Sunrise
The average return on sales (ROS) in the US wheelchair industry is between 1-2% in 1993. What are the most important structural conditions that make the industry unattractive?
Evaluating the industry based on Porter’s Five Forces framework, the following stand out as the most import conditions making the industry unattractive: Bargaining Power of Customers: About seventy-five percent of wheelchair sales in the US were covered by insurance. Medicare was the primary insurance program, and other in surers often followed Medicare’s lead. Medicare limited reimbursements, which kept a lid on the price of standard and lightweight standard chairs. More expensive chairs were not fully cove
SUNRISE MEDICAL INC.’S WHEELCHAIR PRODUCTS
A GLANCE AT THE WHEELCHAIR INDUSTRY IN 1993
Despite being a young industry, the wheelchair business showed a large amount of growth in a ten year span in terms of sales. By 1992, worldwide sales were approximately US 800 million, with half of these numbers coming from sales in the US while the rest were concentrated in Europe. These numbers were an indicator of the potential the industry had and this was confirmed by projected sales growth, which ranged between 5% to 15% annual increases for different product lines. There was excitement as an important US insurance program announced it would reimburse more money for wheelchairs of higher price, fact that could boost sales in the near future. Although sales potential was attractive, profitability margins were still low because costs ranged between 65% and 75% and additional operating expenses ranged from 23% to 34% of sales (exhibit 1).
The market was dominated by three major players, who combined accounted for an average of 70% of the market share. As sales potential rose, two of the three competitors (Sunrise Medical and Invacare) kept delivering positive net margins through product innovation, competitive sales strategies, acquisitions and efficiencies in lowering costs. The
Evaluating the industry based on Porter’s Five Forces framework, the following stand out as the most import conditions making the industry unattractive: Bargaining Power of Customers: About seventy-five percent of wheelchair sales in the US were covered by insurance. Medicare was the primary insurance program, and other in surers often followed Medicare’s lead. Medicare limited reimbursements, which kept a lid on the price of standard and lightweight standard chairs. More expensive chairs were not fully cove
SUNRISE MEDICAL INC.’S WHEELCHAIR PRODUCTS
A GLANCE AT THE WHEELCHAIR INDUSTRY IN 1993
Despite being a young industry, the wheelchair business showed a large amount of growth in a ten year span in terms of sales. By 1992, worldwide sales were approximately US 800 million, with half of these numbers coming from sales in the US while the rest were concentrated in Europe. These numbers were an indicator of the potential the industry had and this was confirmed by projected sales growth, which ranged between 5% to 15% annual increases for different product lines. There was excitement as an important US insurance program announced it would reimburse more money for wheelchairs of higher price, fact that could boost sales in the near future. Although sales potential was attractive, profitability margins were still low because costs ranged between 65% and 75% and additional operating expenses ranged from 23% to 34% of sales (exhibit 1).
The market was dominated by three major players, who combined accounted for an average of 70% of the market share. As sales potential rose, two of the three competitors (Sunrise Medical and Invacare) kept delivering positive net margins through product innovation, competitive sales strategies, acquisitions and efficiencies in lowering costs. The