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Micoderm: A
Profitability Analysis
January 2016

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Outline

Company Overview

Product Overview

The SSRS

The Dilemma

Apparent Problem

Decision Options

SWOT Analysis

Proposed Solutions

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COMPANY OVERVIEW

Liderm, a manufacturer of cosmetic and

pharmaceutical products, was founded in 1974 in
Spain.

The company is Spains market leader in the field of

medication and cosmetic products for the treatment
and prevention of skin-related pathologies in 2010.

With presence in 10 countries, Liderm develops 3

categories of products: medications, OTC products and
cosmetics.

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PRODUCT OVERVIEW

Micoderm ointment is a product of the LIDERM

company, belonging to the medications category.

It is indicated for the treatment and prevention of

diaper dermatitis (rash), a disease affecting people who
use diapers babies and the elderly.

By 2010, it had achieved presence in almost all

pharmacies in Spain.

A well known, highly sold medication which could be

dispensed with or without a prescription.

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PRODUCT OVERVIEW

Micoderm had no viable alternative, yet it had the

lowest selling price of all its competitors. (Exh.1)

A treatment-only product sold for an average of #7.60

The lowest prevention-only product sold for #3.58

Micoderm, the only treatment and prevention product on

the list sold for #2.37, but had the highest sales volume.

THE SSRS

The Spanish Social Security Reimbursement System was

put in place by the Spanish government in 2010.

Its about having a comprehensive health coverage system

that offered free healthcare to all residents by giving them
medications with a 60 100% discount.

Only medications for treatment and not just prevention

were included in the scheme and subsidized by the
government.

Micoderm was the only product for the treatment and

prevention of diaper rash, that remained in the SSRS.

The Ministry of Health fixed and regulated the selling prices

of the products.

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THE DILEMMA
What should be done to secure the future (or
profitability) of Micoderm?

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APPARENT PROBLEM
The product was losing money in 2010 because its selling
price could not be increased; hence it had become
barely profitable to the company.
The Ministry of Health had frozen its selling price since
2000, and had refused to grant a request for price
increase due to a deep economic crisis in the country.

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DECISION OPTIONS

Should we
continue selling
at the current
low price or
accept our
losses?

Should we
leave the SSRS
so as to be able
to increase its
selling price?

Micoder
m

Should we
request a price
increase yet
again from the
SSRS?

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SWOT ANALYSIS ON MICODERM
STRENGTHS

High product loyalty by both doctors and consumers.

Product is more preferable because of its treatment

and prevention features.

High sales volume (due to its inclusion in the SSRS).

Well known and highly accepted by the market.

Good company and brand image.

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SWOT ANALYSIS ON MICODERM
STRENGTHS (CONTINUED)

Presence in almost all pharmacies in Spain.

Contributed to the success of the Liderm company.

Product can be dispensed with or without a medical

prescription.

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SWOT ANALYSIS ON MICODERM
WEAKNESSES

Low price meant selling at a loss.

Inclusion in the SSRS meant that selling price could not

be increased until the Ministry of health personnel
agree to it.

Lower sales revenue from its non-prescription-based

customers.

Major customers (elderly ones) are price sensitive.

Younger doctors have lesser knowledge of it when

compared to older ones.

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SWOT ANALYSIS ON MICODERM
OPPORTUNITIES

Increasing demand for the product with increasingly

aging population.

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SWOT ANALYSIS ON MICODERM
THREATS

Leaving the SSRS would cause a significant drop in

its sales volume (Exh. 3)

Drop in sales would affect the salespeoples morale

and efficiency.

Companys image could be damaged if users realize

they are out of the SSRS.

Price increase could be seen as unethical, since most

users were elderly ones who had scarce economic
resources.

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SWOT ANALYSIS ON MICODERM
THREATS (CONTINUED)

A second request for price increase may lead to

expulsion from the SSRS.

Manufacturing costs had increased by 10% since 2004.

If the company continued to sell at a loss, with increasing
manufacturing costs, they would not be able to keep up.

Deep economic crisis had made it difficult to grant

price increase.

Product could also be phased out naturally if younger

doctors do not have a good knowledge of it.

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ANALYZING THE NUMBERS

An independent consulting firm provided projections on the possible

impact on sales of taking Micoderm out of the SSRS

According to the projections, an increase in price would lead to a

decrease in sales volume.

Ignoring the outliers and comparing the sales revenue from the
current price (2.37 * 2,196 = 5,204) to the projected sales revenue
from the average price (6.00 * [40% of 2,196] = 5,270), the
difference in revenue is negligible (66).

As such, it would be unwise to take the risk of leaving the SSRS so

as to be able to increase its selling price, when the anticipated profit
might be negligible.

In addition, leaving SSRS might impact LIDERMs reputation in the

marketplace and the morale of its salespeople.

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PROPOSED SOLUTION

Due to the numerous negative possibilities of

destroying the companys brand and image, associated
with taking Micoderm out of the SSRS, we advise that
the product be maintained there.

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PROPOSED SOLUTIONS

However, to manage the losses being incurred, we recommend:

Change the manufacturer of Micoderm to a cheaper alternative, still

maintaining an acceptable level of quality.

Launch the current Micoderm as a new high-end product (Micoderm

Extra or Micoderm Plus) that can cater to the private upper-class
customers.

Work with pharmacies to prescribe the Micoderm Extra or Micoderm Plus

which will give more margin

Use other product lines (OTCs and cosmetics) for profitability.

Organize a prevention campaign to sensitize citizens on prevention of

the disease, thereby driving up the sales of Bebpiel ZN (#5.89 per unit).

Launch new OTCs and skin care cosmetics for profit making.

Revisit allocation of costs to Micoderm to reduce losses

However, the company should develop a strong good rapport with the
Ministry of Health so as to present their case informally and be advised
on the timing of the request. With the alleviation of the economic crisis,
they could still grant the request.

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PROPOSED SOLUTIONS

However, to manage the losses being incurred, we recommend:

Change the manufacturer of Micoderm to a cheaper alternative, still

maintaining an acceptable level of quality.

Launch the current Micoderm as a new high-end product (Micoderm

Extra or Micoderm Plus) that can cater to the private upper-class
customers.

Work with pharmacies to prescribe the Micoderm Extra or Micoderm Plus

which will give more margin

Use other product lines (OTCs and cosmetics) for profitability.

Organize a prevention campaign to sensitize citizens on prevention of

the disease, thereby driving up the sales of Bebpiel ZN (#5.89 per unit).

Launch new OTCs and skin care cosmetics for profit making.

Revisit allocation of costs to Micoderm to reduce losses

However, the company should develop a strong good rapport with the
Ministry of Health so as to present their case informally and be advised
on the timing of the request. With the alleviation of the economic crisis,
they could still grant the request.

THANK YOU!