Niconil Product Launch Analysis and Recommendations
...e likelihood they will make a purchase. It could also be used in support of reinforcing the doctors’ counseling role, by letting them distribute the package directly to the patient. On the other hand, it could be sold separately to generate additional revenues. These opportunities are analyzed in more depth in a subsequent section. Threats There were few direct competitors to Niconil in the smoking cessation market in Ireland. The most significant competitive product was Nicorette, the only nicotine-replacement product available at the time. Nicorette was not considered a successful product, and it had the following weaknesses: • Nicorette was a chewing gum, and chewing gum in public was not socially acceptable among Irish adults; • It had more severe side effects than Niconil, such as mouth cancer and irritation of the linings of the mouth and stomach; and • It had not been advertised for three years. Worth noting was that 47% of Nicorette users quit smoking initially (versus 47.5% with Niconil in test studies), but long-term follow-ups have suggested that only about 31% had actually stopped smoking in the long run. Market size and trends The Irish market would be the first country to launch Niconil, and will thus serve as a test market for all of Warner-Lambert. The fact that Warner-Lambert ranks sixth in the Irish pharmaceutical sales should help in obtaining market acceptance of Niconil. The company has also had two new successful drug launches in the past nine months, which has set an expectation for a momentum of success. Approximately 750,000 of adults smoked cigarettes, but this number has been on a decline since the 1970s. The average smoker smoked 16.5 cigarettes, or close to a pack per day. Those most likely to purchase Niconil were aged 35-44, white-collar or skilled workers, comprising 18% of all smokers, or 135,000 adults. From another perspective, about 10% of all smokers were trying to quit at any given time, or 75,000 smokers. Women were 25% more likely to try Niconil, as they tend to be more concerned with their health. These estimates will be used in further analysis and forecasting below. Forecasting and Production Accurate sales forecasts are essential in planning adequate production capacity. Two forecasting methods have been suggested in this case; one was based on actual numbers of smokers attempting to quit each year, the other on a survey conducted by WLI. Both alternatives are analyzed in a subsequent section. Alternative production plans will also be reviewed. Marketing Campaign Considerations Ireland was the first country to approve the Niconil patch and its distribution. However, it could only be sold by prescription. This meant that it could not be advertised directly to Irish consumers, but only to physicians. The primary prescribers, and thus the primary audience for Niconil’s marketing campaign would be the 2,000 General Practitioners (GPs) in Ireland. However, GPs were reluctant to pressure a patient in quitting unless the smokers was motivated. In addition, smoking cessation was currently not a lucrative treatment area for GPs, who would not spend more than 15 minutes discussing smoking with patients. Most were not enthusiastic about Nicorette, due to poor results and side effects. Alternatives Packaging and Distribution In test trials, the average smoker succeeded in quitting with Niconil in three to four weeks (i.e. 21 to 28 patches), others needed as long as six weeks. Based on this and the previous discussion, the following packaging alternatives of the patch have emerged: • WMI favors a 7-day supply of patches in each unit, which would be easily comparable to the Irish consumer to a daily purchase of cigarettes. • Other European managers favor a six-week supply of patches in each package (if and when they launch Niconil), as continental Europeans were more prone to buy cigarettes in cartons. • Warner-Lambert International had suggested a compromise 14-day supply per package, in an effort to standardize packaging. Also, the following alternatives for distribution of the support package have been considered: • The support program could be sold without a prescription and advertised directly to the consumer, realizing substantial revenues on its own. A study had shown consumers would be willing to pay a high price for it. However, consumers may decide to purchase the support program without the patch and use it with a different program, thus limiting sales of Niconil patches. • Another option was to differentiate Niconil by distributing the product, free of charge, to potential Niconil customers. • A third option would distribute the package to all Niconil purchasers, thereby addressing their psychological needs and increasing the product’s success rate and its continuing use. The product could be distributed in one of two (or both) ways: • Through doctors prescribing Niconil, thereby reinforcing their counseling role, and promoting Niconil in the medical community; and/or • Through the pharmacies, where customers would receive the support program with the Niconil purchase. However, customers could then receive a program each time they purchase Niconil. This may not be cost-effective, but may be advantageous as these extra packages may be passed on to other potential customers, thus becoming an informal advertising vehicle. Pricing As all potential Niconil customers would pay for the product personally, pricing was a critical component of the Niconil marketing strategy. Two basic price model alternatives have emerged from the previous analysis: • Niconil’s price should be set on a par with the price of cigarettes. The average Irish smoker purchased a pack of cigarettes per day, at a price of ₤2.25 per pack. WLI’s variable cost was ₤12 for a 14-day supply. Pharmacies generally added a 50% markup, a value-added tax of 25% of the retail price was levied, as well as a ₤1 dispensing fee per prescription. The proposed price under this scheme was ₤32.00 for a two week supply. • Niconil’s price should be set at a premium to the price of cigarettes. Niconil would permanently eliminate the need to purchase cigarettes; thereby its benefits would far outweigh its costs. The proposed price under this scheme was ₤60.00 for a two-week supply. Pricing scheme Variable Cost Wholesale Price Retail Price Profit per package Profit Margin At par with cigarettes ₤12.00 ₤16.53* ₤32.00 ₤4.53 37.75% At premium to cigarettes ₤12.00 ₤31.47* ₤60.00 ₤19.47 262.25% Nicorette (for comparison) N/A N/A ₤9.10 – 14.00** N/A N/A Cigarette prices (for comparison) N/A N/A ₤31.5 N/A N/A *Calculation formula for wholesale price: Wholesale Price = Retail Price/(Retail Markup * Tax - ₤1) **Based on ₤0.65 per day for the 2mg gum and ₤1.00 per day for the 4mg gum, in a 10-day package Sales Forecasts Two alternative forecasting models were developed for Niconil: • 10% of Irish smokers attempted to quit smoking; 10% of these purchased some type of smoking cessation product. WLI believed that they could capture half of these, 0.5% of total Irish smokers, or approximately 37,500 smokers. They hoped to then increase this share by 1% per year, to 9% in 1994. Furthermore, 60% of the first time customers would purchase a second 2 week supply, and 20% of these would purchase a third two-week supply. This is summarized in the exhibit below. Year Smokers trying to quit Quitters using Niconil Second two-week purchasers Third two-week purchasers Total Units Sold 1990 75,000 37,500 22,500 4,500 64,500 1991 75,000 45,000 27,000 5,400 77,400 1992 75,000 52,500 31,500 6,300 90,300 1993 75,000 60,000 36,000 7,200 103,200 1994 75,000 67,500 40,500 8,100 116,100 • A second forecasting model was based on a 1989 WLI survey, in which 17% of smokers indicated they were likely to go to the doctor and pay for a nicotine patch. To interpret the likelihood of real purchases, this number was divided by three, and the same 100% / 60% / 20% rule used above was applied: Smokers interested in the patch Likel...