Cochlear Bionic Ear Essay, Research Paper

1. Issues

? Should they increase or decrease the price?

? Should they invest in marketing their implant better?

? Should they use the extra capacity to launch a children model or a cheaper second one?

2. Background

Company

In 1979, Nucleus Limited, a local company specializing in cardiac pacemakers and diagnostics ultrasound imaging equipment was chosen to commercialize an implanting hearing devices into the cochlea, or inner ear, invented by the University of Melbourne, Australia.

By September 1982, they were ready to perform the first implant, which proved to be a huge success. The following year, Nucleus Cochlear Pty Limited set up in Sydney to handle the new innovation?s research and development, manufacturing, and sales.

The first US implant took place in 1983.

Real momentum began two years later when the US Food and Drug Administration (FDA) gave its approval. Only when this had been granted would US health insurers provide coverage for the product and the surgical procedure necessary to implant it.

In 1989, Cochlear produced and began clinical tests on the world?s first inner ear implant for children.

Cochlear introduced the European market in 1986, and set up an office, Cochlear AG in Basel, Switzerland, in 1987. The FDA?s opinion was regularly adopted by the European medical authorities, which didn?t have regulatory bodies such as the FDA for medical devices.

By 1989, when the national health systems in certain countries began to reimburse patients in full or on a quota

basis, the company?s European position strengthened, which led to worldwide growth from 1988 to 1989 despite the decrease in US unit sales.

In an attempt to open up the Japanese market, a four-man operation called Nihon Cochlear was establish in Tokyo in 1988. On this market the FDA was not valid and a governmental import license, which Cochlear was waiting for had to be obtained.

The company reached financial breakeven for the first time in 1986.

Unit sales in the US increased from 409 in 1987 to 596 the following year, although they decreased to 553 in 1989.

Market

There were two categories of deaf people, about equal in size: ?postlingually deaf? (due to illness, accident,), and ?prelingually deaf? (deaf at birth). The hearing impaired market was comprised of the profoundly deaf and the severely deaf.

Severely deaf people could be helped, to a greater or lesser extent, by a hearing aid, which amplified sound, at a cost of $1,000. Unsatisfied people could represent a potential market. Generally, hearing aids were useless for the profoundly deaf people.

Researches showed that the market size in developed countries was estimated at 500,000 profoundly deaf adults worldwide, and another 500,000 severely deaf adults.

One piece of research showed that over 40% of potential users were against the idea of ?having wires in their head?, ?were afraid of doctors and hospitals?, or ?saw the procedure as far too risky to justify?. Cochlear therefore estimated that only about 10% of the profoundly deaf, or about 50,000 patients worldwide, were possible implant candidates. Apart from this backlog, the data suggested that another 3,000 new cases occurred each year worldwide.

Cochlear assumed that about 10% of deaf people were able to fund the implant themselves. Widely dispersed, there were deaf people in all age categories, although 25% of the profoundly deaf were over 65 years of age.

The decision-making process for an ear implant could be complex, as there were many actors and influences well beyond just the end user. These included doctors, regulatory authorities, families, insurance companies, deaf associations, and the media.

The characteristics of patients and doctors differed in the US, Europe, and Japan. American patients tended to be litigation prone and self-directed in their decisions. American specialists characteristically offered patients? options rather than dictating what had to be done. European deaf patients were more influenced by the surgeon, were not as litigation minded, and the quality of life was more pivotal in their decision making than were professional prospects. They were somewhat swayed by the look of the device, although less so than Americans. Since the main motive for Japanese patients was to cure the problem, they tended to do as their doctors told them.

Of the 7,000 American ENT (ear-nose-throat) specialists, 200 fitted Cochlear devices in the implant centers, of which 100 did so at least once a year. Of the 2,500 European ENT specialists, 40 regularly implanted and fitted the device.

After six years of lobbying by Cochlear, the UK?s Department of Health and Social Security decided in 1990 to fund 100 units per year for three years. With Sweden beginning in 1983 and Norway in 1986, Scandinavia sponsored about 20 units per year.

Private or government insurance covered most Americans, with 60 private health insurers providing coverage for about 75% of those insured; the government welfare programs insured the rest. These reimbursement schemes invariably fell a few thousand dollars short of the average $30,000 necessary for the product and procedure. It was then either to the patient to find the money, or for the hospital to agree to carry the shortfall, which was the 50% of the time the case. Workers?

disability insurance covered relevant cases in Switzerland. Germany, which accounted for 60% of all European units sold, was the only country whose medical insurance system provided 100% coverage to anyone who needed the implant. In the remaining European countries, implants were funded by research and charity institutions, and were decided on a case-by-case basis.

Five competitors characterized the market: 3M, Symbion, Minimed, Hochmair, and Hortmann. 3M, which initially dominated the market but, once Cochlear entered, gradually lost market share and faded from the scene late in 1989. Symbion had managed to produce an unit which, while using a much lower level of implant technology, nonetheless achieved the same hearing performance, and at the same price, as Cochlear?s device. It had some competitive disadvantage due to esthetic and infection problems; however, it was considered as a flexible product because any kind of stimulation could be used whereas the Cochlear device only allowed radio wave transmission. Minimed?s device had only 16 channels. Its performance could potentially be as good as Cochlear?s due to its capacity to better represent certain non-speech sounds, even with its problems in micro-chip technology, which disable it to receive FDA approval. There were rumors that the problem would soon de solved. Neither Hochmairs nor Hortmann were considered serious opponents given their lag in the important categories of clinical benefit, effectiveness, and safety.

3. SWOT

Strengths

? The Cochlear hearing system is the most technologically advanced in the world (only one to have a 22-channel electrode, which enabled more sounds to be heard and could be fine-tuned for a particular pitch and loudness by the surgeon, thereby catering to the individual hearing needs of each patients)

? Failure rate is only 1%

? Got rid of 3M, their biggest competitor

? Market leader, own 90% of the market in the US and 60% in Europe

? The first implant design, which contained much more capacity then it really needed, enabled the patient?s hearing ability to be improved at some future date without having to undergo further surgery, by updating and modifying the speech processor

? Can be focus on speech processor development only

? Spreaded suppliers? dependence (the components used were very specialized and tended to come from single-goods suppliers worldwide)

? A constant stock was kept to eliminate delays in the event of problems in the suppliers? market and in order to get bulk prices

? Cochlear was the only one with Food and Drug Administration (FDA) approval

? Benefit from the image of their 3,500 satisfied patients worldwide

? Organization, size and professionalism

? Clinical benefit and effectiveness

? Safety

? Benefit from their brand name and logo

? Cochlear trained doctors to ?troubleshoot? eventual problems relating to the use of patient?s unit

? Five years of guarantee, but expected to last a lifetime

? Have well trained salespeople, whom are supported by a team of clinical experts who advised, counseled, and handled any problems that arose, using clinical support centers

? Offices also maintained a technical service team, reimbursement specialists, and 2-3 marketing people to organize conferences, handle PR and prepare brochures

? Generally, when new updates were discovered, Cochlear benefited from free advertising due to media attention

? Worldwide awareness among ENT surgeon was 70-80%

? Good communication channels, supports…

? Worldwide non-usage rate is 1%

Weaknesses

? Despite the fact that they are the best on the market, the quality of the product isn?t so good, it isn?t yet enough developed

? Need three months of practice and training ? for children, it may take even years

? Impossibility to predict before a surgical operation how each individual patient would respond ? only 50% were eventually able to understand speech without lip reading, and could even use the telephone

? New product development could not be heavily publicized because users would put off any buying decision when they anticipated a model change, which caused serious inventory problems

? They have a poor return on assets due to the fact that only 50% of the production capacity is used

? The price is relatively high, $30,000 including hospital and surgical expenses (three times the price of 3M)

? Most patients paid for their own new units, or updates, in US because the insurance companies refused to pay

? Worldwide awareness among potential users was only 5%

Opportunities

? Huge potential of growth (50,000 more units)

? New updates

? Still growing in Europe

? Lobbying from deaf community to government, may open new market

? Improve reliability of the units and the performance of the system

? Find new uses of the ?Cochlear technology? (implantable hearing aids, tinnitus, and functional electrical stimulation ?FES?), and expand them

? Potential for an implant ?behind-the-ear? system

? Increase potential users? awareness of the existing product

? Receive the FDA approval for children, and therefore exploit this segment

Threats

? Competition from Symbion and Minimed

? Drop in the sales of the hearing implant device

? The ?deaf pride? movement, anti-Cochlear

? Growing competition from University medical schools

4. Alternatives

Raising the price would be dangerous due to Symbion?s competition, which is producing at the same performance and price criteria. Therefore if Cochlear decides to raise the price, it wouldn?t be anymore the most attractive on the market. In addition, the risk of losing 25% of the US market, which depend on US government support, has to be balanced. However, as we know, performance is the most important characteristic for potential customers. In other words, Cochlear has to deliver a higher competitive performance to explain an upper price, which is not actually the case.

On the other hand, decreasing the price would enable Cochlear to be even more competitive, and would help non-fully insurance coverage deaf people to afford the implant. However, cutting the price means also cutting spending. Those spending may take several forms within which is research and development; which department took a survival role in this field.

Investing in marketing better their implant wouldn?t be so useful, due to the fact that generally patients are informed by ENT specialists on the latest technology, and worldwide ENT?s awareness is between 70-80%, which will definitely increase by itself through word of mouth. Potential patients? 5% awareness is not alarming, especially if we look at Cochlear?s market share, which is 90% in the US and 60% in Europe. These numbers show that patients?non-awareness hasn?t a big impact on sales.

Concerning the idea of using the over-capacity of production to create a second cheaper model this may open new markets, like Turkey and Greece. Nevertheless, this may cause brand dilution due to the fact that Cochlear is now trying to emphasize the high performance of its product. Instead, this extra-capacity could be used for developing the children market, for which Cochlear is on the way to receive the FDA approval. This segment should be easier to penetrate due to parents? willingness to provide the best to their children, and Cochlear to take advantage of its actual advanced technology to conquer it.

5. Recommendation

Personally, I would recommend Cochlear to invest in increasing the number of ENT specialists, who fit Cochlear devices in the implant centers and to not, in a short-term, touch the price. When we know that on 7,000 ENTs in the US, only 200 fitted representing 90% of the actual market, and that in Europe on 2,500 ENTs, only 40 fitted representing 60% of the market, we may definitely say that this will be a key success for future growth.

Using the extra-production capacity to develop and enlarge the children segment seems more logical for me, when we may hope an easier market penetration, and at the same time skip any problem of brand dilution.

Bic vs. Gillette

Questions

1. I think that the man himself is, to a large extent, the only one involved in his decision to buy a disposable razor. In some cases, his wife may play a certain role, but more in the ? buyer role ?. Due to the fact that it is a personal product, it seems logical that the user is the initiator, influencer (with sometimes his wife), decision maker, and the user , and in a less extent also the buyer, which role is often taken by his wife.

Personally, I think that this scheme is more or less the same for a system razor with a more powerful role hold by the man, due to the fact that it is not anymore a one use product.

1. Here, we should make a differential between people who attach a certain importance to it, and those who do it mechanically.

Certain people see in it an opportunity to show their masculine side, and therefore are really involve in the buying decision process. For those people, the behavioural aspect that characterized them is the ? status-seeking men ?. Those people are ready to pay an extra price for a product that would ensure them with more ? security ?.

Others, do it more like an ordinary action than anything else, and are looking for a simple product which will give them the sensation of having done a ? good deal ?, by purchasing a cheap product that will end more or less with the same result.

2. What can influence a man to purchase a wet-shave razor ? First of all, I think that the pecuniary problem may explain numerous of cases where a man chose a wet-shave razor rather than an automatic one. Secondly, there is also the ? old way ? aspect of the action that may play a role in his decision. Finally, there is no need to recharge it ? as the automatic one ? and, in the case of a forgetting (travel) or loss, there is less psychological retention to buy another one.

Gillette pursued the strategy of ? status-seeking men ?, emphazising on the masculinity of this action, and enabling the user to self-identified with the item. Therefore, the consumer will be ready to pay an additional amount to get a better product.

At the opposite, Bic pursued a strategy of turning status products into commodities, arguing that consumers will not feel embarrassed to buy and be seen using the new, cheaper version of the product. Bic?s marketing strategy is simple : maximum service, minimum price.

3. Gillette should continue to pursue its ? status-seeking men ? strategy, and at the same time emphasized on the message that disposable razors should be used only when traveling and in the licker room, at the condition that the consumer has forgotten his ? normal razor ?. As long as they are performing well, as it is the case actually, I don?t see the need to change their strategy. However, this may depends on the consumers?readiness to absorb new products. If they are open to change their daily habits, which is not often the case, there could be a possible change in their marketing strategy. This last one is very risky, due to the fact that Gillette is actually the market leader due to all the importance that they have given to the shaving action, and the ? old fashion ?.

4. I think the successes that Bic acquired in the pen and lighter market may be explain by the fact that those market don?t touch directly the ?consumer look?. Therefore, Bic had the opportunity to demonstrate that those items could be taken more as a commodity rather than a status product, which was rapidly accepted by the market. But as soon as Bic tried to do so on the consumer care product, it failed, as can show the perfume, and at a less extent the shaver markets. The human being is ready to change status products into commodities as long as they don?t touch its own look directly, but all the population. That is the reason, I think, why Bic didn?t succeed in the perfume market, because it devaluates directly a person regarding to his outside aspect : ?Oh, you smell Bic !?. Bic is known as a very cheap brand, nobody wants to give himself a Bic look. The relative shaver market failure can be explained by the fact that it touches the look of the consumer. Do you want to shave yourself with a cheap razor, and expose yourself to a higher risk of cutting your skin and of allergy ? Everyone would answer : ? No !?. The small market that Bic get is due to the fact that it is very convenient, in the case that you have forgotten your habitual razor, to buy a disposable one to momentarily help you.