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Zif Medical Devices
Marketing Strategy

Zif will initially pursue a niche marketing strategy targeting psychiatric and pre-filled nuclear medicine syringe markets. After penetrating these niche markets Zif will then expand to the overall syringe market.

Product Positioning
Zif will be positioned as an automatically safe, easy to use product, with a competitive price. Competitors' products lack one or both of these features (refer to Competitor Analysis section, page 7). The Zif syringe provides maximum safety with ease of use through these two features:
  1. The Zif syringe comes as one unit and can easily be unlocked, re-locked, and positioned to allow the user to draw the injection fluid.
  2. During the shot, the sheath is automatically set to the locking position. Then, when the needle is retracted, the sheath automatically covers the needle and locks into place over the needle, thus, ensuring that the needle is never exposed after the shot is administered.
Zif's automatic design12 will differentiate it substantially from the major players, BD and Sherwood (97% combined market share). In addition to its automatic feature, Zif beats BD and Sherwood on ease of use, and can match them on price and availability.

Price
Zif will price its safety syringe at a competitive 16 cents. In the safety syringe market, Zif will be priced at a slight premium compared to the lowest price of Becton Dickinson's Safety-Lok and Sherwood's Monoject, while beating or matching the prices of other competitors in the market. Zif s superior customer-driven product design will enable a premium pricing as compared to the Safety-Lok and Monoject. However, market research has indicated a clear need for low cost, and a substantial benefit versus cost requirement. Therefore, Zif has chosen a pricing position that establishes a premium compared to Safety-Lok and Monoject, yet lower than other products whose design is also superior to Safety-Lok and Monoject. In addition, the low price will allow Zif to build market share quickly against small competitors, while ramping up production. These prices will likely be adjusted as factors such as market demand, name recognition, plant capacity and marketing channels change. In addition, the pricing will depend upon the options that are pursued and the partnership agreements.

In terms of future prices, according to a recent pricing survey, increases in the price hospitals and group purchasing organizations pay for needles and syringes have slowed to a virtual standstill, with average prices for syringes rising only 0.9% and average prices for needles rising only 0.7%. This reverses the trend of rapid price increases seen in 1994's survey of this high-volume, low price commodity item, when prices increased an average of 6.6% over 1993. Not one of the executives responding expects prices to rise any time soon. While competition is the most significant factor keeping the lid on prices, two respondents - both group purchasing organizations - cited the rising cost of materials as exerting upward pressure on costs.

Below is an analysis of the unit economics for options #1 (license) and option #2 (manufacture).

Option #1 (License)- Unit Economics
Based upon royalty arrangements similar to industry practices, Zif s royalty share will be 3.0 cents per unit (see below). The basic assumptions in this analysis are that:
  1. The value premium for safety products is determined by subtracting the average price of non-safety products from the average price of existing safety products on the market.
  2. The incremental manufacturing cost of safety products is subtracted from the net sales premium determined in step one.
  3. Zif will negotiate a royalty fee equal to 40% of the net premium derived in step 2.
Option #2 Manufacturing Unit Economics
Based on product costing analysis (below), a 3cc Zif safety syringe will have a variable cost of 7.2 cents. The distribution partnership mark-up is estimated at 20%. This leaves Zif with a wholesale price of 13.3 cents. This will provide a gross margin of 46% or 6.1 cents.
Opt. #1
License
Opt. #2
Manuf.
Avg. Sale Price
Distributor Margin
Contracted Cost
Contract Expense
Avg. Depreciation
0.160
0.015
0.070
---
---
0.160
0.027
---
0.070
0.002
Gross Margin
Royalty (40% GM)
0.075
0.030
0.061
---
Zif Gross Margin0.0300.061

Promotion and Distribution
Promotion of Zif will be targeted towards psychiatric hospitals, and nuclear medicine suppliers as well as to potential strategic partners with expertise in marketing and/or manufacturing.

Selling in the industry entails three separate alternatives which are:

  1. Selling directly to the end-user. This alternative will require a large sales force. Sales would increase at a slow pace and significant promotional expense is required.
  2. Selling to small distributors who service the medical industry. Again, this alternative involves obtaining a large amount of testing, product research, and end-user data to get them to carry Zif. The average costs in this alternative is a 10% distributor markup.
  3. Selling to Group Purchasing Organizations (GPO's). The role of a GPO is to negotiate favorable contracts with manufacturers through exclusive contracts for the hospitals they represent. GPO's are prevalent in the industry and most full-line hospitals are members of GPO's. In addition, psychiatric hospitals are moving more towards membership with GPO's. The selling to a GPO entails obtaining a large amount of testing, product research, and end-user data. In addition, a low price is key to an acceptance of a bid proposal. "Invitations to Bid" on a particular product are sent to vendors on their bid list then the bids and product samples are sent to a committee who decides on what products and companies with whom to develop agreements. Most agreements have two-year firm prices. The average costs involved in this alternative is a "3% of sales" fee to the GPO and a 10% or less markup to the distributor. This alternative would require the least amount of sales force, however large amounts of end-user acceptance data will be required. Zif has made initial contact with Tenet and Amerinet, two of the largest GPO's with over 1500 hospital memberships each. In addition, Zif has discussed "Invitation to Bid" procedures with Hospital Purchasing Service located in Michigan with a membership of over 150 hospitals.

In addition, the selling of product to state owned psychiatric hospitals requires either: 1) selling to the state through the process of waiting for the state to put out a bid, submitting a bid, then waiting for the state to decide on the items they would like to place on their list of items the hospitals are allowed to purchase and/or 2) pulling the product through the channel by selling directly to hospitals then, if the hospital wants the product, waiting for them to request the state to put the item on the states list or the hospital will buy direct.

The most effective form of selling to psychiatric hospitals is through direct contact with hospital nursing managers, hospital infection control managers, and purchasing managers, thus pulling our product through the channel via end-user demand for our product. In addition, the use of samples and testing is key to decision making. Based on these findings, Zif will pursue strong marketing partnerships for the promotion of the Zif safety syringe.

Sales Strategy
Option #1 - License
In year one, with an initial investment of $400,000, Zif plans to spend $150,000 on the direct selling efforts to end-users and strategic partners. The remaining going to prototype development, pilot production, and field tests. Zif plans to utilize four sales representatives with previous sales experience in the medical field. The pursuit of licensing will involve targeting key manufacturers interested in extending their product line or looking for product improvement. After a licensing agreement is reached no sales representative will be required. (See page 26 for marketing budget)

Option #2 - Manufacture
In year one, with a initial investment of $400,000, Zif plans to spend $150,000 on the direct selling efforts to end-users and marketing partners, while the remaining going to prototype development, pilot production, and field tests. As in option #1, Zif plans to utilize four sales representatives with previous sales experience in the medical field. One will pursue end-user acceptance and order generation through trade promotions, while two will pursue marketing partnerships. The pursuit of a marketing partnership will involve the targeting of key distributors. An overall 20% markup allowance has been made for the costs of the distribution partnerships. This is an overall doubling of the current industry distribution markup allowance between manufacturer and distributor.. In subsequent years, we have allocated a 10% annual growth in marketing expenditures. (See page 26 for marketing budget)

Sales Forecasts
Zif expects to capture a 5 %, 10%, and 15% of the psychiatric hospital and nuclear pre-filled syringe markets in years one through three. We will follow this initial market penetration by expanding into the family practice and hospital markets. Zif estimates that in years four and five it will capture 5%, and 9% of the overall U.S. syringe market. (See page 27 for calculations)

12 Zif syringe drawings and prototypes can be made available upon receipt of the non-disclosure form (last page).


Zif Medical Devices
Table of ContentsAppendices
0. Executive Summary
1. Product Design
2. Market Analysis
3. Commercial Options
4. Marketing Strategy
5. Manufacturing Plan
6. Organization
7. Corporate Vision, Mission
8. Financial Plan
Depreciation Schedule
S&A Budgets
Sales Forecast
Focus Group Summaries
Testimony
Management Resumes
Patent Attorney's Opinion
FDA Consultant's Option
© 1996 Zif Medical Devices. All rights reserved.