Running Head: METABICAL: PRICING, PACKAGING, AND DEMAND FORECASTING 1

METABICAL: PRICING, PACKAGING, AND DEMAND FORECASTING

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METABICAL: PRICING, PACKAGING, AND DEMAND FORECASTING 2

Cambridge Sciences Pharmaceuticals (CSP) organization is facing the problem on how to

package the weight loss drug- Metabical. Packaging is a key element in determining the cost of a

product, which influences the pricing [Gar94]. Pricing on the other hand directly impacts the

demand for a product which affects the sales made. The packaging presents a problematic

situation, since the senior director of marketing, Barbara Printup, has to decide on a 12-week

treatment plan which has the desired goals for weight loss. The packaging would also affect the

consumer behavior while on this treatment plan, ensuring the effectiveness of the drug. A days-

of-the-week “blister” –style package would ensure that the customer adheres to the prescription,

and can track the progress made. Metabical requires consistency in the timing of the taking the

drug for effectiveness. The consumer will be attracted to try the drug based on the packaging

which has the advantage of convenience. A pill per day would mean less bother to the user.

The packaging will influence the pricing of the drug. While packaging determines the

price, the consumer consumption behavior has to be considered [Ron08]. The willingness to pay

the price tagged on a package of the drug will define whether the organization will recoup the

5% return on investment forecasted. Competitors packaging and costing on the package ought to

influence how CSP packages Metabical. Another variable, which affects the packaging problem,

is the demand forecasting. If the organization packages the drug and tags a high cost to it, the

demand will reduce, driven by the principles of economics relating to consumer purchasing

power. The population is trying to lose weight, 35% had only 15% being comfortable using

weight-loss drugs. In the first year, Printup forecasted that Metabical would capture 10% of the

market share. The 5% estimated addition on the client base would be determined by the growth
METABICAL: PRICING, PACKAGING, AND DEMAND FORECASTING 3

in demand for the drug. Repurchases would be influenced by the results from the earlier package,

which the consumer has already experienced.

Stakeholders in an organization who have a fundamental role in determining the business

decisions to be made, and the impacts of these decisions. At CSP, the chief marketing officer,

Bernard Long is a key stakeholder whose decisions as presented in the findings of Barbara

Printup and the research conducted by CSP are critical to the organization. Long will have the

role of determining how to market the drug, based on the package which is recommended by the

senior director of marketing. Both the Chief marketing officer and the senior director of

marketing will advise the management and product development team on how to do the

packaging backed with qualitative data on the reasons behind the recommended packaging.

Occasionally, it is inappropriate to rely solely on the research conducted due to the nature of

customers telling a researcher what they most likely want to hear, rather than the actual market

position as a consumer.

Since the Food and Drug Administration approval required a packaging policy, solving

the problem remains critical. This calls for multiple solutions which has their different

advantages to maximize the returns while giving value to the consumer. To maintain on the

customers, a 12-week packaging would be appropriate to ensure that the individuals complete the

dose to experience long-lasting positive results. This should be packaged in 3 packs for a 12-

weeks supply together with a customer support program CD to increase on the consumers. This

would help the company in maintaining 60% of the acquired first-time customers to repurchase

the second supply. An additional 20% would complete the Metabical program by repurchasing

the amount remaining. This would be influenced by the results gotten in the first 12-weeks. The
METABICAL: PRICING, PACKAGING, AND DEMAND FORECASTING 4

number of individuals falling out of the plan would reduce since the “blister” packaging would

help them keep track of the days. Another method to resolve this problem would be to split the

packaging into smaller quantities to be able to price the drug accordingly [Art15]. A 12-week

price tag was found to be out of reach for many individuals to pay. Smaller packages may be sold

for a more affordable price generating the target revenue based on the consumer behavior. It is

common to find customers paying for more affordably priced goods more often than in highly

priced products. This information should work to the advantage of CSP.

Based on the data collected from the survey and research wich was done, it is clear that

packaging presents a problem to the organization. The data indicate that a slight change in the

consumer behavior, based on the packaging influencing the pricing, CSP will not be able to

generate enough profit margins. Therefore, packaging the Metabical drug in small packages,

which the customer can purchase, will increase the profits. However, the likelihood of a

customer falling out of the Metabical program is high, hence the loss of the 10% of the market

share gained. Maintaining customers would, therefore, require reducing the cost of purchasing

the drug and doing rigorous marketing to gain more market traction [Art15].

Previously, CSP has developed packaging, which is influenced by consumer behaviors.

By customer oriented packaging, vigorous and comprehensive marketing was done increasing on

brand identity. This led to the growth of sales generating more revenue. The organization has

also tested out rolling out CDs for consumer support programs, which have created a solid

customer base. This technique of packaging according to user needs drives more sales than

randomly selected packaging style.

METABICAL: PRICING, PACKAGING, AND DEMAND FORECASTING 5

Increasing Metabical drug awareness to the target market will increase more sales

to reach the forecasted estimates. This can be done by communicating the multiple benefits

gained from the use of the drug. The marketing communication strategy ought to create demand

for Metabical. Being FDA approved will attract more customers hence a steady demand in the

future.

Demand for Metabical can be estimated using the time series regression analysis, based

on the total population and target population of the overweight individuals.

Approach 1.

Y US Overweight in Target market Metabical Population

e Population U. S (12%) Capture captured
a (34%)
r
1 209,000,000 71,060,000 8,527,000 10% 852,720
2 209,000,000 71,060,000 8,527,000 15% 1,279,080
3 209,000,000 71,060,000 8,527,000 20% 1,705,440
4 209,000,000 71,060,000 8,527,000 25% 2,131,800
5 209,000,000 71,060,000 8,527,000 30% 2,558,160
Demand-focused on the 12% willing to order a prescription immediately.

Approach 2.

Y Overweight in Population Comfortable Metabical Population

e U. S trying to lose with weight loss Capture captured
a weight (35%) drugs
r (15%)
1 71,060,000 24,871,000 3,730,650 10% 373,065
2 71,060,000 24,871,000 3,730,650 15% 559,598
3 71,060,000 24,871,000 3,730,650 20% 746,130
4 71,060,000 24,871,000 3,730,650 25% 932,663
5 71,060,000 24,871,000 3,730,650 30% 1,119,195
Demand based on the individuals trying to lose weight. (35%).

Approach 3.
METABICAL: PRICING, PACKAGING, AND DEMAND FORECASTING 6

Year Market %

1 4,300,000 30
2 4,300,000 35
3 4,300,000 40
4 4,300,000 45
5 4,300,000 50

In the first two demand estimate approaches, the demand increases in the second year,

and maintains a steady demand growth curve. This indicates positive consumer response to the

product. In the second method, demand based on the number of individuals trying to lose weight

is the one I would recommend to estimate the market. This approach has taken into consideration

both the population trying to lose weight as well as the population, which is comfortable to use

weight loss drugs. Sound guidance on demand enables the management to focus its resources

and identify the market, which they should target with the marketing strategy and campaign

[Sue09]. This reduces the costs of marketing to the general population, which may not translate

into sales.

To assess the demand for Metabical in the first five years, three main demand strategies

are considered. The optimal pricing structure was applied to the three demand strategies to

identify which had the maximum return on the investment. Scenario 2 was chosen. Lowest

pricing structure characterized this scenario. Marketing to a wider audience during the launch

having an affordable price would generate more sales. The price of a product can easily be

tweaked and be justifiable if the product is successfully accepted by the consumer [Tho10].

Scenario 1
 METABICAL: PRICING, PACKAGING, AND DEMAND FORECASTING 7

In this first scenario, the demand for the product in the market is narrowed down as

follows: first take the number of the overweight individuals in the United States, which is 71.06

million. Out of this figure, 35% are willing to lose their weight. Hence reduce 71.6 million by

35%. Out of the population trying to lose weight, 15% are comfortable using weight loss drugs.

Therefore, we reduce the number by 15%, translating to 3.73 million. In the first year, Metabical

is forecasted to capture 10% of the market, 15% in the second year, 20% in the third year, 25% in

the fourth year and 30% in the fifth year.

The population chosen for the estimates may contain the price sensitive individuals hence

the reason for choosing the lowest pricing structure. Therefore, the demand function may not be

very efficient for Metabical since the audience is very broad. This model, in theory, will capture

a small percentage of the targeted market compared to other models hence the difficulty in

attaining a positive return on investment. This model will generate $185,040,200 million in

revenue, which is not acceptable in creating 5% return on investment. This amount of income

does not cover the research and development costs invested by the organization that stands at

$400 million.

Y Overweight Population Comfortable Metabical Populatio One Two supply Full Cycle
e in U. S trying to with weight Capture n captured Supply in in dollars in dollars
a lose weight loss drugs dollars (60%*49.6 (20%*74.4
r (35%) (15%) (20%* 0) 0
24.80)
1 71,060,000 24,871,000 3,730,650 10% 373,065 1,850,402 11,102,414 5,551,207
 METABICAL: PRICING, PACKAGING, AND DEMAND FORECASTING 8

2 71,060,000 24,871,000 3,730,650 15% 559,598 16,653,622 8,326,810

2,775,604
3 71,060,000 24,871,000 3,730,650 20% 746,130 3,700,805 22,204,829 11,102,414

4 71,060,000 24,871,000 3,730,650 25% 932,663 4,626,006 27,756,036 13,878,018

5 71,060,000 24,871,000 3,730,650 30% 1,119,195 5,551,207 33,307,234 16,653,621

Profit is $185,040,200 which is -53% in 5 years.

Scenario 2 (Recommended Model)

In this second strategy, 34% of the total US population (209 million) is taken translating

to 71.06 million of the overweight people. Next, a computation of the 12%, which is the target

for Metabical, is taken resulting to 8.527 million. Metabical will capture 10% of the market in

the first year, 15% in the second year, 20% in the third year, 25% in the fourth year and 30% in

the fifth year. The lowest pricing structure is chosen since this population may consider other

methods of losing weight such as the Jenny Craig.

This model generates a return on investment of 5.7%, which meets the target set by the

management of 5% to recoup the research and development, 400 million investments. The model

also aims at lowering the financial risks to the consumer. Additionally, this pricing strategy will

enable the product to meet its forecasted sales volume [Pat05]. Since it’s difficult for marketers

to predict consumer reaction to a product with precision, a broad approach to this challenge will

generate huge revenue from the target market as well as other similar markets.

Y US Overweigh Target Metabical Populatio One Two supply Full Cycle

e Population t in U. S market Capture n captured Supply in in dollars in dollars
a (34%) (12%) dollars (60%*49.6 (20%*74.4
r (20%* 0) 0
24.80)
1 209,000,000 71,060,000 8,527,000 10% 852,720 4,229,491 25,376,947 12,668,474

2 209,000,000 71,060,000 8,527,000 15% 1,279,080 6,344,237 38,065,421 19,032,710

 METABICAL: PRICING, PACKAGING, AND DEMAND FORECASTING 9

3 209,000,000 71,060,000 8,527,000 20% 1,705,440 8,458,982 50,753,894 25,376,947

4 209,000,000 71,060,000 8,527,000 25% 2,131,800 10,573,728 63,442,368 31,721,184

5 209,000,000 71,060,000 8,527,000 30% 2,558,160 12,668,474 76,130,842 38,065,421

Profit 422,949,120

The 5.7% return on the investment in this model indicates a steady growth for the drug

Metabical. This pricing strategy has the feasibility on the potential customer to target and

capture.

Scenario 3.

This 3rd scenario targets the educated females in the 35-65 age bracket who are overweight

having a BMI of 25-30. This translates to a 4.3 million population. In the first year, Metabical

aims at having a capitalization of 30%, and then in the succeeding years have the capitalization

as follows: 35%, 40%, 45%, and 50% respectively. Since the target, population has the money to

purchase the weight loss drug, the highest tier of pricing was chosen. The high pricing tier is

justifiable due to the nature of the product as well as the coveted FDA approval. The return on

investment translates to 67%. This indicates the best cast scenario. The ROI is way too high

compare to the one the management had set, which presents it as unrealistic [Pat05]. The nature

of the target market is also difficult to capture 50% over the specified period. Lowering the

pricing, on the other hand, would affect the brand image of the elite product in the target market.

Year Market % Capitalization One Supply in Two supply in Full Cycle in

dollars dollars dollars
(20%* 74.80) (60%*149.60) (20%*224.20

1 4,300,000 30 1,290,000 19,298,400 115,790,400 57,395,200

 METABICAL: PRICING, PACKAGING, AND DEMAND FORECASTING 10

2 4,300,000 35 1,505,000 22,514,800 135,088,800 67,544,400

3 4,300,000 40 1,720,000 25,731,200 154,387,200 77,193,600

4 4,300,000 45 1,935,000 28,947,600 173,685,600 86,842,800

5 4,300,000 50 2,150,000 32,164,000 192,984,000 96,492,000

Profit $ 1.26 Billion.

Return on Investment 215%.

The two main groups of customers, which Metabical is targeting, are the end users and the

doctors. The powerful message that overweight individual is in life-threatening situations will be

the focus of marketing.

Packaging influences costs, which directly affects the demand for the product,

influencing the revenue [Tho10]. The number of pills that are required for the drug to be

effective influence on the packaging to be used. The package should have enough drugs to

enable the consumer to see the results after using the Metabical. The cost of the package will

attract or repulse customers. A three-month package of Metabical will cost differently from a

one-month supply of the same medication. A three-month supply would cost three times more

than a month’s supply, which may determine the purchasing power of the customer. Therefore,

the package should have a blister pack with seven tablets, having for blisters. This package

should be enough for one month, in which the customer would purchase three packages.

The packaging should also be safe, functional, unique, branded, ease of use and promotes

benefits to the consumer. The safety relates to how well it conserves the effectiveness of

Metabical to remain in good condition safe for human consumption. The uniqueness and brand

message on the package sends a message about the drug hence contributes to the marketing
METABICAL: PRICING, PACKAGING, AND DEMAND FORECASTING 11

strategy. The benefits of easy tracking on the consumption of Metabical should be an advantage

emphasized on the packaging. Other factors, which need to be considered while deciding on the

packaging, are consumer usage and payment capacity, the number of pills in each strip, the unit

price of the tablet, the effective dose, and the ease of tracking. The recommended packaging is a

four-week dosage blister pack, having days of the week for ease of tracking and noticeable

results in four weeks.

In the calculation of the returns on investment, the assumption taken is that the variable

costs do not change over the years, which would alter the forecasted return on investment. The

variable costs, in this case, are assumed to be fixed [Bea16]. Costs are bound to change, although

the impact should not have a significant influence on the forecasts.

Return investment is calculated as:

ROI= (Earnings-Initial Investment) / Initial Investment

Where earnings= Total Revenue – Fixed Costs – Variable Costs.

Initial Investment = Research and Development cost and Preliminary Marketing Budget.

Using the scenario one above, the ROI is:

Profit is $185,040,200 that is -53% in 5 years.

In scenario 2, the ROI is:

Profit 422,949,120- representing a return on investment of 5.7%, a margin close to the one

forecasted by the management.

METABICAL: PRICING, PACKAGING, AND DEMAND FORECASTING 12

In scenario 3, the profit generated is $ 1.26 Billion.

Return on Investment 215%.

This figure is unrealistic, based upon the ROI expected by the management.

In the instance where the return on investment was below the expected margin of 5%, there is a

need to review the target market, the pricing strategy and the packaging used to attract more

consumers. This would there require revisiting the pricing models and the packaging design.

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