General

MICODERM ANALYSIS

Queen Bello Written by kquinxtarbells · 1 min read >

Of all four courses currently enrolled in my first semester, I find ABP the most exciting, impactful, and engaging. This is not surprising at all, its unique mode of teaching with case study encourages participation from students. In the process, learning takes place warding off all sorts of distractions.

We treated the case- Micoderm in our last class.

In subsequent paragraphs, I will be analyzing the company’s operation, their decision problem, alternatives faced with and my recommendation to its management team.

Decision Problem

LIDERM, a leader in the field of medication and cosmetics products needs to decide on the next line of action for one of their brand- Micoderm, declining in profits within the last 5 years due to the Health Ministry unwavering decision to disallow a selling price increase despite the increasing manufacturing costs.

Objective

To ensure LIDERM is no longer losing money from the sale of Micoderm.

Alternatives

Jorge Serna, the general manager and the management team of LIDERM are faced with three options of either taking the products out of the Spanish Social Security Reimbursement System(SSRS) that regulates selling prices, request a price increase for a second time from the SSRS, or continue selling Micoderm at the current low price absorbing all losses with their other profitable brands.

Criteria

  • Impact on sales of Micoderm

Micoderm currently sell 2,196,000 units per annum at a rate of NGN1.53 making a total revenue of NGN 3.36 million. Annum sales are expected to be impacted by either decision taken by LIDERM. Leaving SSRS, the volume drive been enjoyed by Micoderm will decline. 60%-100% discounts offered will no longer be available to the elderly- which comprises 30% of Micoderm customers.

  • Impact of sales of other LIDERM products

It was mentioned in the case that salespeople ride on the popularity of Micoderm to secure new accounts and apparently sell other brands of LIDERM, although this impact cannot be accurately estimated. The goodwill of the company if put in jeopardy could affect the morale of the salespeople and influence other product’s performance.

  • Impact on LIDERM’s reputation

A failure of Micoderm(as a volume driver) will have a significant impact on the LIDERM’s reputation. Being perceived as unethical will be detrimental to the company image with a high risk of affecting its future earnings and capability.

Recommendation

Renegotiate with the SSRS on price increase. This time, have all data and facts to justify the increase. The details of manufacturing costs, the losses the company is incurring due to low selling price and competitor’s prices vis-à-vis Micoderm.

Further Actions

The suggestion above could take about 6-12months to process and confirm, LIDERM should in the interim initiate the below short-term strategies to minimize the losses.

  • Propose a direct pickup by the Pharmacists and distributors from the laboratory. This will cut down on the selling and distribution costs. A savings of NGN 0.32 per unit thereby leading to a positive margin.
  • Current retail margin is about 35% at LSP of NGN 1.53. Renegotiate with the pharmacists to reduce the margins to a 30% by pegging their retail selling price while we increase the Laboratory selling price. Reward will be issued for bulk purchases to compensate.

#MMBA3

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