Example research essay topic: Case Study Of Vistakon And Disposable Contact Lenses - 1,443 words

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Vistakon is a well-established, overwhelming market leader in the disposable contact lens industry, based on strong brand equity and channels of distribution. Additionally, as a subsidiary of Johnson and Johnson, Vistakon has considerable resources at its disposal. The launching of 1 Day Acuvue, with newly invested manufacturing technology in place, provides a great opportunity to preempt competition and thus enhance its positioning. However, 1 Day Acuvue potentially flourishes by cannibalizing the company's existing product lines such as Acuvue and Surevue. With a major portion of its sales ($ 250 million) coming from these products, Vistakon faces significant risk in launching 1 Day Acuvue. Competition Vistakon's major competitors within the disposable contact lens market are Bausch & Lomb ("B& L") and Ciba.

With a 23 % and 21 % share respectively in 1994, they led the soft contact lens market. In addition, both B& L and Ciba offered high margin cleaning solutions products for conventional lens. These competitors, therefore, were seen as being reluctant to immediately launch their own equivalent product of 1 -Day Acuvue, which will undermine their highly profitable solutions business. In launching their new product, Vistakon needs to predict two scenarios: competitors' "defensive" and "offensive" actions against the launch of 1 -Day Acuvue. The "defensive" scenario anticipates significant price reduction and / or launching of aggressive marketing campaigns by these competitors once 1 -Day Acuvue proves successful enough to cannibalize their sales.

The "offensive" scenario is where the competitors will launch a similar product to the 1 -Day Acuvue. As stated above, based on the potential to undermine their solutions business we anticipate that the probability of an "offensive" response is low for the time being. Customer Based on the result from the Western regional launch, we project the potential market size for 1 -Day Acuvue to be around 4. 5 million (see Exhibit 1). Based on data that 75 million eye exams are given by Eye Care Professionals (ECP) nationwide on annual basis, each ECP on average conducts 160 eye exams per month, and discuss 1 -Day Acuvue to 40 patients. By extrapolating the result in the Western region, we assume that 24 % of patients will be eventually converted to "real customer" and thus obtain the total potential market size for 1 -Day Acuvue as 4, 492, 800 customers.

While such a number demonstrates a huge market opportunity, we estimate Vistakon's ECP penetration rate by multiplying the potential ECP coverage by its current market share of 18. 9 %. This is based on the fact that the decision of what contact lens to purchase considerably relies upon the availability of products carried by Ecp's. As a result, we estimate that 1 -Day Acuvue will capture 849, 139 customers in a year. Characteristics of Potential Market The Western regional launch data shows that the vast majority of customers use both eyeglasses and contact lenses, with the average use of contact lenses being 4. 4 days a week. These customers were classified as "part time users." With respect to the vision correction they previously used, disposable lens users will be most likely to migrate to 1 -Day Acuvue, with 6. 28 % migration rate as shown in Exhibit 2, while "never tried" or "dropouts" are less likely to opt for 1 -Day Acuvue in spite of the huge potential. Target segment By promoting the three product lines of Surevue, Acuvue and 1 -Day Acuvue, Vistakon is able to appeal to three different customer segments.

Specifically for 1 -Day Acuvue, we recommend Vistakon target the "part time users" noted above who have high income and are therefore relatively price insensitive, who have active lifestyles, and frequently travel on business. The company will be able to charge premium price and clearly target the customer segment that enjoys the benefits of 1 -Day Acuvue vs. its other product lines. This will allow Vistakon to limit cannibalization of its other products through differentiation in target customers and pricing, while avoiding a price war that may potentially induce competitors to reduce prices on their existing product lines. The Value proposition of 1 -Day Acuvue In summary, we propose the value proposition of the product that " 1 day Acuvue produces high "quality" comfortable and convenient disposable soft contact lenses for customers who are active, part time contact lens users. 1 -Day Acuvue offers flexibility in use relative to the conventional contact lenses and eyeglasses, and quality relative to Bausch & Lomb and Ciba Vision products.

Pricing From Exhibit 21 of the case, we can calculate the previous annual cost to the customers and the equivalent 1 Day Acuvue lens price to show the different magnitude of economics based on days of use in a week. (see Exhibit 3) Vistakon can consider multi tier pricing to exploit such opportunities. However, from the ECP's standpoint, based on the Western launch pricing strategy we find that they can potentially gain more contribution by selling disposables rather than 1 -Day Acuvue. This shows that ECP is not fully incentivize d to sell 1 -Day Acuvue over disposables. Recommendation The following are the different options available for the 1 -Day Acuvue: Penetration / Low Price - This option puts them at risk for prisoners dilemma and cannibalization of current product lines with less profitability. Therefore, this is not a sensible option. In addition, lowering the price might potentially reflect as low product quality.

Skimming / Premium Price - The test market suggests that this needs to be carefully considered as price is the largest barrier to customers purchasing the product. However, premium pricing will reduce cannibalization by occupying a distinct price-performance segment. Based on our assessment, we recommend the following pricing strategy: (1) Charging 10 % premium over previous cost per lens to consumers (2) Price discriminating based on purchase volume ( = volume discount) (3) Improving the gross margin of ECP by lowering price Vistakon should opt for the premium price strategy, launching 1 -Day Acuvue at a higher retail price and running short-term price promotions if needed to assess demand. This is the most sensible option in minimizing cannibalization of other products and maximizing profit.

Volume discounting is beneficial to Vistakon by encouraging quantity order placement. This in turn will lower production and overhead costs with efficiency in handling fewer orders of larger quantities vs. high quantity of orders of low volume. While the new set of pricing to the Ecp's provides similar gross profit to Vistakon, the increased margin to Ecp's will encourage them to promote and push 1 -Day Acuvue to customers vs. other disposables and thus increase sales of 1 -Day Acuvue. (see Exhibit 4) Launching strategy: Advertising and Promotion Acquisition cost and LTV Based on the Western regional launch, Vistakon spent approximately $ 77 per new customer, with LTV of the customer at $ 655 net of acquisition costs. (see Exhibit 5) While the company's push and pull strategy worked significantly well, generating sales for Surevue and Acuvue, the direct mail generated poor performance despite the price tag of $ 0. 6 million.

Recommendation We recommend that the company extend its promotional strategy used in the western regional launch to the national launch by spending $ 12. 8 million for advertising ( = $ 1. 6 mil x 2 x 4 regions), while continuing to offer $ 50 rebate and 5 day free trial. The price reduction to Ecp's recommended earlier will strengthen the "push" strategy by increasing their gross margin. Distribution A 1 % change in ECP coverage (390 ECP) contributes to 5. 4 % increase in the number of new customers (approximately 45, 000), which in turn generates an incremental net contribution of $ 20. 75 million. Based on the experience from the Western regional launch, we recommend that Vistakon increase their sales force nationwide in order to cover more Ecp's and acquire more new customers. In doing so, the company needs to compare the geographical dispersion of ECP with the cost of hiring local sales representatives.

Conclusion In summary, we recommend to Vistakon management the following: 1. Prioritize on "part time users" - as noted above, those who have high income and are therefore relatively price insensitive, who have active lifestyles, and frequently travel on business 2. Charge 10 % premium over previous cost per lens to customers Price discriminate based on purchase volume ( = volume discount) Improve the gross margin of ECP by lowering price 3. Continue the advertising and promotion as it did in Western regional launch. Further enhancement of "Push" strategy is undertaken in reducing price to ECP based on volume. 4. Intensive sales force deployment to increase ECP coverage, to which the net contribution is highly sensitive.

Research essay sample on Case Study Of Vistakon And Disposable Contact Lenses