Medico Co. A recent survey revealed that 95% of West Australians are aware of the high risk of skin cancer through…

Medico Co.

A recent survey revealed that 95% of West Australians are aware of the high risk of skin cancer through prolonged exposure to the sun. The sun does not discriminate. Just about anyone engaged in outdoor activities is at risk and sun bathers run the highest risk. It was once believed that the danger lies in prolonged, continuous exposure to the harmful rays of the sun. However, it is now clear that brief but frequent exposure to the sun is just as bad. This would suggest the need for sun protection on a daily basis regardless of the nature of outdoor activities. The Cancer Council’s “Slip! Slop! Slap!” message has been effective in educating the public about the importance of “slipping” on a shirt, “slopping” on some sunscreen and “slapping” on a hat when going outdoors every time. The program has been extended to include “seek!” (shelter) and “slide!” (on a pair of sunglasses). Although the sale of sunscreen has doubled in the past 10 years, there is concern that sunscreen is not used at least 50% of the time. The rest of the survey result involving a good cross-section of the population, is as follows:

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Reason for not using sunscreen
while outdoor (any activity) Response
Don’t bother, never got into the habit of using one, etc. 20%
Don’t need it except when at the beach 80%
Inconvenient, difficult to apply, oily, sticky, uncomfortable, etc. 70%

The survey, published recently in a health journal, drew your attention. You are the marketing manager of the Medico Co. of Perth.

Medico & the Moisturiser Market

Medico is the largest locally-owned pharmaceutical company – but pales in comparison with the multinational companies which dominate the Australian pharmaceutical market. The company was founded in 1948 and is well known locally for its range of high quality moisturisers sold under the Medico brand. Moisturisers are simply lotions that restore and maintain the skin’s natural moisture and are used mainly by women and babies. Familiar brands include Vaseline Intensive Care, Johnson’s Baby Lotion, Olay, Dove and Nivea. Apart from the more expensive moisturisers from the leading cosmetic houses, there are at least 30 brands of mainstream moisturisers on the market available in supermarkets, discount stores, department stores, and pharmacies. Medico’s moisturiser division also contract manufactures for retail chain stores (supermarkets, discount stores, pharmacies, etc.) under their house/store brands, and these account for about 50% of the division’s sales volume.

Marketing

The company’s own brand of moisturisers is sold through all pharmacies in the Perth metropolitan area. They are priced at a premium, about 50% more than other mainstream brands, allowing pharmacies to take a higher mark-up for supporting the brand at retail level. As such, the Medico brand is the best selling range among retail pharmacies. It is considered a specialty brand and is the only formulation that penetrates deep into the skin leaving only a slight trace of moisturiser on the surface. It is the brand most recommended by dermatologists for people with severe dryness of the skin.

The range is not advertised because the company feels that the brand is well established and recognised. Moreover, the “push” promotion to retail pharmacies, family doctors, and dermatologists has been effective in maintaining steady sales for the past 10 years. One sales representative is used to promote the range to new doctors and pharmacies while a further two reps work as order-takers, ensuring that the products are adequately stocked in each outlet.

Supermarket sales are almost non-existent. The last supermarket group recently decided to withdraw the Medico range from sale citing poor sales as the sole reason. However, the marketing department at Medico knows only too well. Supermarkets, in general, reject the brand because it does not fit into the fast-moving low-priced category. Also, many younger shoppers are unaware of the Medico brand or think of it as an over-priced moisturiser compared with the more familiar national brands. Since its failed attempt in supermarkets in 1992, the company has since been manufacturing standard formulated moisturisers for these supermarket chains and pharmacies (house/store brands) to use up its excess production capacity.

As the marketing manager for the company, you have always wondered whether the Medico brand should have been repositioned as a lower priced, mainstream brand sold through supermarkets and discount stores as well. If priced competitively, you believe that sales could double and, given the additional marketing expenses required, profits will remain the same. You strongly believe that the long-term future of the brand lies in a larger market share through an increase in sales. However, that would mean foregoing the contract manufacturing business.

The Sunscreen Market

The sunscreen market is very similar to the moisturiser market – but unfortunately sunscreens are mainly used in the hot summer months and often on the beach only. It has its share of mainstream brands (from pharmaceutical companies) including house brands, and specialty brands from the leading cosmetic houses. Multinational and national pharmaceutical companies dominate the market with brands available in supermarkets, pharmacies, discount stores, and department stores. These companies also market the moisturisers mentioned previously. The market has increased considerably owing to the efforts of the Cancer Council and other government bodies. The growth has attracted more brands into the mainstream market, now fragmented into regular and premium segments. The regular brands are cheaper and are bought by families and heavy users. These are distributed intensively with little advertising support. The premium brands are more “fashionable” among single adults and carry rather exotic names although the basic formulation is the same. In a sense, the premium brands are image-driven and are heavily advertised. Most are sold selectively through pharmacies and department stores.

The now-withdrawn Medico sunscreen, on the other hand, was neither cheap nor fashionable. Industry sources claimed that it was poorly positioned with no price advantage or image. In fact, the Medico name is often considered too respectable and has a “medicinal” image given the long history of the company. Such positioning was fine for its specialty moisturisers used mainly by people with severely dry skin. However, the existing sunscreen market is divided quite clearly into value-for-money and image-driven sectors.

The Breakthrough

At a recent meeting, it was revealed that the chief chemist has successfully concocted a unique formulation, a 4-in-1 body lotion with the following properties:

 maximum (SPF 30+) sunscreen
 moisturising – as effective as any of the mainstream brands of moisturisers
 insect repellent – as good as leading Australian brands, Aerogard or Rid
 anti-perspirant – neutral scent

The lotion resembles, and feels like, a moisturiser in that it can be rubbed deep into the skin and is non-greasy. This sunscreen property makes it better than a regular sunscreen since regular sunscreen should only be applied on the skin’s surface, and not rubbed in.

Basically, it is a body lotion that gives an 8-hour protection against the 4 elements that are usually associated with being outdoors, i.e., the sun, insects, skin dryness and perspiration! A standard bottle of 250 ml will cost the same as the current moisturiser, at $2.00 each. Each sample sachet (10 ml) costs 30 cents. For a technical reason, this new formulation cannot be patented. Rival companies could identify the chemical makeup within 2 years and copy the formulation.

As an experienced marketing manager, you are enthusiastic about this breakthrough. A good product alone does not guarantee success. Good marketing is needed. You believe that if the new product is marketed as a moisturiser, up to 50% of the current Medico range will be cannibalised but overall sales volume will increase. This strategy will involve minimal additional marketing effort – especially if the Medico brand is used.

On the other hand, marketing this new product primarily as a sunscreen will give the company the opportunity to expand into a new market — A market that is fast growing but relatively new to Medico. A substantial marketing effort is expected in order to penetrate this market. There are also other marketing possibilities/opportunities to be considered.

Marketing the new product as a 4-in-1 “wonder lotion” is another possibility. However, there is no such product category in Australia. Creating a new product category in the marketplace not only requires industry support (via distribution) but also consumer acceptance. Although this product is scientifically proven, it needs to overcome consumer scepticism. At the point-of-purchase, only some of the properties can be evaluated. The others are only evident under actual use condition. This is the most risky option – but equally profitable if successful.

Requirement:

Prepare a 12-month marketing plan for the Medico’s new product in Perth.

Appendix A

Modified Profit and Loss Statement for 2011
based on standard (regular) bottle size of 250 ml

MOISTURISER DIVISION

SALES
– Medico brand (150,000 units @$7.50 wholesale price)
– House brand (150,000 units @$3.50 wholesale price)
– Total
1,125, 000
525, 000
1,650, 000

LESS: COST OF GOODS SOLD (300,000 units @$2.00)
600, 000

GROSS PROFIT
1,050, 000

OPERATING EXPENSES
– promotional brochures
– sales reps salaries (3 @$50,000)
– travelling & allowances
– admin. staff salaries (2 @$30,000)
– marketing manager salary
– warehouse & delivery overheads ($0.20 per unit)
– general admin.

10, 000
150, 000
20, 000
60, 000
60, 000
60, 000
20, 000

NET PROFIT 670, 000

Notes (standard 250 ml size):
Recommended Retail Price for Medico-brand moisturiser is $14.90
Mainstream brands retail for $9.90
Supermarket/Pharmacy home-brand retails for $7.90
 K Y Lee / Stratstar 2012

MARKETING PLAN

Table of Contents Page

1.0 SITUATION (S.W.O.T) ANALYSIS

1.1 Strengths

1.2 Weaknesses

1.3 Opportunities

1.4 Threats

2.0 MARKETING OBJECTIVES AND STRATEGY

2.1 Marketing/Financial Objectives

2.2 Strategy Statement
[including target market and product positioning]

3.0 MARKETING MIX DEVELOPMENT

3.1 Product Design and Development Strategy

3.2 Distribution (Place) Strategy

3.3 Promotion Plan

3.4 Pricing Strategy

4.0 PROJECTED INCOME STATEMENT end-12 months

APPENDICES (if any)

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