Case Study Description of Tupelo Medical: Managing Price Erosion
Robert Davidson, pricing manager for Tupelo Medical, was concerned about the variability in price paid for its top-selling product, the Micron 8 Series blood pressure monitoring system. Using historical transaction data, Davidson must determine the appropriate price floor. Setting a price too high risked the loss of a large number of customers, putting the company at substantial risk due to the importance of the product. Setting a price too low would impact Davidson's ability to meet the stated objective of increasing margins by 3 percent. He wondered what the optimal price floor would be and what the expected profits would be for that new price floor. Additionally, the company's business varied considerably by geographic region, account size and account type. As a result, he needed to consider whether it made sense to set a single price floor or whether he could improve profits by allowing some variability in the price floor by customer segment.
Authors :: Eric T. Anderson, Daniel Abraham, Elizabeth L. Anderson, Santaella Gus
Swot Analysis of "Tupelo Medical: Managing Price Erosion" written by Eric T. Anderson, Daniel Abraham, Elizabeth L. Anderson, Santaella Gus includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Floor Price facing as an external strategic factors. Some of the topics covered in Tupelo Medical: Managing Price Erosion case study are - Strategic Management Strategies, Pricing and Sales & Marketing.
Some of the macro environment factors that can be used to understand the Tupelo Medical: Managing Price Erosion casestudy better are - – increasing inequality as vast percentage of new income is going to the top 1%, increasing transportation and logistics costs, customer relationship management is fast transforming because of increasing concerns over data privacy, central banks are concerned over increasing inflation, there is increasing trade war between United States & China, geopolitical disruptions, supply chains are disrupted by pandemic ,
increasing energy prices, challanges to central banks by blockchain based private currencies, etc
Introduction to SWOT Analysis of Tupelo Medical: Managing Price Erosion
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Tupelo Medical: Managing Price Erosion case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Floor Price, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Floor Price operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Tupelo Medical: Managing Price Erosion can be done for the following purposes –
1. Strategic planning using facts provided in Tupelo Medical: Managing Price Erosion case study
2. Improving business portfolio management of Floor Price
3. Assessing feasibility of the new initiative in Sales & Marketing field.
4. Making a Sales & Marketing topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Floor Price
Strengths Tupelo Medical: Managing Price Erosion | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Floor Price in Tupelo Medical: Managing Price Erosion Harvard Business Review case study are -
High brand equity
– Floor Price has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Floor Price to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Diverse revenue streams
– Floor Price is present in almost all the verticals within the industry. This has provided firm in Tupelo Medical: Managing Price Erosion case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Sustainable margins compare to other players in Sales & Marketing industry
– Tupelo Medical: Managing Price Erosion firm has clearly differentiated products in the market place. This has enabled Floor Price to fetch slight price premium compare to the competitors in the Sales & Marketing industry. The sustainable margins have also helped Floor Price to invest into research and development (R&D) and innovation.
Operational resilience
– The operational resilience strategy in the Tupelo Medical: Managing Price Erosion Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Learning organization
- Floor Price is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Floor Price is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Tupelo Medical: Managing Price Erosion Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Ability to lead change in Sales & Marketing field
– Floor Price is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Floor Price in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Low bargaining power of suppliers
– Suppliers of Floor Price in the sector have low bargaining power. Tupelo Medical: Managing Price Erosion has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Floor Price to manage not only supply disruptions but also source products at highly competitive prices.
High switching costs
– The high switching costs that Floor Price has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Cross disciplinary teams
– Horizontal connected teams at the Floor Price are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Analytics focus
– Floor Price is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Eric T. Anderson, Daniel Abraham, Elizabeth L. Anderson, Santaella Gus can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Digital Transformation in Sales & Marketing segment
- digital transformation varies from industry to industry. For Floor Price digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Floor Price has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Innovation driven organization
– Floor Price is one of the most innovative firm in sector. Manager in Tupelo Medical: Managing Price Erosion Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Weaknesses Tupelo Medical: Managing Price Erosion | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Tupelo Medical: Managing Price Erosion are -
Capital Spending Reduction
– Even during the low interest decade, Floor Price has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Low market penetration in new markets
– Outside its home market of Floor Price, firm in the HBR case study Tupelo Medical: Managing Price Erosion needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Tupelo Medical: Managing Price Erosion, it seems that the employees of Floor Price don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Slow decision making process
– As mentioned earlier in the report, Floor Price has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Floor Price even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
High bargaining power of channel partners
– Because of the regulatory requirements, Eric T. Anderson, Daniel Abraham, Elizabeth L. Anderson, Santaella Gus suggests that, Floor Price is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Floor Price is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Tupelo Medical: Managing Price Erosion can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Interest costs
– Compare to the competition, Floor Price has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Slow to strategic competitive environment developments
– As Tupelo Medical: Managing Price Erosion HBR case study mentions - Floor Price takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
High cash cycle compare to competitors
Floor Price has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Increasing silos among functional specialists
– The organizational structure of Floor Price is dominated by functional specialists. It is not different from other players in the Sales & Marketing segment. Floor Price needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Floor Price to focus more on services rather than just following the product oriented approach.
Lack of clear differentiation of Floor Price products
– To increase the profitability and margins on the products, Floor Price needs to provide more differentiated products than what it is currently offering in the marketplace.
Opportunities Tupelo Medical: Managing Price Erosion | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Tupelo Medical: Managing Price Erosion are -
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Floor Price can use these opportunities to build new business models that can help the communities that Floor Price operates in. Secondly it can use opportunities from government spending in Sales & Marketing sector.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Floor Price to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Sales & Marketing industry, but it has also influenced the consumer preferences. Floor Price can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Learning at scale
– Online learning technologies has now opened space for Floor Price to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Floor Price to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Floor Price to hire the very best people irrespective of their geographical location.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Floor Price can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Leveraging digital technologies
– Floor Price can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Low interest rates
– Even though inflation is raising its head in most developed economies, Floor Price can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Better consumer reach
– The expansion of the 5G network will help Floor Price to increase its market reach. Floor Price will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Sales & Marketing industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Floor Price can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Floor Price can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Floor Price can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Tupelo Medical: Managing Price Erosion, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Floor Price in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Sales & Marketing segment, and it will provide faster access to the consumers.
Using analytics as competitive advantage
– Floor Price has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Tupelo Medical: Managing Price Erosion - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Floor Price to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Threats Tupelo Medical: Managing Price Erosion External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Tupelo Medical: Managing Price Erosion are -
Increasing wage structure of Floor Price
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Floor Price.
High dependence on third party suppliers
– Floor Price high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Regulatory challenges
– Floor Price needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Sales & Marketing industry regulations.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Floor Price in the Sales & Marketing industry. The Sales & Marketing industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Floor Price can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Tupelo Medical: Managing Price Erosion .
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Floor Price.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Floor Price with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Stagnating economy with rate increase
– Floor Price can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Consumer confidence and its impact on Floor Price demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Shortening product life cycle
– it is one of the major threat that Floor Price is facing in Sales & Marketing sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Floor Price will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Technology acceleration in Forth Industrial Revolution
– Floor Price has witnessed rapid integration of technology during Covid-19 in the Sales & Marketing industry. As one of the leading players in the industry, Floor Price needs to keep up with the evolution of technology in the Sales & Marketing sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Floor Price in the Sales & Marketing sector and impact the bottomline of the organization.
Weighted SWOT Analysis of Tupelo Medical: Managing Price Erosion Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Tupelo Medical: Managing Price Erosion needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Tupelo Medical: Managing Price Erosion is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Tupelo Medical: Managing Price Erosion is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Tupelo Medical: Managing Price Erosion is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Floor Price needs to make to build a sustainable competitive advantage.
