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Executive summary By early 1988 Augustine Medical executives were actively engaged in finalizing and marketing the program for the patient warming system named Bair Hugger Patient Warming System The principal question yet to be resolved was how to price this system Several considerations are required in terms of organizational objectives demand for the product customer value perception buyer price sensitivity the price of competitive offering and direct variable costs The company has two alternatives to price this system either the skimming pricing strategy or the penetration pricing strategy The Bair Hugger system which consist of a heaterblower unit and a separate inflatable plasticpaper blanket is an air-circulation product and provides hypothermia patients surface warming Although using the skimming pricing strategy has greater return in the short run the danger is the company can not have a greater market share as well as a long run profit Also this market is price-sensitive to alternative methods On the other hand since the demand is known the estimate of the total potential market for this system is about 2737 units and 1000 units of blankets for each blower unit per year and there are many substitutes existing we strongly recommend that the company should employ penetration pricing strategy to market this system In conclusion the company can get into the market quickly and gain favorable market shares as soon as possible if it offers a low-priced blower unit Also the company could have long-term profits by selling lots of blankets only if they have greater market shares Problem Definition In July 1987 Augustine Medical was incorporated as a Minnesota corporation to develop and market products for hospital operating rooms and postoperative recovery rooms One of two products the company planned to produce and sell was the Bair Hugger Patient Warming System designed to treat postoperative hypothermia in the recovery room Postoperative hypothermia a condition defined as a body temperature of less than 36 degrees
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