Augustine's Medical Case Analysis

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AUGUSTINE MEDICAL, INC. CASE ANALYSIS
THE BAIR HUGGER PATIENT WARMING SYSTEM

I. Factual Summary:
* The United States does not currently have an established warm-air technology blanket market. * The Bair Hugger Patient Warming System product is not a consumer device. The main users of this product consist of businesses and hospitals. * Hospitals will always be provided funding necessary to prevent hypothermia and other diseases; as a result a demand will consistently be common. * Augustine Medical, Inc. is using a push strategy. They are relying on distributors to push their products on to their prospective buyers. * Approximately there are 5,500 hospitals that have operating rooms and postoperative recovery rooms. * The target market for the product is hospitals with seven or more recovery room beds. The target market makes up 80% of all surgical operations in the United States (26,155 recovery beds). * It was stated that there are 21,000,000 surgical operations per year in the United States which 60 to 80 percent of these become hypothermic. Thus, on an average, 14,700,000 patients (21,000,000*70%) suffer from postoperative hypothermia. * The firm projected that one system would be sold for every eight postoperative recovery room beds. According to the firm’s research, the market could allow around of 3,269 heater/blower units to be sold (26,155 recovery beds/8). * By subcontracting the heater/blower unit, the company drastically minimized their expenses. * Variable costs for the products were $380 per heater and $0.85 per blanket. * The total variable costs for the year associated with the heater/blower unit is around $1,242,220 (3,269 units * $380). * The heater/blower unit should be priced under the $1500 threshold to avoid hospitals going through a formal review and decision process. * The patent associated with the inflatable plastic/paper cover will allow Augustine Medical to capture the market with their unique product and at the same time reduce the possibility of competing replicas. * There are 12 blankets per case, potentially resulting in total sales of 1,225,000 disposable blanket cases (14,700,000/12). * The cost associated with producing a case of blankets is $10.20 (12*$0.85). Total costs for the year would roughly be around $12,495,000 (1,225,000 potential case sales*$10.20). * Augustine Medical has very limited brand recognition. This could possibly make it harder for the company to charge a premium price for their products. * Currently, there are numerous surface and internal warming techniques practiced at hospitals throughout the United States. With that being said, each technique should be evaluated to see if certain procedural disadvantages could be avoided by using another method.

II. Case Problem/Opportunity:
The Bair Hugger Patient Warming System is a device that has been designed specifically to treat postoperative hypothermia. This product is being introduced into a market that possesses a variety of alternative ways to treat and prevent hypothermia. However, there are many disadvantages to the current methods that essentially treat the same condition. Augustine Medical believes that their product is superior to their competitors’ products. The Bair Hugger Patient Warming System is comprised of two elements; the heater/blower unit and the disposable plastic/ paper warming covers. The ultimate problem facing the company is how to price these two components and how to position them compared to their competitors.

III. Feasible Solutions:
First Option – The Bair Hugger Patient Warming System could be referred to as one of the most innovative and safe ways to warm postoperative patients and those with hypothermia. Augustine’s Medical, Inc. products are more effective, less likely to leak water onto other nearby expensive equipment, and easier to operate than other competitor’s methods. The first pricing...
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