Case Study of Vistakon and Disposable Contact Lenses

1411 words 6 pages
Case Study of Vistakon and Disposable Contact Lenses

Vistakon is a well-established, overwhelming market leader in the disposable contact lens industry, based on strong brand equity and channels of distribution. Additionally, as a subsidiary of Johnson and Johnson, Vistakon has considerable resources at its disposal. The launching of 1 Day Acuvue, with newly invested manufacturing technology in place, provides a great opportunity to preempt competition and thus enhance its positioning. However, 1 Day Acuvue potentially flourishes by cannibalizing the company's existing product lines such as Acuvue and Surevue. With a major portion of its sales ($250 million) coming from these products, Vistakon faces significant risk in launching 1 Day
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However, premium pricing will reduce cannibalization by occupying a distinct price-performance segment.

Based on our assessment, we recommend the following pricing strategy:

(1) Charging 10% premium over previous cost per lens to consumers
(2) Price discriminating based on purchase volume (=volume discount)
(3) Improving the gross margin of ECP by lowering price

Vistakon should opt for the premium price strategy, launching 1-Day Acuvue at a higher retail price and running short-term price promotions if needed to assess demand. This is the most sensible option in minimizing cannibalization of other products and maximizing profit.

Volume discounting is beneficial to Vistakon by encouraging quantity order placement. This in turn will lower production and overhead costs with efficiency in handling fewer orders of larger quantities vs. high quantity of orders of low volume.

While the new set of pricing to the ECPs provides similar gross profit to Vistakon, the increased margin to ECPs will encourage them to promote and push 1-Day Acuvue to customers vs. other disposables and thus increase sales of 1-Day Acuvue. (see Exhibit 4)

Launching strategy: Advertising and Promotion

Acquisition cost and LTV

Based on the Western regional launch, Vistakon spent approximately $77 per new customer, with LTV of the customer at $655 net of acquisition costs.(see Exhibit 5) While the company's