Executive summary

By early 1988, Augustine Medical executives were actively engaged in finalizing and marketing the program for the patient warming system named Bair Hugger Patient Warming System. The principal question yet to be resolved was how to price this system. Several considerations are required in terms of organizational objectives, demand for the product, customer value perception, buyer price sensitivity, the price of competitive offering, and direct variable costs. The company has two alternatives to price this system, either the skimming pricing strategy or the penetration pricing strategy.

The Bair Hugger system, which consist of a heater/blower unit and a separate inflatable plastic/paper blanket, is an air-circulation product and provides hypothermia patients surface warming. Although using the skimming pricing strategy has greater return in the short run, the danger is the company can not have a greater market share as well as a long run profit. Also, this market is price-sensitive to alternative methods. On the other hand, since the demand is known, the estimate of the total potential market for this system is about 2737 units, and 1000 units of blankets for each blower unit per year, and there are many substitutes existing, we strongly recommend that the company should employ penetration pricing strategy to market this system. In conclusion, the company can get into the market quickly and gain favorable market shares as soon as possible if it offers a low-priced blower unit. Also, the company could have long-term profits by selling lots of blankets only if they have greater market shares.

Problem Definition

In July 1987, Augustine Medical was incorporated as a Minnesota corporation to develop and market products for hospital operating rooms and postoperative recovery rooms. One of two products the company planned to produce and sell was the Bair Hugger Patient Warming System designed to treat postoperative hypothermia in the recovery room. Postoperative hypothermia (a condition defined as a body temperature of less than 36 degrees Centigrade or 96 degrees Fahrenheit) occurs in 60-80 percent of all postoperative patients.

Many competing technologies are available for the prevention and treatment of hypothermia. These technologies generally fall into one of two broad types of patient warming: surface warming or internal warming. The Bair Hugger system, which consist of a heater/blower unit and a separate inflatable plastic/paper blanket, is an air-circulation product and provides hypothermia patients surface warming. The warming time per patient is about two hours. The plastic cover was patented in 1986; there is no patent protection for the heater/blower unit.

The central issue at this time was the determination of the list price to hospitals for the heater/blower unit and the plastic blanket. The price set for the Bair Hugger Patient Warming System would influence the rate at which prospective buyers would purchase the system since the market was price-sensitive to

alternative methods. Also, price and volume together would influence the cash flow position of the company. Before the company prices this system, several considerations are required in terms of organizational objectives, demand for the product, customer value perception and buyer price sensitivity, the price of competitive offering, and direct variable costs.

The estimate of total potential market for heater/blower unit is 2737 units and 2737000 units for blankets (see exhibit 1). The direct cost of the heater/blower unit would be $380 and $0.85 per blanket. The initial investment, $500,000, for this system would cover the fixed cost of the company during first year of operation. Based on this basic information and other considerations, the company has to determine its pricing strategy for both products. There are two alternatives for this company.

Statement of Alternatives

Alternative A: Skimming pricing strategy.

Alternative B: Penetration pricing strategy.

Analysis of Alternative

Alternative A: The company could employ skimming pricing strategy and price heater/blower unit and blanket by $4000 and $20 respectively.

Many competing technologies are available for the prevention and treatment of hypothermia. These technologies generally fall into one of two broad types of patient warming: surface warming or internal warming. A variety of competitive products includes warmed hospital blankets, water-circulating blankets, reflective thermal drapes, and air-circulating blankets and mattresses. Their comparison in terms of product value and annual cost show in exhibit 1.

There are three reasons to support the company to employ the skimming pricing strategy. First, the Bair Hugger system, an air-circulating product, consists of a heater/blower unit and a separate inflatable plastic blanket. The plastic cover was patented in 1986, which is the chief competitive advantage to prevent The Bair Hugger system from losing to competition. Even though there is no patent protection for the heater/blower unit, the heater/blower unit can not work without the blanket. In the other words, they are complementary products.

Second, there is a realistic perceived value in this system by comparing with other competitive products (see exhibit 2). The advantages of warmed-air technology are that it is safe, lightweight, and theoretically more effective than warmed hospital blankets or water-circulating blankets. Also, based on interviews with physicians and nurses, respondents felt that the Bair Hugger Patient Warming System would speed recovery for postoperative patients. Since this technology is not in common use in the Unite States and no product is available in the current market, the target markets are not familiar with

these kind of products. Therefore, the company can position and price this system as a premium quality product.

Third, skimming pricing strategy can help the company to generate funds quickly to recover its investment or finance other development efforts. From exhibit 1, we know the total potential market demand for the heater/blower unit is 2737 units. Since the heater/blower unit is a durable product and the total demand for heater/blower units is known, the future development of this market has been constrained. Under this situation, the company may plan an early withdrawal from the market by employing the skimming price strategy. This involves setting a high price and engaging in only limited introductory advertising and promotion to maximize per unit profits and recover the product¡¦s development costs as soon as possible. At the same time, the company also works to develop new applications for its technology or the next generation of more advanced technology. Then when competitors enter the market and margins fall, the company is ready to move into new segments of the market.

In the short run, skimming pricing strategy could help the company gain funds quickly, but high price may also cause the company to get out of the market quickly. In this case, since the demand is known and substitutes are numerous, the company may fail to gain favorable market shares because of high price for both products. If Augustine Medical adopts the skimming pricing strategy, the company only needs to sell 37 units to reach the break-even point and sell 48 units to gain 30% ROI (see exhibit 4) in first year. Let us assume that the sales volume is held constant, 48 units in the second year, the company can have $2,112,000 revenue, in which blanket sales contribute $1,920,000. Also, from the table contribution by combination of blower prices and blanket prices, the price of a blanket is more sensitive than the price of a heater/blower unit because a blanket is a disposable product and sales of each heater/blower unit will create 1000 units of blankets per year. If the blower price is held constant, per dollar change in blanket price will have a $600 difference in contribution margin. In other words, the blower price can influence the rate at which prospective buyers would purchase the system since the market was price-sensitive to alternative methods, whereas the blanket price dominates margins because of its volume. Therefore, in the long run, a company can maximize its profits by selling lots of blankets, which requires selling large volume of blower units in the early marketing stage. Besides, there is no patent protection for the blower unit. The competitor can enter this market easily by offering low-priced products as well as blanket market since they are complementary. In short, it is risky to employ skimming pricing strategy for this company in the current market.

II Alternative B: The company could employ penetration-pricing strategy and price the heater/blower unit and blanket by $380 and $16 respectively.

A penetration strategy is one in which the seller charges a relatively low price on a new product. Generally, this policy is appropriate for the Bair Hugger Patient Warming System because of the following conditions.

1. Demand for the product is price elastic. The more substitutes a product has, the greater its price elasticity. Obviously, it is valid in this market because there is a variety of competitive products existing. Also, through an interview with physicians and nurses, respondents felt that the product was price-sensitive. Moreover, in the hospital, expenditures for equipment over $1500 were typically subject to a formal review and decision process.

2. Competitors are expected move in rapidly. The Hosworth-Climator is an English-made product that provides a controlled temperature microclimate by means of airflow from a mattress. The Climator comes in a variety of models for use in recovery rooms. This product could be distributed in the United States sometime in 1988.

3. The offering is not unique or protected by patents. Since many competing technologies are available for the prevention and treatment of hypothermia and there is no patent protection for the heater/blower unit, we price blower unit by its various cost in order to protect this system from low-priced or patented products.

4. A low price and profit margin may also discourage competition. The product of Bair Hugger Patient Warming System has a very flexible room on its price range. The selling price of the heater/blower could be from $380 to $5,295 per unit and the blanket is from $0.85 to $26 at each. The company can price their new product on low price in order to make the profit larger.

5. Bair Hugger¡¦s major objective is to gain a large market share. The objective of pricing the warming system is to focus on buying market shares quickly, offering more benefits to customer, and accomplishing the objective of return on investment.

In short, Augustine could dominate this market by offering a low-priced blower unit; also, it will be easier for the company to achieve adequate rate of return and profit maximization in the long run. We consider the major profit should come from the disposable blanket because the blower unit is a durable product but the blanket is a disposable product. More the heater/blower sold the more blanket volume will sold because per machine consumes 1,000 units of blanket per year. In the other words, there will be no disposable blanket market if the company does not sell heater/blower. From Exhibit 2, we can evaluate that the potential markets for heater/blower were only 2,737 units per year which is limited. So, the company must apply low price strategy to seize the market quickly.

Since the blanket has patented protection, we charge this product with higher price. Therefore, there is only $4 different between alternative A and B. Also, once the company can successful gain the market share by low-priced blower units, they can also have greater market position in the blanket market. Physicians and nurses were very receptive to the notion of using the blower unit free of charge and only paying for the disposable blankets. Thus, the Bair Hugger System will be the lowest product if the hospitals do not need to pay for blankets.

The heater/blower will be sold same as its variable cost at $380 per unit, and the disposable blanket will be sold at $16 each for retail price. The company needs only gain 2.76% (76 machines/ 2,746 total machine) market share by selling 76 units of heater/blower and 75,267 blankets to achieve 30 percent ROI in 1988 (Exhibit 5). The volume at the break-even point is around 57,900 blankets and 58 heaters/blowers. Let us also assume the same sales volume, 76 units in the second year, the company can have 2,460,880 revenue, which is greater than alternative A although we charge the blower unit by its variable cost. From this situation, we know the profit can be most easily earned from disposable blanket. Therefore, the Augustine Medical, Inc. still has good opportunity to gain profit if it can sell more heaters/blowers in order to increase its volume of disposable blanket.

Planning and Development

For the purpose of this case, the most important pricing objectives are pricing to achieve a target return on investment, pricing to achieve a target market share, and pricing to prevent competition. Augustine Medical Inc. should apply the penetration-pricing strategy to increase heaters/blowers¡¦ market share.

1. Keeping the market share in the heater/blower market is an important factor because the hospitals have to purchase its patented blankets once hospitals accept the company¡¦s heaters/blowers.

2. Even if Augustine Medical Inc. is selling the heaters/blowers under its variable cost, it is possible for the company to gain enough profit from selling blankets. If the market is very competitive, it is necessary to promote free charge for heaters/blowers.

3. Promotion is another important factor for the company¡¦s development in the future. Customers want to test the warming system before they purchase it. The company should satisfy the consumer¡¦s needs in a way to show them the operation of the system, and explain the benefits they will receive from the product. The company may provide guarantees such as maintaining the system frequently.

4. After the company dominates the market, it is possible to increase the blanket¡¦s price for only $.50 or $1 per unit that will increase lots of profits.

5. Do more research and develop on the different products for different kinds of patients.

Conclusion

In this case, it is more complex to price a product line, which consists of two products. Basically, they are complementary products, and their price should go together. But based on our analysis, we decided to price the blower unit at a low price, whereas the blanket has a high price. The reason is not only does the blanket have patented protection but also the blanket can continue to create profits. Also, the price of the blower unit will influence the market share because this is a price-sensitive market. Indeed, pricing decisions determine the type of customers and competitors an organization will attract.

We are wondering why this market did not become dominated by technology, whereas the warmed hospital blankets are the most commonly used because of low cost. If this market prefers technological products, the skimming pricing strategy may have more advantages for this company. Unfortunately, the factor of price sensitivity still dominates our price decision.

In conclusion, when a company introduces a new product into the price-sensitive market, the competitors are expected to move in the market quickly. It is better for the company to apply penetration-pricing strategy, in order to obtain a large market share in a short period and also discourage competitors who plan on entering the market.

Next Paper

Augustine Medical, Inc. : The Bair Hugger® Patient Warming System

前言在 1987 年七月，Augustine Medical,Inc 被合併成一間Minnesota 公司，專門研發與行銷產品供醫院手術室與手術後的恢復室使用。這間公司最先規劃生 產與販售的產品是一種具有專利的病患保溫系統，可供手術後在恢復室內體溫過 低的病患，和在手術室與急診室中插管的病人使用。

在 1988 年早期公司的經理人都非常主動的執行有關這項名為 Bair Hugger® ， Patient Warming System 的病患保溫系統的行銷活動。但是目前最重要的是，如何解決這個系統的定價問題。 The Bair Hugger® Patient Warming System Bair Hugger® Patient Warming System 是一種專門針對手術後在

恢復室中體溫過低的病患( 症狀為體溫低於攝氏 36 度或華氏 96 度) 所設計的儀器。根據醫學臨床 研究顯示，有 60％~80％的病人在手術後的恢復室內有失溫的情況，這可能 的因素有以下幾項：

（1）暴露在手術房內的冷空氣， （2 ）用來擦拭病患身體的揮發性液體，（3）腸子受到感染脫水， （4 ）吸入乾燥的麻醉氣體。這套系統是由一個加熱/吹風機(heater/blower unit)及分離式膨脹的塑膠/ 紙覆蓋物(separate inflatable plastic/paper)或毯子所組成的，加熱/ 吹風機是一個大的方

形盒狀體，透過塑膠覆蓋物送出過濾後的暖空氣，電線纏在機器後方儲存，機器並設有輪子方便 移動，吹風管是透過簡單的硬紙板連結帶連接上保溫覆蓋物，儲藏時可以收入機器的頂層，而頂

層蓋打開後有一個能容納十二件保溫覆蓋物的空間以方便取得使用，而這條拋棄式保溫覆蓋物是由 18 英呎長的管子包裝而成，當鋪開時，塑膠/紙覆蓋物呈現平坦狀，從中等身材病患的肩膀遮

蓋至膝蓋，毛毯則是由一層薄塑膠及一層塑膠/ 紙薄片構成的等身管道所組成，覆蓋物上的小洞可穿透至內裡，透過在病患腳的連接處充氣，管狀結構弧形繞住病患身體， 製造出病患個人的環境。暖空氣從毛毯內裡裂縫送出，在病患周圍產生溫和的暖 空氣，一位病人的保溫時間約兩小

時。公司在 1986 年取得塑膠覆蓋物的專利，但加熱吹風機卻沒有受到專利保護。競爭的技術在防止與治療病患失溫方面，這項產品面臨了一些既有的競爭技術，可大略 分為表面保溫技術（Surface-Warming Technologies）及體內保溫技術 （Internal-Warming Technologies ）兩種。 ‧表面

保溫技術表面保溫的技術包括了防寒毛毯(Warmed hospital blankets) 、水循環毛毯 (Water-circulating blankets)、空氣循環毛毯及床墊(Air-circulating blankets and

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mattresses)、保溫裝(Thermal drapers)、紅外線加熱燈(Infrared heating lamps) 、局部溫水浸沉(Partial warm-water immersion)及增加室內溫度(Increasing room temperature) 。Warmed hospital blankets 是在恢復室或任何地方最普遍被用來治療病患體溫過低現象的技術。防寒毛毯的基本應

用是在一位病患身上覆蓋六至八條防寒毛毯，雖然大多數的病患只需要這樣的使用方式，但預估 有 50% 的手術後病患，需要覆蓋更多的防寒毛毯。這項技術的優點是它們簡單、安全且相對便

宜。主要的缺點則是容易冷卻、僅提供隔絕效果且必須依靠病人本身的體溫。 Water-circulating blankets 是第二受歡迎的手術後低溫治療技術，它可以被放置在病患的身體下方、上方或是上下

皆可。如果Water-circulating blankets 僅被墊在病患身體下方，那只會影響其身體覆蓋範圍的15% 。然而，醫院一般都會將Water-circulating blankets 覆蓋在病患身體的上方，或同時覆蓋和墊

在病患的身上與下方，如此將可以隔絕病患身體表面的 85%~90% 面積。這項技術的缺點是笨 重、昂貴，且可能在施壓點上造成燙傷。而雖然此項技術被廣泛的使用和接受，但其效果不顯

著，尤其是對於嚴重失溫的病患而言。 Electric blankets 一般不被接受用來治療體溫過低的情況， 因為它可能造成病患燙傷或是在有氧氣的情況下爆炸的風險。 Air-circulating blankets and

mattresses 在美國市場並不普遍。這項技術是依賴暖氣的氣流將熱能傳至病患身上它的優點是安 全輕且相對於前兩種技術(Warmed 。、， hospital blankets 與Water-circulating blankets)效果較

佳。 Thermal drapers 也被稱為 reflective blankets ，是一種新的技術方法，普遍使用於手術室中，以作為一種預防性的措施方法。這項技術包含了頭套(head covers) 、毯子(blankets)與毛線褲(leggings) ，並將這些放置在病患未受傷的部位上。通常在病患表面 60%可覆蓋的情況下才會被採

用。這項技術的優點是安全、簡單、便宜，且已被證實可減少熱能的流失。而缺點是僅提供隔絕效果而無法將熱能傳送 給已失溫的病患。 Infrared heating lamps 通常用於嬰兒照顧。這個方法是

把紅外線加熱燈放置在安全的距離外，提供病患熱能。其優點是有效且可讓醫護觀察順利進行， 而缺點則是需要暴露皮膚，一般成人會害羞不容易接受，且會提高恢復室的溫度造成護士與其他

醫護人員的不適。 Partial warm-water immersion 在過去已被使用，特別是在需要減緩病患新陳代 謝的時候。這項方法是將病患放置在溫水池內並仔細看護。它的優點是簡單且傳輸 熱能非常有

效，而其缺點是準備工作不方便且需要密切的監護，這將提高勞動的成本。此外，水池內的環境容易讓細菌滋生，還有其購買及使用的費用皆高 Increasing room temperature 是防止與治療失溫症最有效的辦法，但卻很少被使

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用。它的優點是簡單，相對不貴，且被證明在超過華氏 70 度時會有效果。而其缺點是護士與醫 護人員無法在這樣的溫度下工作，同時此環境也會增加感染的機會。 ‧體內保溫技術 體內保溫技

術則包括了將加溫潮濕的空氣藉由呼吸管吹入病患體內 (Inspiring heated and humidified air)、將溫暖的液體注入病患(Warmed intravenous(I.V.) fluids)及吃藥(Drug therapy) 。 Inspiring heated and humidified air 是一種相當有效的體內保溫技術，目前被用於 插管治療的病患。然而，藉由口罩與

帳篷傳送熱氣和濕潤空氣，對於手術後的非插管治療病患是不被接受的，因為這將會阻礙其醫護 觀察與溝通，而且這也有可能會增加感染的機會。這項技術對於插管的病患有效，但大多數手術

後的病患是沒有插管的。Warmed intravenous(I.V.) fluids 適用於重度失溫的病患。它透過靜脈注 射的方式，將熱流體注入體內以促進血液循環。其缺點是需要密切監控病患的核心體溫和內 科醫

生的高度參與。 Drug therapy 減低病患對寒冷的敏感度和身體顫抖的情形，但這並非實際提高病 患的體溫。雖然這項技術很方便而且可以使病患較舒服，但卻無法真正溫暖他們，事實上這還會

降低病患的復原速度。競爭的產品 針對以上所提到的技術，目前已應用在以下的產品中：Warmed Hospital Blankets、Water-Circulating Blankets、Reflective Thermal Drapes 及 Air-Circulating Blankets and Mattresses ，這些皆可視為 Bair Hugger 的競爭商品。防寒毛毯(Warmed Hospital Blankets)─ 為了治療成人病患的失溫症，許多醫院使用自己的毛毯，而這些毛毯必須被放置在大型

加熱機器中保溫。許多製造商為了因應醫院的需要，也製造了這些加熱機器以保溫毛毯。洗燙六 至八條兩磅的醫院毛毯，平均每磅要$0.13 的成本。而洗燙與加熱成本必須由醫院吸收，並算入 其製造費用。水循環毛毯(Water-circulating blankets)─許多製造商生產水循環的床墊與毛 毯，但是

主要的供應廠商還是 Cincinnati Sub-Zero, Gaymar Industries 和 Pharmaseal。自動控制系統的價格範圍在$4,895~$5,295 之間，這主要是根據毛毯與病患的溫度測量。而手工控制系統雖然看似被折價

近四成，但依然定價在 $3,000/每單位左右。水循環控制系統的平均壽命是十五年，可重複使用的 毯子價格在$165~375/每單位(視訂購量而定)，而拋棄式毯子定價則在$20~26/ 每單位。毛毯的以

量制價，可幾乎減少其定價的五成。水循環毛毯科技對過去的二十年影響並不大，而這項產品在不同公司間的差異化程度也不大。 反射保溫裝(Reflective thermal drapers)─O.R. Concepts 賣了一個

名為 Thermadrape 的產品，它提供成人與小孩的兩種尺寸。成人頭套(adult head cover)

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每個定價為$0.49；覆蓋在成人身體上的裝備(adult drapes)價格為$2.50~$3.98( 依尺寸分)，而腳部裝備(leggings)定價則為$1.50 。空氣循環毛毯及床墊(Air-circulating blankets and mattresses)─在提供

空氣循環產品方面還有兩個知名的廠商，但是這兩間廠商都沒有在美國市場販售。分別 是 The Sweetland Bed Warmer 和 Cast Dryer ，而雖然這兩家廠商在二十五年前接有使用這樣的技術，但是目前皆已沒有再生產了。這個產品包含一個加熱/ 吹氣裝置，它可以藉由軟管直接在病患毛毯下加熱空氣。Hosworth-Climator 是一個英國製的產品，它藉由床墊的空氣流動提供一種溫度控制的微氣候。這種 climator 產品提供許多不同的模型供恢復室、加護病房、燒燙傷病房、一般病房和病患家 裡使用。這些模型中最適用於手術後恢復室使用的定價在$4,000 左右。這種產 品在1988 年時，曾一度分布於美國。ㄧ些代表性的競爭產品與其定價摘要如下 表所示。產品

Blanketrol 200

訂價

$2,995/ 手工單位 $4,895/ 自動單位 $165-305/ 可重複使用毛毯 $20/拋棄式毛毯 $4,735/ 每單位$139/ 可重複使用毛毯 $24/拋棄式毛毯 $4,479/每單位

公司

Cincinnati Sub-Zero

公司規模(員工人數)

一千萬；90 人

評論

低體溫症的儀器設備是整體營運的一小部份低體溫症的儀器設備似乎是其主要營運項目低體 溫症的儀器設備是 American Hospital 很次要的營運項目這間公司在 1988 年才剛在美國發展低

體溫症的儀器設備

MTA 4700

Gaymar Industries

一千七百萬；150 人

Aquamatic

American Hamilton (American Hospital Supply 的分公司)

三十三億；31,300 人

Climator

$4,000/每單位

Hosworth Air Engineering,Ltd.

未知

醫院的市場當時，在美國每年約執行兩千一百萬次的外科手術，平均每八小時的工作天就有84,000 次手術，大約有 5,500 間醫院設有手術室及手術後恢復室，根據 Augustine Medical, Inc 委託

進行的研究指出美國醫院共有 31,365 間手術後恢復室及 28,514 間手術室，一項有關手術後醫院 病床與手術百分比的統計分析資料如下所示：手術後的病床數醫院數預估的外科手術百分比 0

1,608 0% 1-6 3,602 20 7-11 1,281 40

4

12-17 391 20 18-22 135 10 23-28 47 6 29-33 17 2 >33 17 2 根據手術後恢復室的需求，研究公司估計 少於七床的醫院對 Bair Hugger 產品的接受度不高，該公司並推斷每賣出一個系統可以應用在八張

手術後恢復室 的床上，除此之外，研究公司在展示完這個新系統後訪問了外科醫師及護士，得到 了以下的回應： 1. 受訪者相信「讓病人感覺更舒服」是重要的。 2. 受訪者覺得這個產品(Bair

Hugger® Patient Warming System) 可以加快病患手術後的復原。 3. 受訪者希望能在實際情況下測試 這樣的裝備，他們不願在沒試用過的情況下購買。 4. 受訪者認為這個產品相較其他方法是價格敏

感的。當產品證明符合其需求的 情況下，有二分之一的人願意購買。受訪者希望能免費取得加熱 吹風機，僅支付拋棄式毛毯的費用。住院醫生希望在使用前能與負責使用的護士及麻醉 師討論。

5. 受訪者相信將病患移出移入手術室的壓力較過去為大。效率越來越重要 6. 醫院資本的花費受限 於預算委員會的批准。雖然這項金額會變動，但是一般而言，超過＄1,500 的器材購買費用，在

醫院內必須經過正式的決策程序。 Augustine Medical Inc. Augustine Medical Inc. 在 1987 年由一位麻 醉醫師 Dr. Scott Augustine 所建立。他的經驗使他相信醫院需要且渴望一個新的方法，溫暖手術後

的病患。他的醫藥知識與技術天分，促使他發展出 Bair Hugger® Patient Warming System 。 Bair Hugger® Patient Warming System 比起水循環毛毯(Water-circulating blankets)有著更多的優點。第

一、熱氣使病患感覺溫暖且停止顫抖；第二、這項系統不會使病患燙傷，而且就像水循環毛毯一 般，當水洩漏在電子設備周圍時，這並不構成問題；第三、拋棄式毛毯消除了病患間交叉感染的

機會；最後，這項 系統不需要將病患舉起或是包裹住。Augustine 的個人經驗說明了這項系統的特 色將會受到護士與病患們的歡迎。 Augustine Medical 一開始的資本額是$500,000。這些資金被用

在未來的研究與發展、人員支援、設備和行銷上。ㄧ開始的投資被認為可以因應第一年營運的 固定成本(包括員工薪資、租金、宣傳單等)。這間公司將加熱/吹風機單位的生

5

產轉包出去，並且自行利用專利設備生產保溫覆蓋物(warming covers) 。一般而言，只有較次要的生產工作才會由他們自己完成。 Bair Hugger® Patient Warming System 將經由醫藥產品批發商在國內的多元 化區域被販售。這些批發商會致電醫院，並向他們說明這項產品並維持一定的毛 毯存貨。而公司提供給批發商的毛利也很具競爭力，其依照交貨時的售價( 折扣後)提供批發商在加熱/ 吹風機機器部分有 30% 的報酬，在毛毯部分則有 40% 的報酬。轉包商的初步預估和裝配的時間與動作研究顯示加熱/ 吹風機單位的直接單位成本為$380。而每件毛毯的成本為$0.85，這包括了原料、製造費用和塑膠拋 棄式毛毯的包裝。現在公司最重要的問題是要為加熱/吹風機與可拋棄毛毯訂價。而目前至少 有三個要立即注意的問題，第一、價格高低可能會影響購買率；第二、

價格及數量可能會影響到公司現金流量定位；第三、公司馬上要準備產品價格說明書給下 游經銷商，以及不久後的醫療商品展上的產品發表會。 Discussion Questions: 1. How would you characterize the prevailing technologies and products for preventing and treating postoperative hypothermia? 2. What factors will influence the market potential for the Bair Hugger Patient Warning System ( 簡稱 BHPWS) ? Develop an estimate of the market potential. 3. What should be the pricing objectives and strategies for The Bair Hugger Patient Warming System ？ 4. What list price to hospitals should Augustine Medical set for The Bair Hugger Patient Warming System and what short-run profit impact can be expected from this decision ？ 5. What is the likely long-run profit impact of your pricing decision？

Next Paper

Overview

Augustine Medical, Inc. was founded by Dr. Scott Augustine, an anesthesiologist from Minnesota, in 1987. The company was created to develop and market products for hospital operating rooms and postoperative recovery rooms. The company provides innovative solutions to fight against conditions like hypothermia. Medical research indicates that 60 to 80 percent of all postoperative recovery room patients are hypothermic. Hypothermia is caused by a patient's exposure to cold temperatures or can also be caused by heat loss due to evaporation of the fluids. Dr. Augustine's personal experience in the operating room convinced him that there was a need for a new system. Dr. Augustine also realized that the potential market is huge for this new product. The numbers indicate that approximately 21 million surgical operations are performed annually in the United States, and that approximately 5,500 hospitals have operating rooms.

The Bair Hugger Patient Warming System consists of a heat source and a separate disposable warming cover that directs a gentle flow of warm air across the body. The Bair Hugger heat source uses a reliable high efficiency blower, a sealed 400W heating element, and a microprocessor based temperature control to create a continuous flow of warm air. The heat source complies with all safety requirements for hospital equipment. Augustine Medical, Inc. was able to find investors that contributed to the initial capitalization of $500,000. These initial funds that were collected were used for staff support, facilities, and marketing.

Distribution

Augustine Medical Inc. planned for The Bair Hugger Patient Warming System to be sold by and through medical distributors in regions across the country. Distributors would call hospitals, demonstrate the system, and maintain inventory of the blanket. The distributors were paid a margin of 30 percent on the heater/blower unit and 40 percent on the blankets. The estimated direct cost of each heater/blower unit was $380 and $0.85 per blanket.

Problem

The major issue that the company was faced with is how they should list the price to hospitals. The company's major concerns with price were the perceptions that it formed in potential consumers minds, which would in-turn negatively or positively affect the cash flow. Price is a sensitive issue for the company because the level of competition and other similar product that are offered in the medical market. There are a number of products that can be considered direct competitors, but only two of the products have direct similarities but are not sold in the United States. With this in mind, Augustine Medical Inc. has a competitive advantage in the U.S. because they have first movers advantage. This could give them flexibility when choosing their pricing strategy. The average price range of competitive products is $3000 to $5000.

SWOT Analysis

To understand Augustine Medical Inc.'s strategy, the market must explore the resources of its strengths and weaknesses. As well as capture and predict its possible market opportunities and its defenses against external threats. Strength is something a firm does well or an attribute that enhances the company's competitiveness. Weaknesses are something the firm lacks, does poorly, or a condition placing the company at a disadvantage. Opportunities consist in its potential ability for profitable long term growth. Threats identify external possibilities that may come as a hindrance to the success of the company. Exhibit one presents a detailed SWOT analysis of Augustine Medical Inc.

Decisions

Marketers traditionally have employed three pricing strategies: skim, penetration, and neutral. Skim pricing is the process of pricing a product high relative to competitors

and the product's value. Neutral pricing is an attempt to eliminate price as a decision factor for customers by pricing neither high nor low relative to competitors. Penetration

pricing is the decision to price low relative to the product's value and to the prices of similar competitors. It is a major decision to use price as the main competitive weapon in

hopes of driving the company to a position of market dominance.

Since Augustine Medical Inc. is the first company entering into the market as new product developers, the neutral pricing strategy is not an option. Their first decision possibility would be to use a price skimming strategy that involves charging a relatively high price when a new, innovative product is introduced to the market. This not only set prices above the current market price, but it also increases

perceived value. The second option would be penetration pricing strategy. This strategy will compliment the price-sensitivity of the market because it will attract new buyers who have shown resistance or uncertainty towards other direct competition due to the price.

Recommendations

After conducting a thorough analysis of the decision alternatives, Augustine Medical, Inc. should choose a penetration pricing strategy. This strategy will lead to large sales volumes and market share and eventually lower the cost per unit. The price skimming strategy will allow them to charge a relatively high price while entering the market for a period of time and then later lower the prices when the company is stable and competition begins to come in. By charging a high price initially the company can build a quality image and create some brand loyalty with it products.

This is important for Augustine Medical, Inc. because they are introducing a new product to the market and based on the company's research price sensitivity is a major concern of most prospective buyers. Pricing the Bair Hugger below the market price will make the product more attractive to buyers, but buyers may be resistant to testing the product if they have no intention in purchasing the product. Using a penetration strategy will give Augustine Medical Inc. the ability to target both large and small hospitals because of the affordability of their product offering. Currently direct competitors such as Climator are a major threat because of the similarities of their products. Pricing our product below their price of $4000 will make our product more attractive upon entering the market. Another idea for Augustine Medical Inc. is to sell the blanket and that heater separately. This would allow them to bundle the two products later on as a benefit or a promotional strategy.

Augustine Medical, Inc. should decide on the price of their product then make all the information available to hospitals and distributor organizations. The company should then attend medical trade shows to increase the visibility of their product. To obtain first mover advantage is important for Augustine Medical, Inc. pricing strategy. They should put together at sales force to prospect and qualify potential buyers. The sales force should proceed by using direct selling tactics in order to penetrate the market. Because the Bair Hugger will be priced lower than our direct competitor's products it is important for them to capture a large portion of the market share in the early stages. In the future years brand loyalty and brand recognition will play a major role in the success of Augustine Medical Inc.

Exhibit 1:

Strengths

�Simplicity of use

�Compatibility with existing systems

�Bair Hugger warms patience faster

�Patented plastic cover

�Bair Hugger has 15 year life span

�Heater/blower unit is subcontracted to cut cost Weaknesses

�Augustine Medical is not a recognized company so there is limited brand recognition

�The Heater/Blower unit is not patented

�New to the market

Opportunities

�21 million surgical operations have operating rooms and postoperative recovery rooms

�5,500 hospitals with operating and postoperative rooms

�60-80% of patients experience post-operative hypothermia

�Networking opportunities and contracts at trade shows Threats

�Most hospitals already have established methods for prevention and treatment of hypothermia

�Substitute products: water blankets, lamps, and thermal drapes

�Not properly pricing and positioning their product

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Augustine Medical Inc. – The Bair Hugger Patient Warming System

1. What company/organization is the subject of the problem?

Augustine Medical Inc. – The Bair Hugger Patient Warming System

2. What is the problem? – Identify the strategic aspect of a marketing situation.

Augustine Medical needs to figure out how to price the two components of the Bair Hugger Patient Warming System (the heating unit and blanket) and how to place their product against competitors.

3. What is the significance of the problem to the subject?

There are many competing technologies designed to treat hypothermia of postoperative patients, most are less expensive than the Bair Hugger. Although Augustine see’s their product as superior to most alternatives they need to price and introduce their product to the market before a similar air-circulating blanket is introduced to the US market (like the English-made Hosworth-Climator).

4. Who has the responsibility for addressing the problem (usually the protagonist)?

Augustine Medical, Inc.

5. What does he/she need to know to do something about it?

> What are the costs of producing and selling through distributors? How could they minimize distribution costs?

> Augustine Medical should find out more about their competition in the long run

> The company should also gain more knowledge of the hospital market and how to expand their product even further

> How will price/volume influence the cash flow position of the company?

6. What are the decision options?

> Use free blankets/units as a promotional offer to the hospitals

> Price their product competitively compared to their competitors

7. What are some possible criteria for evaluating these options?

> Hopefully in the future, after selling the product for free, the hospitals will become loyal and Augustine will have gained a huge market share and will profit.

> Hope that their product is superior and that it will sell successfully at the medical trade show.

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Introduction

The Bair Hugger Patient Warming System is marketed to hospitals in the United States. It is a device that has been designed specifically to treat hypothermia which many patients suffer from after operations. The Warming system is composed of two elements; there is a heater/blower unit and disposable warming covers. The ultimate problem facing Augustine Medical, Inc. is how to price theses two components of the product and how to position it compared to its competitors. There are many substitutes available for hospitals to treat and prevent hypothermia. However, there are many disadvantages to the variety of other devices which virtually treat the same condition. Augustine Medical believes that their product is superior to their competitors’ products.

S.W.O.T analysis of The Blair Hugger Patient Warming System

StrengthsMedical research indicates that between 60 -80% of recovery room patients suffer from hypothermia. Although this is unfortunate for the patients it is a strength for the company as they have a target market. The product has been designed to allow nurses and doctors to have easy access to the disposable warming covers which are placed in the top of the blower unit. Also the unit is easy to transport as it can be moved easily as it is on wheels. Hospital staff see this product one that will make the patient feel comfortable and will speed up the patients recovery process. The product also does not burn the patient and water leaks are not an issue. As well as this the product reduces the risk of cross contamination as the blankets are disposable.

WeaknessesThe warming covers needed in order to use the product will need to be restocked a lot of the time. The warming time per patient is about two hours this could pose a problem for patients because the results of the use of the device is not seen until two hours later and patients hypothermia may have gotten worse.Also this product is the only product the company have and thus demand is vital for success.

OpportunitiesAugustine Medical incorporated sees the opportunity to market their product to hospitals and the company believe that their product had superior advantages over competing products. If the decide to sell the unit for free to the hospitals and the hospitals would purchase the blankets they could create a monopoly.

ThreatsThere is much competition available for hospital to use. Many cheaper alternatives exist. There are several surface warming technologies that are already on the market such as water circulating blanket and the simplest form of treatment for hypothermia is warmed hospital blankets. A main competitor that may exist in the future for the company is the Hosworth-Climator who produce a similar product in England and they could be distirbuting their product in the U.S. within the next year. However if the company price the unit and blankets too high they will be at risk of failing.

Market research:

Medical research indicates that 60 to 80% of all prospective recovery room patients are clinically hypothermic. There are several factors which contribute to postoperative hypothermia. These factors are:1. Patients exposure to cold operating room temperatures2. Heat loss due to evaporation of the fluids used to scrub patients3. Evaporation from the exposed bowel4. Breathing of dry anesthetic gases

Market size:

Research commissioned by Augustine Medical Inc. indicated that there are 31,365 postoperative recovery beds and 28,514 operating rooms in hospitals in the United States. Given the demand for the postoperative recovery room beds, the research indicates that hospitals with fewer than seven beds would not be highly receptive to the Bair Hugger Patient Warming System. The firm also projected that one system would be sold for every eight postoperative recovery room beds.

Target market:

The target market for this product is hospitals with seven or greater recovery room beds. Target market makes up 80% of all surgical operations in United States.

The Bair Hugger Patient Warming System product is not a consumer product. The main users of this product are businesses – hospitals. Hospitals will always be provided with the funds necessary to prevent hypothermia and other diseases, so the demand will be common.

Interviews with physicians and nurses, followed by a demonstration of the system, returned a variety of responses. Respondents believed that the humanitarian ethic to make the patient feel more comfortable is important. Respondents also felt that the Bair Hugger Patient Warming System would speed recovery for postoperative patients. They believed that the pressure to move patients through the operating room and out of postoperative is greater than in the past. Efficiency is the byword. Capital expenditures in hospitals were subject to budget committee approval. Although the amounts varied, expenditures for equipment over $1,500 were typically subject to a formal review and decision process.

4p’s:

Product:

Bair Hugger Patient Warming System is designed to control the body temperature of patients after surgery. Specifically the products is designed to treat hypothermia (a condition defined as a body temperature of less than 36 degrees Centigrade or 96 degrees Fahrenheit) experienced by patients after operations.

The Bair Hugger system consists of a heater/blower unit and a separate inflatable plastic/paper cover, or blanket. There are many advantages of this product.

Place:

The Blair Hugger Patient Warming System would be sold by and through medical products distributor organizations in various regions around the country. These distributor organisations would call on hospitals, demonstrate the system, and maintain an inventory of blankets. The margin paid to the distributors would be competitively set at 30% of the delivered selling price on the heater/blower unit and 40% of the delivered price on the blankets.

Promotion:

Currently Augustine Medical Inc is relying on distributors to push their products. Augustine Medical Inc also is promoting their products by creating sales literature for the Bair Hugger Patient Warming System, where features and benefits of the product are detailed. Augustine Medical Inc personal experience indicated that all of these features would be welcomed by nurses and patients alike.

Price:

Heater/Blower must be under $1500 to avoid hospitals going through formal review and decision process.Only 80% of the hospitals have enough hospital rooms to have use for the Bair Hugger.

Investor interest in Augustine Medical Inc and the medical technology it provided produced an initial capital of $500,000. These funds include R&D, staff support, facilities and marketing.

It was believed that this initial investment would cover the fixed costs of the company during its first year of operation.

Variable Cost = $380 per heater and $.85 per blanket.

Margin paid to distributors would be 30% of delivered selling price of the heater/blower and 40% of the delivered price on the blankets, less discounts for both.

There are 31,365 recovery beds minus the hospital that have less than seven beds.31,3651,608-3,603-

26,155 recovery beds in the U.S.

Unitone system will be sold for every eight recovery beds. Therefore, 26,155 divided by eight = 3,269 units to be soldThe blanket come in packs of twelve and the demand for these depends on the amount

of surgical procedures in hospital as well as the number of patients that could become hypothermic. The cost of the unit is $380. If the company gave the unit for free to the hospitals they would create a monopoly and only there disposible blankets would work effectivley with the units. The cost of this would be ($380 muliplied by the units to be sold 3,269 units) = $1,242,220 The 30% distributor cost is irrelevant here as the unit was not sold for a price.

BlanketsThere are 21million surgical operations per year in the U.S. between 60 and 80% of these become hypothermic therefore14,700,000 patients per year. divide this by the number of blankets per case i.e.12 now we potentially have sales of 1,225,000 disposible blankets. The cost of the blankets are $0.85 each multiply by 12 =$10.20 cost of case of blankets.

Plan to sell 1,225,000 cases of blankets at a cost of $10.20 = Total cost for year $12,495,000If these case of 12 blankets were sold to hospital at $24 each the distributor cost would be 40% of that which is $9.60 per amount sold ($9.60*1,225,000=$11,760,000) Sales made would be (1,225,000 * $24.00)= $29,400,000.The hospital would virtually see it as paying as little at 2 euro per blanket.

Finally:Sales of blankets $29,400,000Cost of units $ 1,242,220-Cost of blankets $12,495,000-Distributor costs $ 11,760,000-

Total profit $ 3,902,780

Recommendations:

Augustine Medical Inc to sell their products mainly relies on distributors to demonstrate, promote and advertise their products across the country. It has limited marketing as they are only preparing literature on the product for their distributors. Since Augustine Medical Inc is an R&D company, they should continue to develop new products.

We believe that Augustine Medical Inc is doing well promotionally, since they have targeted the right target market, which doesn’t need to be segmented. The problem is that the units will not be desired at a high cost atthe minute it is evident that the units should be given to hospitals for free. This will create a buzz around the product and will be desired by all hospitals as the only cost they have is the disposible blankets which each costs them only 2 dollars $24 in total per case. It is evident that the hospital will

need ot restock these disposible blankets all the time and thus Augustine Medical will earn huge profits on the blankets as it only costs $0.85 * 12 = $10.20 to produce and are sold at $ 24.00. However the companyin our opinion should be making a lerger profits but the problem is the distribution costs of 40% are extremly high and if these could be lowered it would make the company more profitable.

One must also remember that the units are sold now to hospitals and thus if Augustine medical sell them for free now as a promotional offer they will reap the profits in the following years as they will no longer have the cost of selling the units for free and will have gained a huhe market share which should help to elliminate the potential english competition in the next year.

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Introduction ( Background and Situation)

Augustine Medical, Inc. was founded by Dr. Scott Augustine, an anesthesiologist from Minnesota, in 1987. The company was created to develop and market products for hospital operating rooms and postoperative recovery rooms. The company provides innovative solutions to combat postoperative conditions such as hypothermia. Medical research indicates that 60 to 80 percent of all postoperative recovery room patients are clinically hypothermic. Hypothermia is caused by a patient's exposure to cold operating room temperatures that are required by surgeons to control infection, and for the personal comfort of the surgeon. Hypothermia can also be a result of heat loss due to evaporation of the fluids used to scrub patients, evaporation from exposed bowel, and breathing of dry anesthetic gases. Dr. Augustine's personal experience in the operating room convinced him that there was a need for a new system to warming patients after surgery. Dr. Augustine also realized that the market for this new product would be enormous! Statistics indicate that approximately 21 million surgical operations are performed annually in the United States, and that approximately 5,500 hospitals have operating rooms and postoperative recovery rooms that include 31,365 postoperative recovery beds and 28,514 operating rooms. Upon the realization of this need and existence of the market, Dr. Augustine went on to develop The Bair Hugger Patient Warming System then he acquired a patent. The Bair Hugger Patient Warming System consists of a heat source and a separate disposable warming cover that directs a gentle flow of warm air across the body. The Bair Hugger heat source uses a reliable high efficiency blower, a sealed 400W heating element, and a microprocessor based temperature control to create a continuous flow of warm air. The heat source complies with all safety requirements for hospital equipment. Augustine Medical, Inc. was able to find investors that contributed to the initial capitalization of $500,000. These initial funds that were collected were used for staff support, facilities, and marketing. The funds were also used to cover the fixed costs of the company while in its first year. The company subcontracted the production of the heater/blower unit and manufactured the warming covers in-house. The company only participated in minor assembly of the product.

Augustine Medical Inc. planned for The Bair Hugger Patient Warming System to be sold by and through medical products distributors in various regions across the country. Distributors would call on hospitals, demonstrate the system, and maintain inventory of the blanket. The distributors were paid a margin of 30 percent on the heater/blower unit and 40 percent on the blankets. The estimated direct cost of each heater/blower unit was $380 and $0.85 per blanket.

The major issue that the company was faced with is how they should list the price to hospitals. The company's major concerns with price was that the impact it would have on the rate at which prospective buyers would purchase the system, which would in-turn negatively or positively effect the cash flow of the company. The company was also concerned with preparing price literature for its distributors and for trade shows. Price is a very sensitive issue for the company because the level of competition and other similar product offerings that exist in the market. There are a number of products that can be considered direct competitors with The Bair Hugger, but only two of the products have direct similarities but are not sold in the United States. With this in mind, Augustine Medical Inc. has a competitive advantage in the U.S. market because they have distinct product offering. This could give them further flexibility when choosing their pricing strategy based on how well their product is positioned. The average price range of competitive products is $3000 to $5000. Augustine Medical Inc. should use a price skimming strategy upon entering the market. A price skimming strategy will allow them to charge a relatively high price while entering the market for a short period of time and later lowering the prices when the company is stable. By charging a high price initially the company can build high quality image for its products. Charging high prices will give Augustine Medical the option of lowering its prices when heavy competition arrives. This strategy would also be advantageous to the company upon its initial entry to the market because it will allow the company to regain profit margins from the funds paid to distributors and other intermediaries.

This strategy will eliminate the risk of discounting and losing potential profits because the product will be marked up initially and "discounted" upon the arrival of competition and the growth stage of the products life cycle. Because prices of competitive products are priced high, using a skimming strategy will not pose a threat instead could prove to be more advantageous in the long run.

SWOT Analysis

Strengths

� Simplicity of use

� Compatibility with existing systems

� Bair Hugger stops warms patience faster

� Patented plastic cover

� Bair Hugger has 15 year life span

� Heater/blower unit is subcontracted to cut cost

� Water free heating alternative to avoid leakage and burns caused by traditional products

� Prevents cross-contamination

� Patients are not required to move or adjust in anyway to use device

� Free Trial of product for 2 weeks

Weaknesses

� Augustine Medical is not a recognized company so there is limited brand recognition

� The Heater/Blower unit is not patented

� New to the market

Opportunities

� 21 million surgical operations have operating rooms and postoperative recovery rooms

� 5,500 hospitals with operating and postoperative rooms

� More than 10 million patients experience discomfort and instability associated with post-operative hypothermia

� 60-80% of patients experience post-operative hypothermia

� Anesthesiologists are dissatisfied with the current technology for treating hypothermia

� U.S. does not have an established warm-air technology blanket market

� Networking opportunities and contracts at trade shows

Threats

� Climator, a foreign made product, could enter the U.S. market, capturing the first mover advantage and a large percent of market share early

� Most hospitals already have established methods for prevention and treatment of hypothermia such as:

Surface Warming:

o Warmed hospital blankets

o Air-circulating blankets

o Thermal drapes

o Infrared heating lamps

o Partial water immersion

o Increasing room temperature

Internal Warming

o Heated and humidified inspired air

o Warmed intravenous fluids

o Drug therapy

� Hospitals have incurred costs for current methods of hypothermia treatment

� Substitute products: water blankets, lamps, and thermal drapes

� Not properly pricing and positioning their product

Issue Identification

� Determining a competitive price for The Bair Hugger Warming System that will allow Augustine Medical Inc. to maintain a constant revenue flow and long term profitability as well as repeat customers.

Objectives

o Maximize sales volume �both long and short-term

o Target hospitals with the most post-operative recovery beds and rooms

o Breakeven sales volume

o Sufficient cash flow

o Gain brand loyalty and recognition

Considerations for pricing strategy

o Expected demand for the system

o List prices of competition

o Customers perceived value for features, advantages, and benefits of Bair Hugger.

o Buyer price sensitivity

o Production cost per unit (Heater/Blower unit cost and blanket cost)

o Margin paid to distributors

Decision Alternatives

1. Use a price skimming strategy that involves charging a relatively high price when a new, innovative product is introduced to the market.

o Set prices above the market price upon entering the market to increase perceived value, and short run gains. Money earned from short run gains will be used to increase the contribution per unit.

2. Use a penetration pricing strategy that involves setting the price low rather than high to establish a dominant market share. This strategy will compliment the price-sensitivity of the market because it will attract new buyers who have shown resistance or uncertainty due to the price.

o Set prices below the average price of competitors to attract new customers

o Target prospects at larger hospitals to increase sales volume

Pros: Decision Alternative 1

o Price skimming will allow Augustine Medical to earn a return on their investments such as start up costs, advertising, promotions, research and development

o High prices will help build the image of the product and company

o Initial high prices will allow the company to reduce their prices and offer "discounts" when competition arrives.

Cons:

o Many hospitals tend to conduct extensive reviews of products that

are priced over $1500. This will lengthen the purchase decision process for prospective buyers.

Pros: Decision Alternative 2

o Company will benefit from economies of scale

o This strategy will discourage competition because a new product will be introduced to the market at a cheaper price.

o Ease entry to the market

o More attractive to buyer's b/c it makes purchase decisions easier.

Cons:

o The perceived quality of the product will be lower

o Insufficient production and distribution capabilities to meet demand

o Threat of competition reducing their prices, nullifying the company's potential competitive advantage.

Recommendations

After conducting a thorough analysis of the decision alternatives, Augustine Medical, Inc. should choose the second decision alternative. A penetration pricing strategy will lead to large sales volumes and market share and eventually lower the cost per unit. This is important for Augustine Medical, Inc. because they are introducing a new product to the market and based on the company's research price sensitivity is a major concern of most prospective buyers. Pricing the Bair Hugger below the market price will make the product more attractive to buyers and will also increase the trial usage of the product. Buyers may be resistant to testing the product if they have no intention in purchasing the product. Augustine Medical, Inc. through research discovered that hospitals with fewer than seven beds would not be highly receptive to the Bair Hugger Patient Warming System, forcing the company to only target larger hospitals with more beds. Using a penetration strategy will give Augustine Medical the

ability to target both large and small hospitals because of the affordability of their product offering. Currently direct competitors such as Climator are a major threat because of the similarities of their products to the Bair Hugger. Pricing our product below their price of $4000 will make our product more attractive upon entering the market. Another recommendation would be to sell the heater/blower unit separately and the blanket to be sold as a complimentary product. The penetration pricing strategy will attract sales selling these products separately because the main product (heater/blower unit) will be sold at a discount and the complimentary product will be marked up. The blanket can only be used with the heater/blower unit so buyers will be forced to purchase the blanket at a marked up price.

Implementation

Augustine Medical, Inc. should decide on the price of their product then make all the information available to hospitals and distributor organizations. The company should then attend as many medical trade shows as possible to increase the visibility of their product by providing demonstrations to prospective buyers. To obtain first mover advantage it is important that Augustine Medical, Inc. puts together a sales force to prospect and qualify potential buyers. The sales force should proceed by using direct selling tactics as well as guerilla marketing tactics to effectively penetrate the market. Because the Bair Hugger will be priced lower than our direct competitor's products it is important that Augustine Medical, Inc. stays focused on it objective to increase sales volume and capture large portion of the market share in the early stages. Building a portfolio of current buyers, and potential buyers will secure the company's profitability in the long run because of brand loyalty and brand recognition. The implementation process should be completed within a 3-4 month period.

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