rate of donation which is one of the RBCs shortages. The reasons for people who not donating including the fear of needles, lack of time, and also the misconception about risk of disease transmission from donating. Human blood substitute suppliers weak * There is a surge in the availability of suppliers and industry members’ switching costs to alternative suppliers are low (weak)There are many suppliers (cattle farms) available in this market. Thus, if any one supplier attempts to raise prices by more than the costs of switching, firms will change the supplier. * The item being supplied is a commodity (weak)The suppliers of commodities are in a weak position to set the premium price because firms can readily obtain essential the same item at the same price from many other suppliers. | Buyers | In this case, we will analyze the buyers as the intermediate buyers which mean to doctors and final buyers which mean the patients.Intermediate buyers (doctors) moderate * Sellers’ products are differentiated (weak)As mentioned above that the products is in this market are different, so buyers have to concern more on the quality and utilization that they will use to the medical operations. And they do not have much power to negotiate the prices since the products are not the same. * Buyers are well informed about the quality, prices, and cost of sellers (strong)Doctors who directly use the products for the medical operations have specialized in this area. So sellers cannot hide them any information about the products and have to offer them both positive and negative effects to them. Since this is related to human lives, if there is any mistakes occur, not only the reputation of the doctors but also the reliability of firm will be destroyed and it will difficult for them to recall their trusts.Final buyers (patients) weak * Sellers’ products are differentiated (weak)The most important thing for the patients is the qualities and reliabilities of products that will be proper with their cure. The sellers in this market also provide the products which are different by characteristics and sources. Thus, buyers have to consider on these various points rather than products’ prices. * Buyers are small and numerous relative to sellers (weak)The demands on human blood are very high but there are only few firms that provide the products in the market. Thus, buyers do not have many options to negotiate with sellers. Especially in the emergency case, buyers have to accept the seller conditions. * Buyers are not very price-sensitivity (weak)Since this case is related the fatality, the first priority must be the patients’ lives. Although, sellers charge the very high price, the patients still need bloods for their treatment. |
Five forces analysis-Animal blood market Rivalry <Weak> | * Products of rival sellers are strongly differentiated (weak)In this market, animal donating blood and animal blood substitutes are the competitors. Animals’ RBCs have the similarity role as human. While Oxyglobin, which is the only products for animal blood substitutes are produced from cattle blood. * High exit barriers (weak)Before requesting FDA for product approval, firms have to invest on research and development to initiate the new products. This process needs the strong financial condition to encourage all processes come through. | New entrants <Weak> | Barrier of new entrant strong barriers * Approval from FDA (strong barrier)The approval from FDA is needed for firms before launching the blood substitutes in the market. The length of time for approval processing may take more than 2 or 3 years. This also impacts on the company’s revenue due to the late launching products. * Limited new access to distribution channels (strong barrier)As FDA’s approval is necessary for medical products and the different regulations in each country causes the restriction on product distribution. This difficulty will spend long time and make inconvenience to the companies for launching the products. * High capital requirement (strong barrier)Developing the new technology to improve the products’ quality is very necessary for competing in this market. Hence, the financial status must be strong to support research and development and do the advertisement to introduce the products to the customers. | Substitutes <weak> | No substitute in this case | Suppliers | In this case, we will categorize supplier into two groups; supplier of human donating blood, which mean the blood donators, and suppliers for human blood substitutes.Animal donating blood suppliers strong * Supplier products are in short supply (strong)The demand for animal blood is higher than the supply that is available in the blood bank. So the suppliers have more power to the sellers. In this case, the actual donor animals are pets. But they cannot go to the blood bank to donate their blood; their owners have to take them for it. Therefore, the blood bank and related organization have to give them some benefit or do some campaigns to motivate them to bring their dogs for donating bloods.Animal blood substitute suppliers weak * A surge in the availability of suppliers and low switching cost(weak)Since blood substitutes is developed by using cattle bloods and there are a large number of suppliers providing this sources in the market. So suppliers cannot charge the extra cost to the sellers because they can switch to buy from the other suppliers. * The item being supplied is a commodity (weak)There are indifferent by using the cattle bloods from the different suppliers. So the suppliers cannot charge higher price than the others. | Buyers | In this case, we will analyze the buyers as the intermediate buyers which mean to professor and final buyers which mean the patients.Intermediate buyers (veterinarian) * Sellers’ products are differentiated (weak)Since there are donating blood and blood substitutes in the market which have the different conditions and sources. The buyers must consider the qualities as their priority. * Buyers are well informed about the quality, prices, and cost of sellers (strong)Sellers have to give all the information to the veterinarians to consider whether the products will be suitable to their patients (e.g. dogs or cat). Final buyers (pet owners) * Sellers’ products are differentiated (weak)The efficient from using the blood substitutes to medical treatment is the first things that the pet owners concern. And the products in this market are only donating blood and blood substitutes. * Buyers are small and numerous relative to sellers (weak)Sellers in this market are donating blood organization (e.g. blood bank) and private organization (Biopure). But the needs of blood are very high over the available products. So the sellers have more bargaining power. * Buyers are not very price-sensitivity (weak)The most important thing for the pet owners is how to cure their pet to become healthy and they do not care about the price too much. |
Exhibit 2:
Alternative 1
For this alternative, we will set the price to 100$/unit for both primary and emergency care pracetices then rise the price up to 150$/unit for primary and emergency cares from year 2001 onward.
Assumption: * Assuming that having ‘critical case’ representing emergency care practice is the minimum units we can sell. We can even achieve more revenue, if there are some critical cases in primary care practices. Although some primary practice’s cases might not be included as non-critical cases, number of blood substitute units used in blood transfusion purpose is still far less than critical cases * We want to price the product equally to the conventional blood donor, 100$/unit for primary care practice, to initially attract customer to buy our products. * Only mid year to the end of 1998 is considered here because the product was just approved in year 1998. * Only veterinarians’ reported willingness to trial Oxyglobin is considered here, not accounting for willingness from pet owners because the doctors are able to convince pet owners to use Oxyglobin. * 50% of potential unit that can be sold is identified for the first year from the total of potential 354,750 units. * Price per unit of Oxyglobin will increase in 2001 to 150$ for primary practice, as the product has already created its acceptance and awareness to customers. More people will know about and recognize the brand, the brand can be set to higher prices. But the demand of the product will decrease as a result. However, bounce back to a positive growth in the following years due to its differentiation over other conventional blood donor and blood banks. * We account the distribution fee to be approximately 80% of total distribution cost because we would like to direct sales approximately 20%, which is approximated to be the commision fee.
Assumption: * Commision 5% of total revenue for wage and logistic cost to set up a direct sales team, which is estimated by making the commission cost close to 20% of total distribution cost. * Distribution cost will be reduced to 20% in year 2001 onward, as the product is no longer a new product. * Estimated marketing cost being 10% of the sales revenue because we want to let the product sell by itself and spend very little in marketing activities.
Alternative 2
For this alternative, we will set the price to 300$/unit for primary and emergency care practices as a standard price, then discount these price 50% to 150$/unit for primary and emergency care practices in the first 2 years. By setting the price high, we will invest in marketting activities more intensively with maximum budget of 30% of total sales revenue. We will plan to overcome the high price issue of the products by: 1. Discount price first 2 years to attract more customers, then sell at 300$/unit for primary and emergency care practices onward. 2. Establish sales promotion especially for large batch order, for instance buy a batch of 100 units will receive 10 extra units for free, and give sample to attract more customers. 3. Set up sales representative team to educate the beneficial factors over conventional and stress the disadvantages of conventional blood donor, especially to big veterinary practices. 4. Expand to areas where there are few or in-need of blood donor
* Since we invest intensively in marketing activities, we believe that we can raise the percentage willingness of veterinarian to trial Oxyglobin to 70% for primary care and 95% for emergency care, especially after big veterinary practices use our products. Also, maintaining the estimated units that can be sold to approximately 50% for the first year, similar to Alternative 1. However, we believe that we can bounce the price back to standard, 300$/unit for primary and emergency care practices, in year 2000 because of our intensive marketing plan.
* Price per unit of Oxyglobin will increase in 2001 to 300$ for primary practice, as the product has already created its acceptance and awareness to customers. More people will know about and recognize the brand, the brand can be set to higher prices. But the demand of the product will decrease as a result. However, bounce back to a positive growth in the following years due to its differentiation over other conventional blood donor and blood banks.
- Distribution cost will also be reduced to 20% in year 2001 onward, as the product is no longer a new product.
- Marketing cost is set to 30% of total sales revenue, because of our intensive marketing plan.
Exhibit 3:
Household Pet Ownership, 1990–2004
(as a percentage of total U.S. households)
| 1990 | 1992 | 1994 | 1996 | 1998 | 2000 | 2002 | 2004 | Dog | 57% | 58% | 56% | 59% | 61% | 62% | 62% | 63% | Cat | 33 | 32 | 30 | 32 | 32 | 34 | 34 | 34 | Freshwate fish | 8 | 10 | 10 | 11 | 9 | 12 | 13 | 13 | Bird | 6 | 6 | 6 | 6 | 6 | 7 | 6 | 6 | Small animal | 4 | 5 | 5 | 5 | 4 | 5 | 5 | 5 | Reptile | n.a. | n.a. | 3 | 3 | 3 | 4 | 4 | 4 | Equine | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | n.a. | 4 | Saltwater fish | .5 | .7 | .6 | .6 | .5 | .7 | .7 | .7 |
Source: American Pet Products Manufacturers Association, 2005-2006 National Pet Owners Survey
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