Business Studies Augustine Medical Inc.; the Bair Hugger Case Study

Augustine Medical Inc., have developed the Bair Hugger patient warming system. Designed to be used in post operative situations prevent or treat post-operative hyperthermia, the product offers a number of advantages over the existing systems. However, introducing a new product into the medical markets can be a challenge, as there are constraints which may hinder market entry and the gaining of market share.

There are already a number of products on the market which are designed to perform the same task, preventing or treating post-operative hypothermia. Many of these are tried and tested, and trusted by the hospitals. Some of the cheaper options include use of blankets which are warmed by the staff to be placed on the patient, water circulating blankets, thermal drapes and the use of infrared heating lamps. As these are established they may be seen as providing competition. In order for the Bair Hugger to be purchased a hospitals must see the potential benefit over their existing approaches. This is a problem faced by all new products on the market where there is existing competition satisfying the same need, even if it is in a different way.

In the hospital market there are the additional barriers, there is a conservative approach to the purchase of new equipment, as the case states, no one wants to buy a "pig in a poke." Cost controls and financial management is also a significant influence on the purchase of new equipment, with any items over $1,500 often requiring a formal review decision making process. Furthermore, one of the most common existing assessment strategies has a very low perceived cost, the laundering of blankets is at $.13 per pound, is absorbed into the hospital overhead rather than being itemized as a separate cost. These are all issues which may constrain the sale of the Bair Hugger. The research with the doctors and nurses may have indicated that the process of the Bair Hugger may have advantages over the existing processes, but there is a significant reluctance to make investments in new technology.

Furthermore,...

Rather than appealing to all hospitals that have post-operative debt, it has been assessed that out of the 7,098 hospitals in the country, the market only consists of 1,888; these are the hospitals where there are 7 or more post-operative beds.
Question 2

An important decision is the way in which product will be price. It is essential that it is priced in a manner that will make it attractive to hospitals, at the same time ensure that sufficient profit may be realized, after the fixed and variable costs have been covered. Examining the marketplace will help to guide two different pricing point. Each of these may be assessed before pricing decisions made. For each pricing strategy, price of the heater/blower unit and the price of the blankets may be considered.

The first pricing point is designed to make the product attractive, pricing the heater/blower unit at $1,400. The closest competitor for the Bair Hugger is another product which is not yet on the market; this is called The Climator, which could be brought onto the market at price of $4,000. The price of $1,400 may be seen as a very aggressive pricing strategy to undercut the potential of this product, to a degree that the company may decide is post-operative model may not be worth distributing in United States. Furthermore, the price of $1,400 is pitched at a level that may help ensure sales are made without the need for the formal review in decision-making processes that are associated with purchases in $1,500 or over.

With the purchase of the units there will also need to be the purchase of blankets. In order to make the purchase attractive, the blankets may be priced at $3 each. This is designed to make them competitive with the existing customer laundering blankets. It has been noted in the case study that an average of 6 to 8 preheated blankets, each weighing two pounds, will be used per application, with roughly 50% of patients requiring a second application. If 8 blankets weighing 16 pounds are used, and laundry costs are $.13 per pound, laundry costs for each set of blankets is $2.08.…