Economic Value of Medi-Cult's IVM, New Product Adoption for Pono's Music System, and Customer Lifetime Value for Amazon's Fire Phone
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Added on 2019-09-30
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This article analyzes the economic value of Medi-Cult's IVM, new product adoption for Pono's music system, and customer lifetime value for Amazon's Fire Phone. It provides data and information to make recommendations and predictions based on the analysis.
Economic Value of Medi-Cult's IVM, New Product Adoption for Pono's Music System, and Customer Lifetime Value for Amazon's Fire Phone
Added on 2019-09-30
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1. Economic Value: Medi-Cult’s IVM Company Background In late 1998, Medi-Cult, which is a small Danish firm that competes against much larger firms, was reviewing a revolutionary development-stage product used in a new procedure called “in vitro maturation” (IVM). So far, 5 births had occurred using IVM. Medi- Cult currently sold human egg medium products for use in vitro fertilization procedures. In Vitro Fertilization Cycle Step 1 - Hormone stimulation requires up to 50 self-administered injections over 30 days. Nausea (50%), over-stimulation problems (10%) and other rarer, but life-threatening side-effects resulted in 2% of patients being hospitalized for up to 5 days. Step 2 – The mature eggs were extracted (aspirated) and matured further in a medium supplied by Medi-Cult (or its competitors). Step 3 - After four hours in an incubator, the eggs are fertilized with sperm. Step 4 - Forty-eight hours later, the embryos are transferred to the uterus. This transfer takes just a few minutes. Of 345,000 cycles started worldwide in 1997, 25% did not complete all the steps above for various reasons. Of these completed cycles, 25% resulted in a live birth. About 20% of patients do not repeat uncompleted cycles because of the side effects of the hormone injections required for each cycle. The US market accounted for approximately 50% of globalcycles, with Europe and the rest of the world at 25% each. Medi-Cult sold its current egg medium at $50 per cycle dose to fertility clinics. In Table A, this cost is included in the “Cost of Treatment” column. Medi-Cult’s variable costs are about30% of selling price. Table A: Cost for IVF Cycle **: In IVF, the patient usually buys hormones directly from a pharmacy while the rest of the items (IVF treatment, lab work, etc.) are billed by the clinic to the patient or third party payer.***: Miscellaneous costs include additional doctor visits, ultrasound monitoring, and hospitalization. In Vitro Maturation Medi-Cult’s new medium eliminated the need for the hormone injections. In the IVM procedure, immature eggs were aspirated and matured for two days in a medium consisting of a mixture of the traditional hormone medium and Medi-Cult’s newly patented medium. The eggs were then fertilized and transferred into the patient, as with the existing IVF procedure. Medi-cult anticipated that IVM would equal IVF’s cycle loss rate and live birth rate per competed cycle. Since IVM eliminates the hormonal stimulation step from the IVF procedure, the cost of hormones for the patients falls to zero. Furthermore, lab work and miscellaneous costs fall by about 50%. Table B: Cost for IVM Cycle Cost of Treatment (a)Cost of Injected Hormones**(b) Lab Work (c ) Misc Cost*** (d)Total (a+b+c+d)US $4K-$6K $3000 $500 $500 $8K-$10K Non-US $2K-$3K $1500 $300 $200 $4K-$5K
2 Cost of Treatment**(a) Cost of Injected Hormones (b) Lab Work (c) Misc. Costs (d) Total Cost (a+b+c+d)US $4K-$6K 0 $250 $250 $4.5K-6.5K Non-US $2K-$3K 0 $150 $100 $2.25K-$3.25K **: These costs include reflect the various steps of IVF that would still have to be performed, such as doctor visits and tests. They do not include the price of the IVM medium. 1a) Calculate the Economic Value of a single cycle dose of the new medium for the US market. (22 points) 1b) What price would you recommend? (15 points) 3 2. New Product Adoption: Pono’s Music System Pono is a new-to-the-world, high-end music service that is going to be launched by the musician Neil Young. It got a lot of coverage in recent media, as shown by the Guardian clip below. Neil Young, the musician, is a famously belligerent audiophile, lambasting what he sees as inferior sound quality on MP3s. His imminent Pono system combines high-end portable music players (i.e., the Pono Player) with a new download service (i.e., the Pono service via a website) that willsell albums at far greater sound quality than iTunes. To use a crude analogy, if a 256kbps MP3 is an easyJet flight (cheap,convenient), then Pono's 24-bit files are a trip on Singapore Airlines, Suites or First Class! Given this background, please help Pono with the following decisions: 2a) First, Pono needs some help in anticipating potential consumer reactions. How would you advise Neil Young and the managers at Pono to prepare for the reception of their product in the market? Do you think people/consumers are likelyto give Pono a warm reception and make it a runaway success? Why? Please explain clearly. (22 points) 2b) Second, Pono needs some help estimating the market size. How would you go about estimating the (rough) potentialmarket size/demand for their product? First, please lay down the steps involved in your suggested estimation process. Then, along with each step indicate your estimates. You’re welcome to make assumptions based on the data provided inthe Appendix or from the lecture notes, but please do state what those assumptions are as you provide your answer. (23points) 4 2c) Third, the managers at Pono would like to figure out how Pono will be adopted over time. How would you go about predicting the adoption of Pono? Please clearly explain all the steps you would take in order to make a prediction (and provide a rough graph). You’re welcome to make assumptions based on the data provided in the Appendix or from the lecture notes and materials, but please do state what those assumptions are as you provide your answer. (23 points) 5 3. Customer Life Time Value: Amazon’s Fire Phone
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