Introduction

The Bair Hugger Patient Warming System is marketed to hospitals in

the United States. It is a device that has been designed specifically to
treat hypothermia which many patients suffer from after operations.
The Warming system is composed of two elements; there is a
heater/blower unit and disposable warming covers. The ultimate
problem facing Augustine Medical, Inc. is how to price theses two
components of the product and how to position it compared to its
competitors. There are many substitutes available for hospitals to treat
and prevent hypothermia. However, there are many disadvantages to
the variety of other devices which virtually treat the same condition.
Augustine Medical believes that their product is superior to their
competitors’ products.

S.W.O.T analysis of The Blair Hugger Patient Warming System

StrengthsMedical research indicates that between 60 -80% of

recovery room patients suffer from hypothermia. Although this is
unfortunate for the patients it is a strength for the company as they
have a target market. The product has been designed to allow nurses
and doctors to have easy access to the disposable warming covers
which are placed in the top of the blower unit. Also the unit is easy to
transport as it can be moved easily as it is on wheels. Hospital staff
see this product one that will make the patient feel comfortable and
will speed up the patients recovery process. The product also does not
burn the patient and water leaks are not an issue. As well as this the
product reduces the risk of cross contamination as the blankets are
disposable.

WeaknessesThe warming covers needed in order to use the product

will need to be restocked a lot of the time. The warming time per
patient is about two hours this could pose a problem for patients
because the results of the use of the device is not seen until two hours
later and patients hypothermia may have gotten worse.Also this
product is the only product the company have and thus demand is vital
for success.

OpportunitiesAugustine Medical incorporated sees the opportunity to

market their product to hospitals and the company believe that their
product had superior advantages over competing products. If the
decide to sell the unit for free to the hospitals and the hospitals would
purchase the blankets they could create a monopoly.

ThreatsThere is much competition available for hospital to use. Many

cheaper alternatives exist. There are several surface warming
technologies that are already on the market such as water circulating
blanket and the simplest form of treatment for hypothermia is warmed
hospital blankets. A main competitor that may exist in the future for
the company is the Hosworth-Climator who produce a similar product
in England and they could be distirbuting their product in the U.S.
within the next year. However if the company price the unit and
blankets too high they will be at risk of failing.

Market research:

Medical research indicates that 60 to 80% of all prospective recovery

room patients are clinically hypothermic. There are several factors
which contribute to postoperative hypothermia. These factors are:1.
Patients exposure to cold operating room temperatures2. Heat loss
due to evaporation of the fluids used to scrub patients3. Evaporation
from the exposed bowel4. Breathing of dry anesthetic gases

Market size:

Research commissioned by Augustine Medical Inc. indicated that there

are 31,365 postoperative recovery beds and 28,514 operating rooms
in hospitals in the United States. Given the demand for the
postoperative recovery room beds, the research indicates that
hospitals with fewer than seven beds would not be highly receptive to
the Bair Hugger Patient Warming System. The firm also projected that
one system would be sold for every eight postoperative recovery room
beds.

Target market:

The target market for this product is hospitals with seven or greater
recovery room beds. Target market makes up 80% of all surgical
operations in United States.

The Bair Hugger Patient Warming System product is not a consumer

product. The main users of this product are businesses – hospitals.
Hospitals will always be provided with the funds necessary to prevent
hypothermia and other diseases, so the demand will be common.

Interviews with physicians and nurses, followed by a demonstration of

the system, returned a variety of responses. Respondents believed
that the humanitarian ethic to make the patient feel more comfortable
is important. Respondents also felt that the Bair Hugger Patient
Warming System would speed recovery for postoperative patients.
They believed that the pressure to move patients through the
operating room and out of postoperative is greater than in the past.
Efficiency is the byword. Capital expenditures in hospitals were subject
to budget committee approval. Although the amounts varied,
expenditures for equipment over $1,500 were typically subject to a
formal review and decision process.

4p’s:

Product:

Bair Hugger Patient Warming System is designed to control the body

temperature of patients after surgery. Specifically the products is
designed to treat hypothermia (a condition defined as a body
temperature of less than 36 degrees Centigrade or 96 degrees
Fahrenheit) experienced by patients after operations.

The Bair Hugger system consists of a heater/blower unit and a

separate inflatable plastic/paper cover, or blanket. There are many
advantages of this product.

Place:

The Blair Hugger Patient Warming System would be sold by and

through medical products distributor organizations in various regions
around the country. These distributor organisations would call on
hospitals, demonstrate the system, and maintain an inventory of
blankets. The margin paid to the distributors would be competitively
set at 30% of the delivered selling price on the heater/blower unit and
40% of the delivered price on the blankets.

Promotion:

Currently Augustine Medical Inc is relying on distributors to push their

products. Augustine Medical Inc also is promoting their products by
creating sales literature for the Bair Hugger Patient Warming System,
where features and benefits of the product are detailed. Augustine
Medical Inc personal experience indicated that all of these features
would be welcomed by nurses and patients alike.

Price:

Heater/Blower must be under $1500 to avoid hospitals going through

formal review and decision process.Only 80% of the hospitals have
enough hospital rooms to have use for the Bair Hugger.

Investor interest in Augustine Medical Inc and the medical technology

it provided produced an initial capital of $500,000. These funds include
R&D, staff support, facilities and marketing.

It was believed that this initial investment would cover the fixed costs
of the company during its first year of operation.

Variable Cost = $380 per heater and $.85 per blanket.

Margin paid to distributors would be 30% of delivered selling price of

the heater/blower and 40% of the delivered price on the blankets, less
discounts for both.

There are 31,365 recovery beds minus the hospital that have less than
seven beds.31,3651,608-3,603-

26,155 recovery beds in the U.S.

Unitone system will be sold for every eight recovery beds. Therefore,
26,155 divided by eight = 3,269 units to be soldThe blanket come in
packs of twelve and the demand for these depends on the amount of
surgical procedures in hospital as well as the number of patients that
could become hypothermic. The cost of the unit is $380. If the
company gave the unit for free to the hospitals they would create a
monopoly and only there disposible blankets would work effectivley
with the units. The cost of this would be ($380 muliplied by the units
to be sold 3,269 units) = $1,242,220 The 30% distributor cost is
irrelevant here as the unit was not sold for a price.

BlanketsThere are 21million surgical operations per year in the U.S.

between 60 and 80% of these become hypothermic
therefore14,700,000 patients per year. divide this by the number of
blankets per case i.e.12 now we potentially have sales of 1,225,000
disposible blankets. The cost of the blankets are $0.85 each multiply
by 12 =$10.20 cost of case of blankets.

Plan to sell 1,225,000 cases of blankets at a cost of $10.20 = Total

cost for year $12,495,000If these case of 12 blankets were sold to
hospital at $24 each the distributor cost would be 40% of that which is
$9.60 per amount sold ($9.60*1,225,000=$11,760,000) Sales made
would be (1,225,000 * $24.00)= $29,400,000.The hospital would
virtually see it as paying as little at 2 euro per blanket.

Finally:Sales of blankets $29,400,000Cost of units $ 1,242,220-Cost of

blankets $12,495,000-Distributor costs $ 11,760,000-

Total profit $ 3,902,780

Recommendations:

Augustine Medical Inc to sell their products mainly relies on

distributors to demonstrate, promote and advertise their products
across the country. It has limited marketing as they are only preparing
literature on the product for their distributors. Since Augustine Medical
Inc is an R&D company, they should continue to develop new
products.

We believe that Augustine Medical Inc is doing well promotionally,

since they have targeted the right target market, which doesn’t need
to be segmented. The problem is that the units will not be desired at a
high cost atthe minute it is evident that the units should be given to
hospitals for free. This will create a buzz around the product and will
be desired by all hospitals as the only cost they have is the disposible
blankets which each costs them only 2 dollars $24 in total per case. It
is evident that the hospital will need ot restock these disposible
blankets all the time and thus Augustine Medical will earn huge profits
on the blankets as it only costs $0.85 * 12 = $10.20 to produce and
are sold at $ 24.00. However the companyin our opinion should be
making a lerger profits but the problem is the distribution costs of
40% are extremly high and if these could be lowered it would make
the company more profitable.

One must also remember that the units are sold now to hospitals and
thus if Augustine medical sell them for free now as a promotional offer
they will reap the profits in the following years as they will no longer
have the cost of selling the units for free and will have gained a huhe
market share which should help to elliminate the potential english
competition in the next year.