Marketing Research & Planning

Report : Metabical - Pricing & Demand

Forecasting Strategy

Date​: Saturday, 28th November, 2020

Submission by MBA (Core) 2020-2022- Division G - Group - 4

Poorva Mangal G018

Karan Tulsian G025

Nishtha Negi G040

Vivek Rai G056

Sudeep Bhaskar G063

Harshil Shah G066

Introduction:

In April 2008, a Cambridge based Pharmaceutical company - Cambridge Sciences

Pharmaceuticals (CSP) ​was about to ​receive an FDA approval ​for a first-of-its-kind weight loss
prescription drug that ​catered to the needs of the population segment with moderate weight-loss
goals​. It took nearly 10 years of testing and cost CSP about ​$400 Million in costs to reach this
milestone, the reason this drug was so revolutionary in its promise was that it ​was free of most
critical side effects that were predominant in most conventional weight-loss medication. The
existing weight reduction mechanisms included the use of either ​appetite suppressants which
exposed its users to risks like hypertension, heart palpitations, etc and second being
fat-absorbing blockers which itself wasn’t free of side effects, some being as critical as liver
damage, kidney stones,etc. ​Due to the serious side effects associated with both types of drugs,
these were often prescribed to the obese​ (BMI>30)

The way Metabical worked was that it provided a ​dual-layerer, controlled-drug delivery. The
first layer acted like an appetite suppressant ​- calosera, while the ​second layer consisted of a fat
blocker coupled with a calorie absorption agent​, meditonan. The main negative side effects
associated with Metabical were ​experienced when users consumed high levels of fat and
calories​.
CSP is known for its stronghold in ​manufacturing drugs that cater to gastrointestinal diseases,
metabolic disorders, immune deficiencies​, as well as a few other chronic/acute conditions.
Metabicals success was very crucial to CSP’s ​strategic initiative to enter a $3.74 billion U.S
market for weight-control products ​where it’s current targeted customer segment is relatively
untapped by any other alternative offering.  

Problem Statement:
The senior director of Marketing for CSP - Barbara Printup was tasked with the responsibility to
design a marketing strategy for Metabical. In order to finalize the launch plan she has to come up
with an ​optimal pricing and forecast strategy that would help Metabical realize its true potential
in terms of ROI.
 
Pricing Options:  
In order to formulate a pricing strategy for Metabical, CSP had to decide on a benchmark that
would set base prices. It decided to benchmark Alli – The non-prescription form of Orlistat –
closest to resemble Metabical​.

● The first model’s pricing was designed as such to use Alli as a benchmark
and set Metabical’s price at a premium to it. This would bode well for
consumers as Metabical had far fewer side effects and had an FDA approval
to show for it.
​Retail price - $75 after adding a premium for a 4-week supply.
 ● The second model was based on close comparison with some of its other
successful drug margins. The average CSP gross margin for a new
prescription drug was approx. 70%.
Retail price - $125.00 for a 4-week supply.

● The third pricing model concentrated on its value to customers on

successfully completing the program.
CSP’s Outcomes Research Group determined that overweight individuals
spent roughly $450 out-of-pocket more each year on health care versus a low
BMI individual.
​Retail price - $150 retail price for a 4-week supply.
 

Choice of pricing:
Based on the data available, we have considered the ​ROI as our primary metric in deciding the
ideal demand forecasting and pricing combination strategy​. There are 2 major reasons for the
same:
1. A minimum of 5% ROI was a necessary constraint attached to the project as per
the CMO
2. ROI gives a useful and easy-to-comprehend picture of the long-term
effectiveness of a campaign or project, especially when irregular investment
cycles are involved

Using the predicted costs, revenues and growth metrics we created a ​revenue and profit forecast
for the next 5 years for all 9 possibilities​. The output of these calculations in the form of revenue
(in crores) and ROI % has been given below:
 PRICING

Gross Profits (in crores) Retail Price -1 ($75) Retail Price -2 ($125) Retail Price -3 ($150)

Case 1 - 30.99 -7.45 4.32

Demand Case 2 -8.47 45.32 72.23

Forecasts
Case 3 -11.81 37.49 62.12

PRICING

ROI (%) Retail Price -1 ($75) Retail Price -2 ($125) Retail Price -3 ($150)

Case 1 -63.9 -15.4 8.9

Demand Case 2 -17.5 93.5 148.9

Forecasts
Case 3 -24.4 77.3 128.1
We see that the ​second forecasting model and the third pricing option seem to be the best
independent performers,​ with their intersection yielding a whooping ​122% ROI, far beyond the
5% bottomline imposed on the project​. However, the third pricing method runs into two major
obstacles:

1) It can be seen as ​unethical to price products at such high margins​, especially in industries
like healthcare where demand outstrips supply and the consumer is susceptible to
decisions made on lack of knowledge

2) Especially for a first mover in a new market, while such a method would yield high
rewards especially at the initial stage, ​it could cut away some of the demand and market
penetration due to the cost barrier.​ This would also open up the market for competitors
who could undercut prices

Thus,​ considering a high ROI whilst also trying to remain in range of industry average to better
manage the competition,demand forecasting technique 2 combined with the second pricing
model with a synergised ROI of 93%​ stands as the most optimal way ahead for CSP and
Metabical