Sunrise Medical's Wheelchair Products

1149 words 5 pages
1. The average return on sales (ROS) in the US wheelchair industry is between 1-2% in 1993. What are the most important structural conditions that make the industry unattractive?

Evaluating the industry based on Porter's Five Forces framework, the following stand out as the most import conditions making the industry unattractive:
• Bargaining Power of Customers: About seventy-five percent of wheelchair sales in the US were covered by insurance. Medicare was the primary insurance program, and other insurers often followed Medicare's lead. Medicare limited reimbursements, which kept a lid on the price of standard and lightweight standard chairs. More expensive chairs were not fully covered, which could dampen demand for those products.
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And because it operates as single entity, the corporate expenses and divisional overlap that result at Sunrise is not an issue. On a divisional basis, Quickie reports high ROS because its overall costs are lower, which flows to net income despite having both higher interest expense and higher taxes than Invacare. The Guardian division, on the other hand, had a cost structure similar to E&J, especially on the COGS line, which was a fully ten percentage points higher than Quickie, Guardian's sister company. Guardian's slightly lower SG&A doesn't come close to making up the difference, and thus drags returns lower. That's the accounting of it.

Looking at the firms in terms of the Value Chain, it makes sense that Invacare has built a lead in ROS. Invacare is a strong sales and marketing organization which attempts to offer its customers complete service. The company operates with an integrated sales force, thereby improving efficiency and productivity. It has a strong presence in every market segment and distribution channel, so its bundling strategy was more effective despite the fact that almost all dealers carried every manufacturer's product line.

3. Should Chandler allow Guardian to introduce a lightweight standard wheelchair?
Though the two products would compete, I would recommend that Chandler give Guardian the go-ahead. With just a 2% share of the standard wheelchair market and nothing else,