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

October 2009

STRICTLY CONFIDENTIAL

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Storyline

• DiagCor has developed a new Self-Collection HPV Test for the detection of HPV virus in women, which is believed to be 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.

Price* Set at $450/Test

Product 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

Promotion Joint-promotions with FMCG companies, and a portion of marketing

budget supported by DiagCor

Place 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

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

Implementation 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.

Recommendations

3* 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)

Other details please refer to Appendix

DiagCor can reach 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

Urgencies of the Project

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.Prove that the self-collection diagnostic service model works in Hong Kong so that other tests can be offered via this service model

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.

200

Rationale #1.1 Not Enough In-house Marketing Resources

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No. Of Consumer Products Marketing budget

20

~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 project

Data obtained from interviews 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

“We are a technology company, and we spend most of our resources in the development of better products/services. We don’t need to do much marketing because we believe if our products/services are the best in the market, people will naturally come to buy from us.”

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The belief of DiagCor leads to limited marketing activities and resources. It would not be effective if marketing is done in-house.

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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 • No • LowStaff clubs

• High • Yes • Very highFCMG Company

• High • No response • HighGovernment

• Limited • No • ModerateInsurance company

• Moderate • No • LowMedical website

• Moderate • No response • HighRetail Stores

• Limited • Yes • LowUniversities/ School

Data obtained from 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

J&J23.2%

P&G35.7%

Kimberly Clark29.3%

Others11.8%

2.1 Expected Sales by Partnering with FMCG Companies

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Partnership with FMCG Companies, eg. J&J, allows DiagCor to reach enough potential customers to generate $1.36M of revenue on self-collection HPV test

1. Government population figure published at Jul 2009. 2. 65.17% calculated based on 2007 census data.

3. Market share data obtained from interview with major retail stores.

4. 25 out of 50 respondents (50%) showed interest in performing the self-HPV test.

5. Marketing efficiency based on interview of J&Js product manager.

7,008,300 1 x 65.17% x 23.7% x 50% x 0.5% = 2,729(Hong Kong Population) (% of eligible population) (J&J market share) (% of interested respondent) (marketing efficiency) ( Potential Tests)

Census 2007Expected Market Share to be increased by 0.5%

$1.23M@$500 / test

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

Preferences are based on 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 obtained from 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

Sales 1,250,000

Cost of Goods Sold 238,250

Gross Profit 1,011,750

Expense

Marketing 100,000

Operating 220,000

Total Expense 320,000

Operating Profit 691,750

Profit Sharing to FMCG Copanies (50%)

345,875

Net Profit to DiagCor 345,875

+

Details please refer to Appendix

Potential Increase in Sales

= 62,000,000 x 0.5% x $1

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

= HK$ 310,000

Data from Interview with FMCG Companies, October 2009

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

Costs are obtained from rate cards offered by the companies.

3.1 Marketing Costs in Hong Kong

4,895

4,126

331

300

280

175

160

65

60

0

1,00

0

2,00

0

3,00

0

4,00

0

5,00

0

6,00

0

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

Road Show (200 spots, 10s, 1000 bus)

MTR Trackside PosterAds (High Impact)

Newspaper Ad (2 papers, 1/2p, 7d, CYMK)

Pop Magazine (8 weeks)

MTR PosterAds 4-Sheet Network (Frequency)

Ladies' Magazine (8 weeks)

Direct Mail (50000)

Search Engine (Google, Yahoo)

Cost (k HKD)

Sole online advertisement without grass-root advertising method is poor in effect.

Customers’ perception on direct mail is poor.

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Package and Consultation Service costs are costly

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

Online Only Coupon on Napkins

Mini-Kit on Napkins

Test Kit with Napkin

Test Kit with Consultation

Service

Product Cost (per 1000 pcs)

In HK$

Product Forms

3.2 Product Cost is lowered by Partnering

Only feasible when partnering

with napkin manufacturer

Existing packaging

method with poor response

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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

HR Required with Partners QtyAnnual Salary

(HKD)Total

(HKD) HR Required without Partners QtyAnnual Salary

(HKD)Total

(HKD)Test Administrator 1 120000 120000 Test Administrator 1 120000 120000

Total 120000 Marketing Personnel 0.5 300000 150000Sales Personnel 2 120000 240000

Total 510000

Data obtained from interviews with DiagCor and partners, October 2009.

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 survey, Oct2009 (N=50)

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

Study based on a survey of over 50 women in Hong Kong in October 2009.

Customer preference: Distribution (1/2)

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Customer preference: Distribution (2/2)

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

Poster/Pamphets are among the most preferred marketing channels

Customer preference: Promotion

Study based on a survey of over 50 women in Hong Kong in October 2009.

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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 a survey of over 50 women in Hong Kong in October 2009.

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 handler 120000 HKD10000/month, including benefits

Website Revamp 50000 Development and Maintenance of backend test tracking system

Overhead 50000 Transportation, etc

Total 220000  

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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