Micoderm V0.2 1s6t56
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+
Micoderm: A Profitability Analysis January 2016
+ Outline
Company Overview
Product Overview
The SSRS
The Dilemma
Apparent Problem
Decision Options
SWOT Analysis
Proposed Solutions
+ COMPANY OVERVIEW
Liderm, a manufacturer of cosmetic and pharmaceutical products, was founded in 1974 in Spain.
The company is Spain’s market leader in the field of medication and cosmetic products for the treatment and prevention of skin-related pathologies in 2010.
With presence in 10 countries, Liderm develops 3 categories of products: medications, OTC products and cosmetics.
+ PRODUCT OVERVIEW
Micoderm ointment is a product of the LIDERM company, belonging to the medications category.
It is indicated for the treatment and prevention of diaper dermatitis (rash), a disease affecting people who use diapers – babies and the elderly.
By 2010, it had achieved presence in almost all pharmacies in Spain.
A well known, highly sold medication which could be dispensed with or without a prescription.
+ PRODUCT OVERVIEW
Micoderm had no viable alternative, yet it had the lowest selling price of all its competitors. (Exh.1)
A treatment-only product sold for an average of #7.60
The lowest prevention-only product sold for #3.58
Micoderm, the only treatment and prevention product on the list sold for #2.37, but had the highest sales volume.
+
THE SSRS
The Spanish Social Security Reimbursement System was put in place by the Spanish government in 2010.
It’s about having a comprehensive health coverage system that offered free healthcare to all residents by giving them medications with a 60 – 100% discount.
Only medications for treatment and not just prevention were included in the scheme and subsidized by the government.
Micoderm was the only product for the treatment and prevention of diaper rash, that remained in the SSRS.
The Ministry of Health fixed and regulated the selling prices of the products.
+ THE DILEMMA What should be done to secure the future (or profitability) of Micoderm?
+ APPARENT PROBLEM The product was losing money in 2010 because its selling price could not be increased; hence it had become barely profitable to the company. The Ministry of Health had ‘frozen’ its selling price since 2000, and had refused to grant a request for price increase due to a deep economic crisis in the country.
+ DECISION OPTIONS
Should we continue selling at the current low price or accept our losses?
Should we leave the SSRS so as to be able to increase its selling price?
Micoder m
Should we request a price increase yet again from the SSRS?
+ SWOT ANALYSIS ON MICODERM STRENGTHS
High product loyalty by both doctors and consumers.
Product is more preferable because of its treatment and prevention features.
High sales volume (due to its inclusion in the SSRS).
Well known and highly accepted by the market.
Good company and brand image.
+ SWOT ANALYSIS ON MICODERM STRENGTHS (CONTINUED)
Presence in almost all pharmacies in Spain.
Contributed to the success of the Liderm company.
Product can be dispensed with or without a medical prescription.
+ SWOT ANALYSIS ON MICODERM WEAKNESSES
Low price meant selling at a loss.
Inclusion in the SSRS meant that selling price could not be increased until the Ministry of health personnel agree to it.
Lower sales revenue from its non-prescription-based customers.
Major customers (elderly ones) are price sensitive.
Younger doctors have lesser knowledge of it when compared to older ones.
+ SWOT ANALYSIS ON MICODERM OPPORTUNITIES
Increasing demand for the product with increasingly aging population.
+ SWOT ANALYSIS ON MICODERM THREATS
Leaving the SSRS would cause a significant drop in its sales volume (Exh. 3)
Drop in sales would affect the salespeople’s morale and efficiency.
Company’s image could be damaged if s realize they are out of the SSRS.
Price increase could be seen as unethical, since most s were elderly ones who had scarce economic resources.
+ SWOT ANALYSIS ON MICODERM THREATS (CONTINUED)
A second request for price increase may lead to expulsion from the SSRS.
Manufacturing costs had increased by 10% since 2004. If the company continued to sell at a loss, with increasing manufacturing costs, they would not be able to keep up.
Deep economic crisis had made it difficult to grant price increase.
Product could also be phased out naturally if younger doctors do not have a good knowledge of it.
+ ANALYZING THE NUMBERS
An independent consulting firm provided projections on the possible impact on sales of taking Micoderm out of the SSRS
According to the projections, an increase in price would lead to a decrease in sales volume.
Ignoring the outliers and comparing the sales revenue from the current price (2.37 * 2,196 = 5,204) to the projected sales revenue from the average price (6.00 * [40% of 2,196] = 5,270), the difference in revenue is negligible (66).
As such, it would be unwise to take the risk of leaving the SSRS so as to be able to increase its selling price, when the anticipated profit might be negligible.
In addition, leaving SSRS might impact LIDERM’s reputation in the marketplace and the morale of its salespeople.
+ PROPOSED SOLUTION
Due to the numerous negative possibilities of destroying the company’s brand and image, associated with taking Micoderm out of the SSRS, we advise that the product be maintained there.
+ PROPOSED SOLUTIONS
However, to manage the losses being incurred, we recommend:
Change the manufacturer of Micoderm to a cheaper alternative, still maintaining an acceptable level of quality.
Launch the current Micoderm as a new ‘high-end’ product (Micoderm Extra or Micoderm Plus) that can cater to the private upper-class customers.
Work with pharmacies to prescribe the Micoderm Extra or Micoderm Plus which will give more margin
Use other product lines (OTCs and cosmetics) for profitability.
Organize a ‘prevention campaign’ to sensitize citizens on prevention of the disease, thereby driving up the sales of Bebpiel ZN (#5.89 per unit).
Launch new OTCs and skin care cosmetics for profit making.
Revisit allocation of costs to Micoderm to reduce losses
However, the company should develop a strong good rapport with the Ministry of Health so as to present their case ‘informally’ and be advised on the timing of the request. With the alleviation of the economic crisis, they could still grant the request.
+ PROPOSED SOLUTIONS
However, to manage the losses being incurred, we recommend:
Change the manufacturer of Micoderm to a cheaper alternative, still maintaining an acceptable level of quality.
Launch the current Micoderm as a new ‘high-end’ product (Micoderm Extra or Micoderm Plus) that can cater to the private upper-class customers.
Work with pharmacies to prescribe the Micoderm Extra or Micoderm Plus which will give more margin
Use other product lines (OTCs and cosmetics) for profitability.
Organize a ‘prevention campaign’ to sensitize citizens on prevention of the disease, thereby driving up the sales of Bebpiel ZN (#5.89 per unit).
Launch new OTCs and skin care cosmetics for profit making.
Revisit allocation of costs to Micoderm to reduce losses
However, the company should develop a strong good rapport with the Ministry of Health so as to present their case ‘informally’ and be advised on the timing of the request. With the alleviation of the economic crisis, they could still grant the request.
THANK YOU!
Micoderm: A Profitability Analysis January 2016
+ Outline
Company Overview
Product Overview
The SSRS
The Dilemma
Apparent Problem
Decision Options
SWOT Analysis
Proposed Solutions
+ COMPANY OVERVIEW
Liderm, a manufacturer of cosmetic and pharmaceutical products, was founded in 1974 in Spain.
The company is Spain’s market leader in the field of medication and cosmetic products for the treatment and prevention of skin-related pathologies in 2010.
With presence in 10 countries, Liderm develops 3 categories of products: medications, OTC products and cosmetics.
+ PRODUCT OVERVIEW
Micoderm ointment is a product of the LIDERM company, belonging to the medications category.
It is indicated for the treatment and prevention of diaper dermatitis (rash), a disease affecting people who use diapers – babies and the elderly.
By 2010, it had achieved presence in almost all pharmacies in Spain.
A well known, highly sold medication which could be dispensed with or without a prescription.
+ PRODUCT OVERVIEW
Micoderm had no viable alternative, yet it had the lowest selling price of all its competitors. (Exh.1)
A treatment-only product sold for an average of #7.60
The lowest prevention-only product sold for #3.58
Micoderm, the only treatment and prevention product on the list sold for #2.37, but had the highest sales volume.
+
THE SSRS
The Spanish Social Security Reimbursement System was put in place by the Spanish government in 2010.
It’s about having a comprehensive health coverage system that offered free healthcare to all residents by giving them medications with a 60 – 100% discount.
Only medications for treatment and not just prevention were included in the scheme and subsidized by the government.
Micoderm was the only product for the treatment and prevention of diaper rash, that remained in the SSRS.
The Ministry of Health fixed and regulated the selling prices of the products.
+ THE DILEMMA What should be done to secure the future (or profitability) of Micoderm?
+ APPARENT PROBLEM The product was losing money in 2010 because its selling price could not be increased; hence it had become barely profitable to the company. The Ministry of Health had ‘frozen’ its selling price since 2000, and had refused to grant a request for price increase due to a deep economic crisis in the country.
+ DECISION OPTIONS
Should we continue selling at the current low price or accept our losses?
Should we leave the SSRS so as to be able to increase its selling price?
Micoder m
Should we request a price increase yet again from the SSRS?
+ SWOT ANALYSIS ON MICODERM STRENGTHS
High product loyalty by both doctors and consumers.
Product is more preferable because of its treatment and prevention features.
High sales volume (due to its inclusion in the SSRS).
Well known and highly accepted by the market.
Good company and brand image.
+ SWOT ANALYSIS ON MICODERM STRENGTHS (CONTINUED)
Presence in almost all pharmacies in Spain.
Contributed to the success of the Liderm company.
Product can be dispensed with or without a medical prescription.
+ SWOT ANALYSIS ON MICODERM WEAKNESSES
Low price meant selling at a loss.
Inclusion in the SSRS meant that selling price could not be increased until the Ministry of health personnel agree to it.
Lower sales revenue from its non-prescription-based customers.
Major customers (elderly ones) are price sensitive.
Younger doctors have lesser knowledge of it when compared to older ones.
+ SWOT ANALYSIS ON MICODERM OPPORTUNITIES
Increasing demand for the product with increasingly aging population.
+ SWOT ANALYSIS ON MICODERM THREATS
Leaving the SSRS would cause a significant drop in its sales volume (Exh. 3)
Drop in sales would affect the salespeople’s morale and efficiency.
Company’s image could be damaged if s realize they are out of the SSRS.
Price increase could be seen as unethical, since most s were elderly ones who had scarce economic resources.
+ SWOT ANALYSIS ON MICODERM THREATS (CONTINUED)
A second request for price increase may lead to expulsion from the SSRS.
Manufacturing costs had increased by 10% since 2004. If the company continued to sell at a loss, with increasing manufacturing costs, they would not be able to keep up.
Deep economic crisis had made it difficult to grant price increase.
Product could also be phased out naturally if younger doctors do not have a good knowledge of it.
+ ANALYZING THE NUMBERS
An independent consulting firm provided projections on the possible impact on sales of taking Micoderm out of the SSRS
According to the projections, an increase in price would lead to a decrease in sales volume.
Ignoring the outliers and comparing the sales revenue from the current price (2.37 * 2,196 = 5,204) to the projected sales revenue from the average price (6.00 * [40% of 2,196] = 5,270), the difference in revenue is negligible (66).
As such, it would be unwise to take the risk of leaving the SSRS so as to be able to increase its selling price, when the anticipated profit might be negligible.
In addition, leaving SSRS might impact LIDERM’s reputation in the marketplace and the morale of its salespeople.
+ PROPOSED SOLUTION
Due to the numerous negative possibilities of destroying the company’s brand and image, associated with taking Micoderm out of the SSRS, we advise that the product be maintained there.
+ PROPOSED SOLUTIONS
However, to manage the losses being incurred, we recommend:
Change the manufacturer of Micoderm to a cheaper alternative, still maintaining an acceptable level of quality.
Launch the current Micoderm as a new ‘high-end’ product (Micoderm Extra or Micoderm Plus) that can cater to the private upper-class customers.
Work with pharmacies to prescribe the Micoderm Extra or Micoderm Plus which will give more margin
Use other product lines (OTCs and cosmetics) for profitability.
Organize a ‘prevention campaign’ to sensitize citizens on prevention of the disease, thereby driving up the sales of Bebpiel ZN (#5.89 per unit).
Launch new OTCs and skin care cosmetics for profit making.
Revisit allocation of costs to Micoderm to reduce losses
However, the company should develop a strong good rapport with the Ministry of Health so as to present their case ‘informally’ and be advised on the timing of the request. With the alleviation of the economic crisis, they could still grant the request.
+ PROPOSED SOLUTIONS
However, to manage the losses being incurred, we recommend:
Change the manufacturer of Micoderm to a cheaper alternative, still maintaining an acceptable level of quality.
Launch the current Micoderm as a new ‘high-end’ product (Micoderm Extra or Micoderm Plus) that can cater to the private upper-class customers.
Work with pharmacies to prescribe the Micoderm Extra or Micoderm Plus which will give more margin
Use other product lines (OTCs and cosmetics) for profitability.
Organize a ‘prevention campaign’ to sensitize citizens on prevention of the disease, thereby driving up the sales of Bebpiel ZN (#5.89 per unit).
Launch new OTCs and skin care cosmetics for profit making.
Revisit allocation of costs to Micoderm to reduce losses
However, the company should develop a strong good rapport with the Ministry of Health so as to present their case ‘informally’ and be advised on the timing of the request. With the alleviation of the economic crisis, they could still grant the request.
THANK YOU!
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