MGMT 650B: Consulting Skills forManagersDiagCor Self-collection HPV Test Marketing Plan

October 2009

STRICTLY CONFIDENTIAL

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Storyline

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• DiagCor has developed a new Self-Collection HPV Test for the detection of HPV virus in women, which is believed to be the main cause of cervical cancer. DiagCor would like to expand the market for the test in Hong Kong.

• The self-collection diagnostic test model is new to Hong Kong, and DiagCor has limited resources in expanding the market for the newly developed Self-Collection HPV Test

Situation

Challenges

• How can DiagCor achieve a sales of HK$ 1M in one year for the Self-Collection HPV Test with a limited budget of HK$ 100K?

Question

• To expand the market via leveraging the strong marketing capability and established distribution networks of a FMCG partner, Johnson & Johnson (J & J), rather than relying on the limited in-house marketing resources. The testing kit will be bundled with J & J’s sanitary napkins and sold to customers via supermarkets and pharmacies during promotion period. Customers will mail in samples and payments, and test results will be mailed back to them.

Answer

Rationale 1. Diagcor can generate at least $1M revenue in one year by partnering with Johnson & Johnson with mutual benefits

2. Diagcor has much lower costs and risk by partnering with J & J than sticking to in-house marketing program.

1.1 The partnership creates value for J & J

1.2 The number of customers that J & J reaches allows Diagcor to generate $1M revenue for Diagcor.

1.3 Customers have strong preference to purchase new medical service from well-known brands that appears frequently on TV/Radio, such as J & J

2.1 The marketing costs in promoting a new product is >$100K and Diagcor cannot afford the huge sunk costs required for reaching a critical mass in customer base.

2.2 Product cost of DiagCor HPV Test is a lot lower with J & J as partner

2.3 Distribution cost of DiagCor is minimized with J & J as partner

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3. Diagcor cannot achieve revenue goal by in-house marketing program and formation of other partnerships

3.1 DiagCor does not have enough in-house marketing/sales personnel to administer larger scale marketing activities

3.2 DiagCor’s corporate strategy does not support marketing a consumer brand.

3.3 Forming partnerships with other organizations is not feasible at the moment.

Price* Set at $500/Test

Product Testing Kits are bundled with the Sanitary Napkins offered

by Johnson & Johnson. Each Testing Kit includes a

sample collection bag, test instructions, and a

return mail envelop. Customers will send in samples and

payments via mail. Test results would then be mailed

back to customers

Promotion Joint-promotions with Johnson & Johnson

Place Testing Kits to be sold together with Sanitary Napkins at

supermarkets and pharmacy chains

Recommendations

3* The retail price is set according to the results of Customer Survey October 2009

Other details please refer to Appendix

Expected Results

Profit and Loss Analysis – Proposed Marketing Plan

Sales* ** 1,250,000

Cost of Goods Sold 238,250

Gross Profit 1,011,750

Expense

Marketing 100,000

Operating 220,000

Total Expense 320,000

Operating Profit 691,750

Profit Sharing to J & J (50%) 345,875

Net Profit to DiagCor 345,875

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*Number of Test Sold = 2500 (est.)

= Potential Customer Reached by J & J x Marketing Efficacy x Response Rate x Penetration

**Price of Test = HKD500 (from Customer Survey, Oct 2009)

Other details please refer to Appendix

DiagCor can reach a revenue of over HK$ 1MM with profit

Includes the cost of sample collection, examination, and result notification

Includes producing 50,000 testing kits for bundling

Includes cost of test administrator, website revamp and overhead

50% margin cut to J & J

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Implementation Schedule

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

1. Signing of Partnership Contract

2. Promotion Campaign Design (Testing kit, message, etc)

3. Production of Testing Kits

4. 1st Quarter Promotion

5. Marketing Data Collection and Analysis

6. Campaign Review and Improvement

7. 2nd Quarter Promotion

8. 3nd Quarter Promotion

9. Campaign Review and Improvement

10. 4th Quarter Promotion

11. Campaign Review and Analysis

Year 2009/2010Activity

After the promotion campaign is designed, the bundled testing kit will be distributed to

Customers in 4 phases, each phase’s duration is 1 quarter

Rationale #1 Partnering with J & J creates “Win-Win”

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1.The partnership creates value to J & J

2.The numbers of customers reached by J & J makes DiagCor’s goal of generating $1M revenue for Self-Collection HPV Test in one year feasible

3.Customers have strong preference to purchase new medical service from well-known brands that appears frequently on TV/Radio, such as J & J.

1.1 Value Proposition to J & J

Presented Value Propositions

1 Project a caring image and increase customer satisfaction

2 Differentiate from competitors, promote conversion

3 Benefit from the margin cut

4 Fit with brand equity (healthcare for J&J; innovation for P&G)

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Feedbacks from Interviews

J&J

•Very interesting idea •Fits with J&J’s corporate values•Possibility to differentiate products from competitors•Need to further explore product/partnership opportunity. J&J makes sure that their products and partners deliver high quality services.

J & J see values in the partnership with DiagCor’s HPV Test

Data obtained from interviews with partners, October 2009.

1.1 Benefits of the Partnership to J & J

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J&J enjoys 50% of the project’s profit plus a potential increase of 0.5% market share via the marketing effort.

Proposed P & L

Sales 1,250,000

Cost of Goods Sold 238,250

Gross Profit 1,011,750

Expense

Marketing 100,000

Operating 220,000

Total Expense 320,000

Operating Profit 691,750

Profit Sharing to J & J (50%) 345,875

Net Profit to DiagCor 345,875

+

Details please refer to Appendix

Potential Increase in Sales

= 62,000,000 x 0.5% x $1

(market size) (market share increase) (unit price)

= HK$ 310,000

Data from Interview with J & J, October 2009

Annual Sales

1.2 Female Sanitary Product Market in Hong Kong

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The annual consumption of Female Sanitary Products, especially Sanitary Napkin, is significant to the number of potential Self-Collection HPV Test to be generated.

Annual Monthly SKUs: Data obtained from major retail chains.

Potential Test Takers: Estimated by online customer survey (N=500), which showed 2.3% of respondent s are interested in doing the HPV test .

DUMM

Y

1.2 The Sanitary Napkin Market in Hong Kong

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J&J23.2%

P&G35.7%

Kimberly Clark29.3%

Others11.8%

J&J

P&G

Kimberly Clark

Others

J & J captured an overall 23.2% of the sanitary napkin market in Hong Kong, and can generate a maximum of 330,832 potential tests in 1 year.

62,000,000 x 23.2% x 2.3% = 330,832

Data obtained from major retail chains.

DUMM

Y

(annual napkin consumption) (market share) (% of interested respondent) ( Potential Tests)Potential Test Takers: Estimated by online customer survey (N=500), which showed 2.3% of respondent s are interested in doing the HPV test .

1.3 Channels affecting Customer Perception

11Estimated by online customer survey, Oct2009 (N=50)

“Doctor + TV Ad” combo - an important means in convincing women to use self-HPV testing.

*Medical Journals are powerful, but general public do not read them often;

*Government would not help advertising a commodity

Rationale #2 Partnering can lower DiagCor’s Costs and Risks

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1.DiagCor can minimize the marketing cost of launching the new HPV Test product, which is estimated to be > than HK$ 100k

2.Product cost of DiagCor HPV Test is a lot lower with J & J as partner

3.Distribution cost of DiagCor is minimized with J & J as partner

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Major marketing channels exceeds DiagCor’s Budget of HK$100k

Cost-Effect Analysis: Marketing Channels

Study based on a survey of over 500 women in Hong Kong in October 2009.

DUMM

Y

2.1 Marketing Costs/Effects in Hong Kong

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Package and Consultation Service costs are costly

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

Online Only Coupon on Napkins

Mini-Kit on Napkins

Test Kit with Napkin

Test Kit with Consultation

Service

Product Cost (per 1000 pcs)

In HK$

Product Forms

DUMM

Y

2.2 Product Cost of HPV Test Kit (With and Without Partner)

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0

50000

100000

150000

200000

250000

300000

350000

HK$

Direct Mail Online ProductBundling

Clinics Vending Stores

Distribution Channels

Distribution Cost of 2,000 Test via Different Channels

Fixed Cost Cost per 2000 Tests

DUMM

Y

2.3 Distribution Cost of HPV Test Kit (With and Without Partner)

Rationale #3 In-house Marketing and other Partnerships not working

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1.DiagCor does not have enough in-house marketing/sales personnel to administer larger scale marketing activities

2.DiagCor’s corporate strategy does not support marketing a consumer brand.

3.Forming partnerships with other organizations is not feasible at the moment.

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Rationale #3.1 Not enough in-house Marketing/Sales Personnel

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No. Of Consumer Products Marketing budget

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~HKD1,000,000

~HKD50,000

“Marketing resource/product” Ratio is at least 100% more than Diagcor could afford

J&J has superior marketing penetration capability for Diagcor

*J&J marketing budget is based on estimate what the company has spent in Hong Kong region (advertisements, posters, leaflets & etc)

Rationale #3.2 Corporate Strategy does not support marketing

Quoted from an interview with Diagcor’s COO, Billy Chan, September 29, 2009

“We are a technology company, and we spend most of our resources in the development of better products/services. We don’t need to do much marketing because we believe if our products/services are the best in the market, people will naturally come to buy from us.”

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The belief of DiagCor leads to limited marketing activities and resources. It would not be effective if marketing is done in-house.

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Rationale #3.3 Potential PartnershipsFMCG companies are the most suitable partners

Value propositionInterests in partnership with Diagcor

Potential customers generation

Assessment

• Limited • No • Very lowStaff clubs

• High • Yes • Very highFCMG Company

• High • No response • HighGovernment

• Limited • No • MediumInsurance company

• Limited • No • LowMedical website

• High • No response • HighRetail Stores

• Limited • Yes • LowUniversities/ School

Data obtained from interviews with partners, October 2009.

Appendix

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Over 90% of High Value Customers would pay $401-600 for take-home HPV test

Customer Preference: Price

* Study based on online survey, Oct2009 (N=50)

HPV test with doctor’s consultation is most preferred by customers

Study based on a survey of over 500 women in Hong Kong in October 2009.

89%

79%

47%

36%

49%

25%

I would like to receive a one-one doctor'sconsultation after the HPV test

I think self testing is convenient and manageable

I am embarassed to go to clinic for cervical cancerscreening

I am somehow embarassed to go to clinic forcervical cancer screening

I am not embarassed to go to clinic for cervicalcancer screening

I like to receive a diagnosis report without doctor'sconsultation

DUMM

Y

Customer Preference: Product

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Age 26-33 women strongly prefer buying the test kit from pharmacies

Study based on a survey of over 500 women in Hong Kong in October 2009.

Customer preference: Distribution

Poster/Pamphets are among the most preferred marketing channels

Customer preference: Promotion

Study based on a survey of over 50 women in Hong Kong in October 2009.

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Sample Customer Case

Age : 26-33, AccountantConduct body check-up on regular basis

Feel embarrassed going to clinic for HPV screeningWilling to pay equal price to run the test anonymously

Would like to get the testing kit from pharmaceutical stores

Study based on a survey of over 500 women in Hong Kong in October 2009.

DUMM

Y