My recommendation to Marvin Koslow is to follow the first attack of pricing Datril at par with Tylenol ( $ 2. 85 retail monetary value. $ 1. 69 trade cost ) . leveraging Bristol-Myers’ trade name name. and positioning Datril as an analgetic with similar alleviation effects to the those of the already successful. aspirin-based Bufferin and Excedin. but more gentle on the tummy. and without the side effects of acetylsalicylic acid. By making so. Datril will chiefly aim aspirin users. specifically those from Bufferin’s and Excedin’s current consumer base. who suffer from disquieted tummy. I explain my principle below. Harmonizing to the instance. when Datril was introduced to prove markets per the scheme I recommended. it failed to accomplish the jutting gross revenues figures within the first month. Although I have no entree to those gross revenues projections. I could reason that the may hold been overoptimistic. The ground is that Tylenol was good established ( 8 % market portion ) in the analgetic market which has traditionally been dominated by aspirin-based merchandises. Therefore. straight viing against Tylenol at the same monetary value is improbable to ensue in speedy market portion and pecuniary additions within a month.
Koslow should hold allowed more clip. state a medium tally of 6 months to fit continuance of the selling disbursals to be committed. before believing about exchanging to the other scheme. In add-on. it can besides be argued that the early success of Datril in the trial market with the lower merchandising monetary value may non be representative of its true public presentation over the medium to long tally. Before supporting my recommendation in item. I would wish to foreground the most outstanding hazard of presenting Datril as a cheaper option to Tylenol: non accounting for the competitor’s repositioning or defensive selling schemes. Those could include the undermentioned: o One of the quickest responses that McNeil Labs could come up with is to cut down the monetary value to merchandise. and later the merchandising monetary value. of Tylenol to fit that of Datril. Doing so could ensue is public accusals of false advertisement. thereby change by reversaling the speedy additions that Datril could do. and potentially blowing the $ 6 million on inaccurate communicating of information to the populace. which could potentially ensue in insulted. angry and disgruntled clients due the feeling that they have been deceived.
Bristol-Myers will hold to incur the cost of drawing all current advertizements. and an extra cost of holding to establish another advertisement run. o McNeil could besides react by altering its presently conservative advertisement attack ( i. e. concentrating on doctors and trade ) by sharply publicizing Tylenol to the populace. working the fact that its current advertisement outgo is less than $ 2 million a twelvemonth and perchance even using the power and expertness of the female parent company. Johnson & A ; Johnson. This could potentially solidify the gross revenues and market portion of Tylenol. doing it an even tougher competition to Datril. Given Tylenol’s market portion. the velocity of put to deathing either one of the above schemes. or both together. could to a great extent minimise Datril’s incursion of the market. Furthermore. per Exhibit A. Datril will necessitate to sell 13. 3 million bottles ( at a trade cost of $ 1. 05 ) or 60 million ( at a trade cost of 70 cents ) merely to break-even.
This is extremely inefficient. in footings of both Numberss contribution border. compared to Tylenol. Furthermore. given the existent measures of Tylenol sold in 1974 ( around 19. 1 million bottles per Exhibit B ) . Datril’s accomplishment of break-even measures seems even more dubious. given the hazards highlighted above. Quality can non be a distinction because both merchandises are virtually indistinguishable as hurting stand-ins ; hence the best scheme is to unite the well-established repute of Bristol-Myers. the well-known effectivity of Bufferin and Excedin. with the value or distinction being the gradualness of the merchandise on disquieted tummy.
Furthermore. Bristol-Myers possesses a big consumer base for its aspirin-based merchandises. a base that is larger than that of McNeil Labs’ Tylenol users. This is Bristol-Myers’ chief competitory advantage ; its ain consumers who may endure from the typical side effects of acetylsalicylic acid. Targeting those specific clients and pass oning to them the value of eliminated side effects should be Datril’s positioning and distinguishing scheme. Cannibalization from Bufferin and Excedin. should it go on. should non needfully be viewed negatively. since my recommended merchandising monetary value of $ 2. 85 is dual that of these aspirin merchandises.
Exhibit A – Break-Even Analysis for Tylenol and the different pricing scenarios for Datril ( per bottle of 100 pills ) Breakeven Analysis for Product Tylenol Approach 1 – Same monetary value as Tylenol Approach 2a – Cheaper than Tylenol Approach 2b – Cheaper w/lowered trade cost $ $ $ $ Unit Cost ( Variable Cost ) 0. 60 0. 60 0. 60 0. 60 Trade Cost ( Selling Price to Retailers ) $ 1. 69 $ 1. 69 $ 1. 05 $ 0. 70 Fixed Cost ( Advertising ) 2. 000. 000 6. 000. 000
6. 000. 000 6. 000. 000 Break-Even Quantity [ Fixed Cost/ ( Trade Cost-Unit Cost ) ] 1. 834. 862 5. 504. 587 13. 333. 333 60. 000. 000 Contribution Margin ( Unit ) 64 % 64 % 43 % 14 %