Case Analysis of Ring Medicals

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Major Issues
An average of 2 to 3 units of HCS-100 a month was expected to be sold, yielding total revenues of approximately $150,000 per month at an average gross margin of nearly 50%, whereas till April 1988 only 5 systems had been sold versus a budgeted sales volume of over 30 and revenues totalled about 15% of the targeted annual amount of over $1.7 million •Scanvest Ring had spent in excess of $700,000 on the HCS-100 effort and its CEO Helge Midttun and other board members were hesitant to invest further in a project that had so far shown lacklustre results •There was disagreement about the most appropriate channels of distribution wherein three fairly distinct schools of thought prevailed

Actionable Recommendations
HCS-100 should be positioned as “high end” hospital internal communication system for large and medium size hospitals with clear message of the value delivered with ROI calculations •HCS-100 should also be sold through the network of telecommunication distributors such as Introlink but with control on branding and pricing through agreements

Analysis is support of Actionable Recommendations
Target Market potential studies indicated nearly 7000 US hospitals spent over $1.4 billion on telecommunication equipment in 1987 •Of all US hospitals, only 5% had an automated telephone answering system •Under Ring Medical’s current pricing scheme, the roughly 95% of unpenetrated medium and large hospitals represented a market of some $260 million •Internal company estimates projected that at least half of these hospitals will be upgraded to offer an automated TAS service within the next five years •US Hospital and Healthcare Market data

oPresent Number: 6,988 hospital sites in US
oSize (6 – 99 beds): 3,239 small sites
oSize (100 – 399 beds): 2,847 medium sites
oSize ( over 400 beds): 902 large sites
Market Potential:
o% with automated Telephone Answering Systems: Less than 5% penetrated o% to be upgraded: 50% estimated medium and large sites
o2,847 + 902 = 3,749 sites with over 100 beds
o3,749 sites x $70,000 per site = $262 million
o% to be upgraded: 50% estimated = $131 million
Ring Medical had five principal competitors of which only one, AIS focussed exclusively on the hospital market •Ring management estimated 80 AIS installations
HCS-100 had following distinct advantages over AIS
oHCS-100 was independent of the hospital telephone switch and therefore operational even when the main switch failed whereas AIS system was totally dependent on the PBX oData on incoming and outgoing TAS related calls were tracked separately from other call traffic which meant that a hospital using an AIS system would be forced to charge a flat fee for subscription, while the user of the HCS-100 could opt for a fee based on usage oHCS-100 had advantage over AIS in telephone answering, message storage/ retrieval, and directory •Value delivery calculations:

oIn addition to eliminating a physician’s need for separate answering service, TAS was considered a potential source of hospital revenue, as physicians could be charged for system use oAn average physician spent $100 monthly on an answering machine and for a TAS capable of servicing 65 physicians oCost recovery: $100 x 12 months x 65 physicians = $78,000

oIncremental operating expense incurred by hospital for one full-time equivalent HCS attendant: $35,000 annually oOne time cost of added telephone company supplied hardware and Ring Medical supplied servicing fees: $10,000 oBasic TAS price: $55,000

oValue of Benefit Calculation:
1st Year: $78,000 - $35,000 – ($10,000 + $55,000) = ($22,000) 2nd Year: $78,000 - $35,000 - $22,000 (cost investment remaining from 1st year) = $21,000 oSo the investment is recovered in 2 years and a profit of $21,000 is earned by the hospital Preparation Aid Questions

1.Analyze the positioning options and recommend a positioning strategy for HCS-100? Positioning options available for...
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