Case Studies:
PRODUCT UPGRADE LAUNCH STRATEGY

Background

The client Company held a number two position in a medical devices category. It was about to launch a product upgrade, but clinical results on the proposed new product revealed that it would still lag the market leader. The product replacement that would meet or beat the competitor’s product specs was still in the R&D pipeline and at least two years away from launch.

Three core strategies emerged that had to be evaluated against a base case of doing nothing. These included:

  1. 1. Launch as a replacement with same use schedule and remove old product from market
  2. 2. Keep the old product on the market till the new replacement product is launched in two years, and launch the upgrade with the new use schedule at the new price point
  3. 3. Launch the upgrade with the proposed new use schedule and price, and remove the old product from the market.

    4. Some of the complexities that had to be considered were: Rate of capturing new patients Rate of drop-out Probability of success of new product launching in two years Practitioner support in prescribing product Impact on supply chain by changing package labeling Increased SKU’s as a result of not removing the old product from market Impact to manufacturing capacity Additional carrying cost of dual inventories Price points that the consumer would be willing to accept, given the product would still not beat the market leader, even though it is in a different “segment” Impact on product cost of the various strategies


    Approach

    The marketing team conducted market research on the proposed strategies among a sample of practitioners. Questions were developed to help quantify things such as: Overall preference for a strategy Thoughts about the rate of prescriptions for the new product Patient drop-out rates Pricing

    Using the findings from the market research and other estimates and projections from R&D and supply chain, Artiya International LLC developed a comprehensive financial model to understand the value added to the business from each strategy under consideration. In the financial modeling process, we: Developed a volumetric model for each strategy being considered Converted volumetric forecast to sales projections based on various price points Prepared profit and loss statements for each launch strategies Built a capital expansion model and using volumetric forecast, determined future capital requirements and timing of investments, given lead times Calculated working capital requirements Calculated free cash flow and valuation Measured the value-add of each strategy against a base case scenario


    Result

    Two strategies yielded similar results. Assumptions were challenged and pressure tested and sensitivities calculated. The finance model was key to articulating the chosen strategy and together with marketing, legal and supply chain considerations, the Board approved the strategy of changing the use schedule that would enable a price increase and hold market share at acceptable levels till the new product is launched in two years.