MGMT 650B: Consulting Skills for ManagersDiagCor Self-collection HPV Test Marketing Plan

October 2009

STRICTLY CONFIDENTIAL

Team EYuun Lam (09903803)Richard Ma (08935005)Victor Tsang (08936073)Chris Tsui (08936542)Elizabeth Siu (08935615)

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Storyline

• DiagCor has developed a new Self-Collection HPV Test for the detection of human papillomaviruses (HPV) in women, which is the main cause of cervical cancer. DiagCor would like to expand the market for the test in Hong Kong.

• The self-collection diagnostic service model is new to Hong Kong, and DiagCor has limited resources in expanding the market for the newly developed Self-Collection HPV Test.

Situation

Challenges

• How can DiagCor achieve a sales of HK$ 1M in one year for the Self-Collection HPV Test with a limited budget of HK$ 100K?

Question

• To license the Self-Collection HPV Test technology to FMCG companies such that testing kits will be bundled with female sanitary products offered by the FMCG companies and sold to customers via supermarkets and pharmacies.

Answer

Rationale2. DiagCor can generate at

least $1M revenue in one year by partnering with FMCG companies with mutual benefits

3. DiagCor has much lower costs and risk by partnering with FMCG companies than sticking to in-house marketing program.

2.1 The number of customers that FMCG companies can reach allows DiagCor to generate $1M revenue from HPV tests

2.2 The Doctor + TV Ad campaign usually adopted by FMCG companies can effectively convince potential test takers

2.3 The partnership creates value for FMCG companies so the win-win situation can be sustainable

3.1 DiagCor can leverage FMCG companies’ effective marketing channels that costs more than HK$100k, and that DiagCor cannot afford on its own

3.2 Product cost of DiagCor HPV Test is a lot lower with FMCG companies as partner

3.3 Human resource cost of DiagCor is minimized with FMCG companies as partner

1. DiagCor cannot effectively achieve its goal with In-house marketing resources and partnerships with other organizations

1.1 DiagCor does not have enough in-house budget to carry out new product marketing

1.2 DiagCor’s corporate strategy does not support marketing a consumer brand.

1.3 Forming partnerships with other organizations is not feasible at the moment.

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Recommendations

• Set at $450/Test

• Testing Kits are bundled with female sanitary products offered by FMCG companies, such as sanitary napkins. Each Testing Kit includes a sample collection bag, test instructions, and a return mail envelop. Customers will send in samples and payments via mail. Test results would then be mailed back to customers

Price*

Product

• Joint-promotions with FMCG companies, and a portion of marketing budget supported by DiagCorPromotion

• Testing Kits to be sold together with female sanitary products at supermarkets and pharmacy chains that the partnering FMCG companies have already established relationship with.

Place

• Profit will be shared by DiagCor and FMCG partners on a 50-50 basisProfit Model

• To dedicate an in-house marketing manager to implement the project. If not, appoint an agent of testing services to implement the project on a profit sharing basis.

Implementation

* The retail price is set according to the results of Online Customer Survey October 2009

Other details please refer to Appendix

Expected Results

Profit and Loss Analysis – Proposed Marketing Plan

Sales* ** 1,228,050

Cost of Goods Sold 238,250

Gross Profit 989,800

Expense

Marketing 100,000

Operating 220,000

Total Expense 320,000

Operating Profit 669,800

Profit Sharing to FMCG Companies (50%) 334,900

Net Profit to DiagCor 334,900

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*Number of Test Sold = 2729 (est.)

= Potential Customer Reached x Marketing Efficiency x Response Rate x Penetration

**Price of Test = HKD450 (from Online Customer Survey, Oct 2009)

For detailed costing information, please refer to Appendix

DiagCor can achieve a revenue of over HK$ 1MM with profit

Includes the cost of sample collection, examination, and result notification

Includes producing 50,000 testing kits for bundling

Includes cost of test administrator, website revamp and overhead

50% profit sharing to FMCG companies

Why Take This Project Seriously?

1.Prevent the lost of first-mover advantage

2.Realize the potential return of this service immediately

3.Ride on the recent marketing campaigns run by HPV vaccine providers

4.If the self-collection diagnostic service model becomes a success – DiagCor could replicate this success model to other current diagnostic products

Rationale #1 In-house Marketing and other Partnerships not working

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1.DiagCor does not have enough in-house marketing resources to carry out new product marketing effectively

2.DiagCor’s corporate strategy does not support marketing a consumer brand.

3.Forming partnerships with other organizations is not feasible at the moment.

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Rationale #1.1 Not Enough In-house Marketing Resources

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No. Of Consumer Products Marketing budget

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~HKD8,000,000

~HKD300,000

“Marketing Resource/Product” Ratio of DiagCor is only 37.5% that of FMCG companies (eg. J & J)

DiagCor has very limited marketing resources to market new product/service as compared to FMCG companies (eg. J & J)

*Data Source: Interviews with DiagCor and Partners, October 2009

Rationale #1.1 Not enough in-house Marketing/Sales Personnel

DiagCor Resources Hours

Marketing staff 2,300

Sales staff 4,600

Committed hours – staff running @ 95% capacity

(6,555)

Available hours 345

Estimated Staff Requirements

Marketing staff 1,600

Sales staff 4,600

Total 6,200

Staffing Deficit (5,855)

*DiagCor has indicated no additional funding for internal resources is available for commitment for the HPV testing projectData Source: interview with DiagCor, October 2009.

Rationale #1.2 Corporate Strategy does not support marketing

Quoted from an interview with Diagcor’s COO, Billy Chan, September 29, 2009

“Our goal is to become a leading biotechnology company providing diagnostic products and service in the Asia-Pac region. To become a technology leader, we invest more than 20% of our resources in R&D and we have 5 PhD in the research team.”

“Previously, we didn’t have much resource to invest in marketing and I’m responsible for marketing myself. This year, we employ a marketing staff to handle the marketing stuff. Now, I plan to allocate 10% of budget to marketing. Since we want to sell our CE-marked in vitro diagnostic kits, most of the marketing budgets would be allocated to big events like Medica, Eurogin and other medical conferences where we can meet up with distributors.”

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The agenda of DiagCor leads to limited marketing activities and resources in marketing diagnostic services in Hong Kong. It would not be effective if marketing is done in-house.

Data Source: interview with DiagCor, October 2009.

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Rationale #1.3 Potential Partnerships

FMCG companies are the most suitable partners

Value propositionInterests in partnership with DiagCor

Potential customers generation

Assessment

• Moderate • Willing to explore more

• LowStaff clubs

• High • Yes • Very highFCMG Company

• High • No response • HighGovernment

• Limited • No response • ModerateInsurance company

• Moderate • No • LowMedical website

• Moderate • No response • HighRetail Stores

• Limited • Willing to explore more

• LowUniversities/ School

Data Source: Interviews with partners, October 2009.

Rationale #2 Partnering can help DiagCor achieve Sales Goal

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1.The number of customers that FMCG companies can reach allows DiagCor to generate $1M revenue from HPV tests

2.The Doctor + TV Ad campaign usually adopted by FMCG companies can effectively convince potential test takers

3.The partnership creates values for FMCG companies so that the win-win situation can be sustainable

2.1 DiagCor can reach over 1 Million Customers via Partnership

Department of Health recommends every women who have ever had sexual experiences from 25 to 64 should screen for cervical cancer routinely (every 1 to 3 years).2

Women of age 12-55 routinely purchase feminine sanitary products from FMCG companies.23

Data Sources:• Demographic data from census and statistics department.• Cervical cancer screening program, department of health website• NIH Medline information about female menstrual cycle. Indian consumption study data (HLFPPT).• US statistics showed that each woman consumes 300 pcs of napkins / year. The most common SKU = 10 pcs. Total

number of essential sanitary product consumption is 72,508,800. • Sales ratio for napkin and tampons is based on the annual sales data of one local retail store.

2,416,960

2,321,000

1,875,0001,875,000

97.20%597.20%5

Essential Sanitary Products

1,822,500

FMCG companies distribution channel cover > 80% of potential HPV test takers and sanitary napkins allowing DiagCor to reach out to 1,822,500 women.

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P&G, 34.70%

J&J, 29.45%

Kimberly Clark, 23.20%

Others, 12.65%

2.1 Expected Sales by Partnering with FMCG Companies

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Partnership with FMCG Companies, e.g. J&J, allows DiagCor to reach enough potential customers to generate $1.23M of revenue on self-collection HPV test

Data Sources:• Market share is based on the annual sales data of one local retail store.• % of interested respondent is based on survey data (N=50).• Marketing efficiency is based on the past performance of similar-size marketing campaign (interview of FMCG product

manager).

1,822,500 x 29.95%1 x 50%2 x 1%3 = 2,729(Hong Kong Population) (J&J market share) (% of Interested Respondent) (Marketing Efficiency) ( Number of Tests)

Take J&J as an example:

Assume Sales Growth by 0.5% due to

bundle sales with HPV test

$1.23M@$450

Hong Kong Sanitary Napkin Market Share Distribution, 2009

2.2 Channels affecting Customer Perception

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*Medical Journals are powerful, but general public do NOT read them often;

*Government would not help advertising a commodity;

*News report is not as far reaching as TV/Radio

Data Source: Online Customer Survey, Oct2009 (N=50)

“Doctor + TV Ad” combo - an important means in convincing women to use self-HPV testing.

2.3 Value Realized by FMCG Companies

Presented Value Propositions

1 Project a caring image and increase customer satisfaction

2 Differentiate from competitors, promote conversion

3 Benefit from the margin cut

4 Fit with brand equity (healthcare for J&J, innovation for P&G, etc)

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Feedbacks from Interviews

FMCG Companies

•Very interesting idea •Fits with our corporate values•Possibility to differentiate products from competitors•Need to further explore product/partnership opportunity.

FMCG companies see values in partnering with DiagCor, so are willing to work together

Data Sources: Interviews with partners, October 2009.

2.3 Benefits of the Partnership to FMCG Companies

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FMCG companies can enjoy 50% of the project’s profit plus a potential increase of 0.5% market share via the marketing effort. So the partnership is sustainable

Proposed P & L (DiagCor)

Sales 1,228,050

Cost of Goods Sold 238,250

Gross Profit 989,800

Expense

Marketing 100,000

Operating 220,000

Total Expense 320,000

Operating Profit 669,800

Profit Sharing to FMCG Copanies (50%)

334,900

Net Profit to DiagCor 334,900

+

Details please refer to Appendix

Potential Increase in Sales (FMCG Company)

= 70,478,554 x 0.5% x $14.2

(market size) (market share increase) (unit price)

= HK$ 5,003,977

Data Sources: Interview with partners, October 2009SKU size = 10pcs, average SKU price = $14.2

Annual Sales

Rationale #3 Partnering can lower DiagCor’s Costs and Risks

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1.DiagCor can leverage FMCG companies’ effective marketing channels that costs more than HK$100k, and that DiagCor cannot afford on its own

2.Product cost of DiagCor HPV Test is a lot lower with FMCG companies as partner

3.Human resource costs of DiagCor is minimized with FMCG companies as partner

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Effective marketing channels exceeds DiagCor’s Marketing Budget of HK$100k

Data Sources: Effectiveness of different marketing channels are based on the interview with the product manager of a FMCG company. Costs are obtained from rate cards offered by the companies.

3.1 Marketing Costs

60

65

5

80

120

900

331

280

1,440

4,895

0 1,000 2,000 3,000 4,000 5,000 6,000

Search Engine (Yahoo, Google)

Direct Mail (50,000)

News Report

Featured Articles (4 articles)

Ladies' Magazine (8 weeks)

Newspaper Ad (2 papers, 1/2p, 21d, CYMK)

MTR Trackside PosterAds (High Impact Plan)

MTR PosterAds 4-Sheet Network (Frequency Plan)

Road Show (5s, 1000 bus, 100 spots)

TV Ad (TVB, 50 spots, J5/F7/10s plan)

Marketing Expense Thousands

Effectiveness of the Marketing Channel in Ascending Order*

Possible Marketing Options Comments

Diagcor Search engine Ad + Direct Mail + News Report (~$130,000)

These channels have been adopted by Diagcor with limited success.

Partnership with FMCG

TV Ad + MTR 4-sheet network + Ladies’ Magazine + Search Engine Ad + Featured Articles (~$5,435,000)

By experience, these marketing channels can create impact. Only FMCG companies with the existing marketing budget allocated to promotion of sanitary napkins can afford this marketing expense.

Online sales only

Box-sets sold in retail chains

Box-sets sold by vending machines

Box-sets distributed in clinics

Coupons on sanitary napkins

Coupons on sanitary napkins with collection bags

N/A 3,000 3,000 10,000 500,000 500,000

Website Revamp Fee$35,000

Design Cost(Box)$15,000

Design Cost(Box)$15,000

Design Cost(Box)2

$15,000

Design Cost(Coupon)$10,000

Design Cost (Coupon)$10,000

Production Fee$9,000

Production Fee$9,000

Production Fee$20,000

Printing Fee$30,000

Printing Fee$30,000

Sanitary Napkin$3,000

Sanitary Napkin$3,000

Consignment Fee (100) 200,000

Collection Bag$25,000

Consignment Payment (25 shops)$350,000

Vending Machine Lease (30)$150,000

Logistics Cost$72,000

Logistics Cost$50,000

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Forming partnership reduces the up-front product and distribution costs.

3.2 Product and Distribution costs

Estimated Inventory

Data Source: Cost data from quoting of design houses, vending machine lease company, a retail chain, and clinic. Logistics data is calculated by the salary of one more staff & transport fee.

Partnership

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3.3 Human Resource Cost is lowered by Partnering

DiagCor's HR Cost with or without Partners

0

100,000

200,000

300,000

400,000

500,000

600,000

HR Costs with Partners HR Costs without Partners

HKD

Data Sources: Interviews with DiagCor and partners, October 2009.

Personnel Required with Partners

Qty Annual Salary

(HKD)

Total (HKD)

Test Administrator 1 120,000 120,000

Total 120,000

Personnel Required without Partners

Qty Annual Salary

(HKD)

Total (HKD)

Test Administrator 1 120,000 120,000

Marketing Personnel 0.5 300,000 150,000

Sales Personnel 2 120,000 240,000

Total 510,000

Forming partnership reduces DiagCor’s HR costs by 76.5%

Appendix

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Over 90% of High Value Customers would pay $401-600 for take-home HPV test

Customer Preference: Price

* Study based on Online Customer Survey, Oct2009 (N=50)

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Age 26-33 women strongly prefer buying the test kit from pharmacies

Customer preference: Distribution (1/2)

* Study based on Online Customer Survey, Oct2009 (N=50)

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Customer preference: Distribution (2/2)

Age 26-33 women strongly prefer buying the test kit from pharmacies

* Study based on Online Customer Survey, Oct2009 (N=50)

Poster/Pamphlets are among the most preferred marketing channels

Customer preference: Promotion

* Study based on Online Customer Survey, Oct2009 (N=50)

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Sample Customer Case

Age : 26-33, AccountantConduct body check-up on regular basis

Feel embarrassed going to clinic for HPV screeningWilling to pay equal price to run the test anonymously

Would like to get the testing kit from pharmaceutical stores

* Study based on Online Customer Survey, Oct2009 (N=50)

Costs and Expenses of Self-Collection HPV Test Project

Cost of Goods Sold

Items HKD Remarks

Test 90 Test taking fee

Mailing Charges 3.3 Bulk mail, to/from customers

Test Result Handling 2  

Total per unit cost 95.3  

Marketing Expense

Testing Kit Items HKD Remarks

Sanitary bag 0.4 2C printed sanitary bags at 50,000 pcs

Instructions 0.1 4C printed instructions @ 50,000 pcs

Return mail envelop 0.3 2C printed envelops @ 50,000 pcs

Wrap 0.2 4C printed PVC bags @ 50,000 pcs

Packaging Cost 1 Including testing kit packaging and bundling, @ 50,000 pcs

Total per unit cost 2  

Operating Expense

Items HKD Remarks

Salary of Test Administrator 120000 HKD10000/month, including benefits

Website Revamp 50000 Development and Maintenance of backend test tracking system

Overhead 50000 Transportation, etc

Total 220000  

* Study based on Interview with DiagCor, Oct2009, and market research

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Proposed Implementation Schedule

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

1. Signing of Partnership Contract

2. Promotion Campaign Design (Testing kit, message, etc)

3. Production of Testing Kits

4. 1st Quarter Promotion

5. Marketing Data Collection and Analysis

6. Campaign Review and Improvement

7. 2nd Quarter Promotion

8. 3nd Quarter Promotion

9. Campaign Review and Improvement

10. 4th Quarter Promotion

11. Campaign Review and Analysis

Year 2009/2010Activity

After the promotion campaign is designed, the bundled testing kit will be distributed to

Customers in 4 phases, each phase’s duration is 1 quarter