Aasim Abbas

MBA 1
09753

QMDM ASSIGNMENT # 1
Question # 1: Question 1: How does Metabical compare to other weight-loss options? There
are three methods possible for estimating total demand of Metabical during the first five
years of its launch. Describe any two of them. What is your estimate for the demand
forecast? Show calculations, if any, involved in your demand estimation.

Weight loss options range from prescription drugs to over-the counter remedies to various diet
and exercise plans. In this case, only one drug was approved by FDA which was Alli. While Alli
and other such drugs targeted people with BMI 30 and BMI 40, Metabical targeted people
with BMI between 25 and 30. These people had weight-loss goals of approximately 10-30
pounds. The herbal remedies were not approved by the FDA, while the diet and exercise plans
were too costly. The negative side effects of Metabical were particularly less than the other
prescription drugs on offer, making it the safest of the weight-loss options.
To estimate demand of Metabical for the first 5 years, one option is to arrive at the total number
of individuals who would eventually use the drug. Total adult population of US was 209 million
in 2000. The people who fell in the required BMI were 34% of 209 million which equals to
71.06 million. Narrowing it down to those who are trying to lose weight, 35% of 71.06 million,
we get 24.87 million people. Further narrowing it down to 15% who were comfortable with
weight-loss drugs, we get 3.73 million people. This is the market potential of the drug. Printup
was confident that Metabical would likely capture 10% of that population in the first year, and
increasing by 5% every year, up to 30% in the fifth year.
Another option is to address the consumer interest in a prescription weight-loss drug for the
overweight. We would look at the % of people who would go to their health care provider to
request a prescription; this % is derived by conducting a survey of a representative sample of the
population. In this case, 12% said they would go to their healthcare provider, providing us with a
market potential of 8.52 million people (209 x 34% x 12%). Again, Metabical would likely
capture 10% of that population in the first year, and increasing by 5% every year, up to 30% in
the fifth year.
To calculate demand estimate, I will take into account the educational level of the people as well
as their income levels. The lower the education and income levels they have, they are more likely
they are obese (Exhibit 1). If we take the 2001 income and educational numbers of the people
and multiply them with the 2000 population numbers, we can get a rough market potential (209
million people x 34% who have BMI in the range x 32.5% who have low income levels x 27.4%
less educated people) we would get 6.32 million people. We can assume again that we can
capture 10% these people, we get 0.63 million potential customers.
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While calculating the demand forecast for the next five years, we will also need to account for
the Net Present Values of the future cashflows that will generate, and we will need a discount
rate to calculate the NPVs of the future cashflows.

There could be more than two ways of coming up with a suitable launch Price for
Metabical. Describe any two of such strategies. Calculate the Price you may come up
with using each of these two strategies. Show all working steps in your calculation.

Two pricing strategies can be considered as a suitable launch price for Metabical:
The first strategy will be to price Metabical at a premium to its closest competitor Alli. While
Alli is priced at $190 for three months supply, Metabical will be priced at $225 ($75x3 months).
The spread of $35 is the premium that the customers will have to pay for Metabical, which has
lower negative side effects and is an FDA Approved drug. But the premium is very low for such
a product which can bring a revolution in the drug industry. Metabical is a drug which needs to
be taken only once per day as opposed to Alli which needs to be taken 3 times a day and we will
need to account for that as well when we formulate our pricing strategies. Result of pricing
Metabical at low premium will be that the margins that CSP will draw will be lesser than thoses
if Metabical is priced at a higher premium (50% as opposed to 70-75%)
The second strategy could be to price Metabical @ $150 for a 4 week supply or $450 for a three
month supply. This would include not only the premium but also ensure that the R&D, marketing
and other fixed overheads are also amortized over a five year period but setting the price at this
level would be risky as indicated in the study that general overweight market thought that this
price was above what they were willing to pay. If CSP succeeds in setting this price, it will give
them the highest gross margin of 75%.

Choose one of the two pricing strategies you described in question 2 above and
calculate the profitability of the product over the next five-year window. What is the
ROI in your chosen price strategy? What packaging option have you chosen under this
strategy and what are some of the advantages in keeping this packaging option?

If we select $150 price for Metabical:

Total treatment duration: 12 weeks (3 months/84 days or 84 pills)
Estimated retail price: $5/pill
Expected sales for 5 years (assuming the first demand forecast): 3.73 million is the markets
potential:
Year 1
(3.73 million x 10%) 0.373 million x (1),(2),(3)*
$167.4 million
Year 2
(3.73 million x 15%) 0.559 million x (1),(2),(3)
$251.1 million
Assignment # 2

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Marketing Management

Year 3
Year 4
Year 5

(3.73 million x 20%) 0.746 million x (1),(2),(3)

(3.73 million x 25%) 0.932 million x (1),(2),(3)
(3.73 million x 30%) 1.119 million x (1),(2),(3)

$334.8 million
$418.5 million
$502.2 million

*Is the number of repeat purchases that the target population purchases
We can also take out the NPVs of these expected future cash flows assuming a discount rate of
10%:
Year 1
($167.4 x 0.909)
$152.1 million
Year 2
($251.1 x 0.826)
$207.4 million
Year 3
($334.8 x 0.751)
$251.4 million
Year 4
($418.5 x 0.683)
$285.8 million
Year 5
($502.2 x 0.621)
$311.8 million
NPV for 5 years
$1208.7 million
R& D costs
Annual F.C
Overheads
Total Investment
Return on Investment

$400 million
$1.2 million
$23 million
$424.2 millions
$424.2 * 100 = 35%
$1208.7

The packaging style recommended according to this price is blister packaging that holds a supply
for a month (4 weeks). The package would include 28 pills. It will be easier for the customer to
buy individual monthly supply keeping the buying budget of the customer in mind and it will be
easier for them to keep track of their daily dose. This will also enable the customers to monitor
their weight loss, so that they can decide if they want to repeat the purchase.
The ROI on this strategy will be very high against the target but this will ensure that even if
customers do not repurchase Metabical, the company would have already achieved its target.

Assignment # 2

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