1. MGMT 650B: Consulting Skills for Managers DiagCor Self-collection HPV Test Marketing Plan October 2009 STRICTLY CONFIDENTIAL Team E Yuun Lam (09903803) Richard Ma (08935005) Victor Tsang (08936073) Chris Tsui (08936542) Elizabeth Siu (08935615)

2. 1 Storyline DiagCor has developed a new Self-Collection HPV Test for the detection of human papillomaviruses (HPV) in women, which is the main cause of cervical cancer. DiagCor would like to expand the market for the test in Hong Kong. The self-collection diagnostic service model is new to Hong Kong, and DiagCor has limited resources in expanding the market for the newly developed Self-Collection HPV Test. Situation Challenges How can DiagCor achieve a sales of HK$ 1M in one year for the Self-Collection HPV Test with a limited budget of HK$ 100K? Question To license the Self-Collection HPV Test technology to FMCG companies such that testing kits will be bundled with female sanitary products offered by the FMCG companies and sold to customers via supermarkets and pharmacies. Answer Rationale 2. DiagCor can generate at least $1M revenue in one year by partnering with FMCG companies with mutual benefits 3. DiagCor has much lower costs and risk by partnering with FMCG companies than sticking to in- house marketing program. 2.1 The number of customers that FMCG companies can reach allows DiagCor to generate $1M revenue from HPV tests 2.2 The Doctor + TV Ad campaign usually adopted by FMCG companies can effectively convince potential test takers 2.3 The partnership creates value for FMCG companies so the win-win situation can be sustainable 3.1 DiagCor can leverage FMCG companies’ effective marketing channels that costs more than HK$100k, and that DiagCor cannot afford on its own 3.2 Product cost of DiagCor HPV Test is a lot lower with FMCG companies as partner 3.3 Human resource cost of DiagCor is minimized with FMCG companies as partner 1. DiagCor cannot effectively achieve its goal with In-house marketing resources and partnerships with other organizations 1.1 DiagCor does not have enough in-house budget to carry out new product marketing 1.2 DiagCor’s corporate strategy does not support marketing a consumer brand. 1.3 Forming partnerships with other organizations is not feasible at the moment.

3. 2 Recommendations Set at $450/Test Testing Kits are bundled with female sanitary products offered by FMCG companies, such as sanitary napkins. Each Testing Kit includes a sample collection bag, test instructions, and a return mail envelop. Customers will send in samples and payments via mail. Test results would then be mailed back to customers Price* Product Joint-promotions with FMCG companies, and a portion of marketing budget supported by DiagCor Promotion Testing Kits to be sold together with female sanitary products at supermarkets and pharmacy chains that the partnering FMCG companies have already established relationship with. Place Profit will be shared by DiagCor and FMCG partners on a 50-50 basis Profit Model To dedicate an in-house marketing manager to implement the project. If not, appoint an agent of testing services to implement the project on a profit sharing basis. Implementation * The retail price is set according to the results of Online Customer Survey October 2009 Other details please refer to Appendix

4. Expected Results Profit and Loss Analysis – Proposed Marketing Plan Sales* **1,228,050 Cost of Goods Sold238,250 Gross Profit989,800 Expense Marketing100,000 Operating220,000 Total Expense320,000 Operating Profit669,800 Profit Sharing to FMCG Companies (50%)334,900 Net Profit to DiagCor334,900 3 *Number of Test Sold = 2729 (est.) = Potential Customer Reached x Marketing Efficiency x Response Rate x Penetration **Price of Test = HKD450 (from Online Customer Survey, Oct 2009) For detailed costing information, please refer to Appendix DiagCor can achieve a revenue of over HK$ 1MM with profit Includes the cost of sample collection, examination, and result notification Includes producing 50,000 testing kits for bundling Includes cost of test administrator, website revamp and overhead 50% profit sharing to FMCG companies

5. Why Take This Project Seriously? 1. Prevent the loss of first-mover advantage 2. Realize the potential return of this service immediately 3. Ride on the recent marketing campaigns run by HPV vaccine providers 4. If the self-collection diagnostic service model becomes a success – DiagCor could replicate this success model to other current diagnostic products

6. Rationale #1 In-house Marketing and other Partnerships not working 5 1. DiagCor does not have enough in-house marketing resources to carry out new product marketing effectively 2. DiagCor’s corporate strategy does not support marketing a consumer brand. 3. Forming partnerships with other organizations is not feasible at the moment.

7. 200 Rationale #1.1 Not Enough In-house Marketing Resources 6 No. Of Consumer Products Marketing budget 20 ~HKD8,000,000 ~HKD300,000 “Marketing Resource/Product” Ratio of DiagCor is only 37.5% that of FMCG companies (eg. J & J) DiagCor has very limited marketing resources to market new product/service as compared to FMCG companies (eg. J & J) *Data Source: Interviews with DiagCor and Partners, October 2009

8. Rationale #1.1 Not enough in-house Marketing/Sales Personnel DiagCor Resources 1 Hours Marketing staff2,080 Sales staff4,160 Committed hours – staff running @ 95% capacity(6,555) Available hours312 Estimated Staff Requirements 2 Marketing staff1,040 Sales staff2,080 Total3,120 Staffing Deficit(2,808) DiagCor has indicated no additional funding for internal resources is available for commitment for the HPV testing project Data Source: interview with DiagCor, October 2009. 1 Assumes average full-time work week of 40 hours, current staff running at 95% capacity per Diagcor management 2 Forecast based on 1-year project

9. Rationale #1.2 Corporate Strategy does not support marketing Quoted from an interview with Diagcor’s COO, Billy Chan, September 29, 2009  “Our goal is to become a leading biotechnology company providing diagnostic products and service in the Asia-Pac region. To become a technology leader, we invest more than 20% of our resources in R&D and we have 5 PhD in the research team.”  “Previously, we didn’t have much resource to invest in marketing and I’m responsible for marketing myself. This year, we employ a marketing staff to handle the marketing stuff. Now, I plan to allocate 10% of budget to marketing. Since we want to sell our CE-marked in vitro diagnostic kits, most of the marketing budgets would be allocated to big events like Medica, Eurogin and other medical conferences where we can meet up with distributors.” 8 The agenda of DiagCor leads to limited marketing activities and resources in marketing diagnostic services in Hong Kong. It would not be effective if marketing is done in-house. Data Source: interview with DiagCor, October 2009.

10. 9 Rationale #1.3 Potential Partnerships FMCG companies are the most suitable partners Value proposition Interests in partnership with DiagCor Potential customers generation Assessment Moderate Willing to explore more Low Staff clubs High Yes Very high FCMG Company High No response High Government Limited No response Moderate Insurance company Moderate No Low Medical website Moderate No response High Retail Stores Limited Willing to explore more Low Universities/ School Data Source: Interviews with partners, October 2009.

11. Rationale #2 Partnering can help DiagCor achieve Sales Goal 10 1. The number of customers that FMCG companies can reach allows DiagCor to generate $1M revenue from HPV tests 2. The Doctor + TV Ad campaign usually adopted by FMCG companies can effectively convince potential test takers 3. The partnership creates values for FMCG companies so that the win-win situation can be sustainable

12. 2.1 DiagCor can reach over 1 Million Customers via Partnership Department of Health recommends every women who have ever had sexual experiences from 25 to 64 should screen for cervical cancer routinely (every 1 to 3 years). 2 Women of age 12-55 routinely purchase feminine sanitary products from FMCG companies. 23 Data Sources: Demographic data from census and statistics department. Cervical cancer screening program, department of health website NIH Medline information about female menstrual cycle. Indian consumption study data (HLFPPT). US statistics showed that each woman consumes 300 pcs of napkins / year. The most common SKU = 10 pcs. Total number of essential sanitary product consumption is 72,508,800. Sales ratio for napkin and tampons is based on the annual sales data of one local retail store. 2,416,960 2,321,000 1,875,000 97.20% 5 Essential Sanitary Products 1,822,500 FMCG companies distribution channel cover > 80% of potential HPV test takers and sanitary napkins allowing DiagCor to reach out to 1,822,500 women. 4

13. 2.1 Expected Sales by Partnering with FMCG Companies 12 Partnership with FMCG Companies, e.g. J&J, allows DiagCor to reach enough potential customers to generate $1.23M of revenue on self-collection HPV test Data Sources: Market share is based on the annual sales data of one local retail store. % of interested respondent is based on survey data (N=50). Marketing efficiency is based on the past performance of similar-size marketing campaign (interview of FMCG product manager). 1,822,500 x 29.95% 1 x 50% 2 x 1% 3 = 2,729 (Hong Kong Population) (J&J market share) (% of Interested Respondent) (Marketing Efficiency) ( Number of Tests) Take J&J as an example: Assume Sales Growth by 0.5% due to bundle sales with HPV test $1.23M @$450 $1.23M @$450 Hong Kong Sanitary Napkin Market Share Distribution, 2009

14. 2.2 Channels affecting Customer Perception 13 *Medical Journals are powerful, but general public do NOT read them often; *Government would not help advertising a commodity; *News report is not as far reaching as TV/Radio Data Source: Online Customer Survey, Oct2009 (N=50) “Doctor + TV Ad” combo - an important means in convincing women to use self- HPV testing.

15. 2.3 Value Realized by FMCG Companies Presented Value Propositions 1Project a caring image and increase customer satisfaction 2Differentiate from competitors, promote conversion 3Benefit from the margin cut 4Fit with brand equity (healthcare for J&J, innovation for P&G, etc) 14 Feedbacks from Interviews FMCG Companies Very interesting idea Fits with our corporate values Possibility to differentiate products from competitors Need to further explore product/partnership opportunity. FMCG companies see values in partnering with DiagCor, so are willing to work together Data Sources: Interviews with partners, October 2009.

16. 2.3 Benefits of the Partnership to FMCG Companies 15 FMCG companies can enjoy 50% of the project’s profit plus a potential increase of 0.5% market share via the marketing effort. So the partnership is sustainable Proposed P & L (DiagCor) Sales1,228,050 Cost of Goods Sold238,250 Gross Profit989,800 Expense Marketing100,000 Operating220,000 Total Expense320,000 Operating Profit669,800 Profit Sharing to FMCG Copanies (50%) 334,900 Net Profit to DiagCor334,900 + Details please refer to Appendix Potential Increase in Sales (FMCG Company) = 70,478,554 x 0.5% x $14.2 (market size) (market share increase) (unit price) = HK$ 5,003,977 Data Sources: Interview with partners, October 2009 SKU size = 10pcs, average SKU price = $14.2 Annual Sales

17. Rationale #3 Partnering can lower DiagCor’s Costs and Risks 16 1. DiagCor can leverage FMCG companies’ effective marketing channels that costs more than HK$100k, and that DiagCor cannot afford on its own 2. Product cost of DiagCor HPV Test is a lot lower with FMCG companies as partner 3. Human resource costs of DiagCor is minimized with FMCG companies as partner

18. 17 Effective marketing channels exceeds DiagCor ’ s Marketing Budget of HK$100k Data Sources: Effectiveness of different marketing channels are based on the interview with the product manager of a FMCG company. Costs are obtained from rate cards offered by the companies. 3.1 Marketing Costs Effectiveness of the Marketing Channel in Ascending Order* Possible Marketing OptionsComments DiagcorSearch engine Ad + Direct Mail + News Report (~$130,000) These channels have been adopted by Diagcor with limited success. Partnership with FMCG TV Ad + MTR 4-sheet network + Ladies’ Magazine + Search Engine Ad + Featured Articles (~$5,435,000) By experience, these marketing channels can create impact. Only FMCG companies with the existing marketing budget allocated to promotion of sanitary napkins can afford this marketing expense.

19. Online sales onlyBox-sets sold in retail chains Box-sets sold by vending machines Box-sets distributed in clinics Coupons on sanitary napkins Coupons on sanitary napkins with collection bags N/A3,000 10,000500,000 Website Revamp Fee $35,000 Design Cost (Box) $15,000 Design Cost (Box) $15,000 Design Cost (Box) 2 $15,000 Design Cost (Coupon) $10,000 Design Cost (Coupon) $10,000 Production Fee $9,000 Production Fee $9,000 Production Fee $20,000 Printing Fee $30,000 Printing Fee $30,000 Sanitary Napkin $3,000 Sanitary Napkin $3,000 Consignment Fee (100) 200,000 Collection Bag $25,000 Consignment Payment (25 shops) $350,000 Vending Machine Lease (30) $150,000 Logistics Cost $72,000 Logistics Cost $50,000 18 Forming partnership reduces the up-front product and distribution costs. 3.2 Product and Distribution costs Estimated Inventory Data Source: Cost data from quoting of design houses, vending machine lease company, a retail chain, and clinic. Logistics data is calculated by the salary of one more staff & transport fee. Partnership

20. 19 3.3 Human Resource Cost is lowered by Partnering Data Sources: Interviews with DiagCor and partners, October 2009. Personnel Required with Partners QtyAnnual Salary (HKD) Total (HKD) Test Administrator1120,000 Total120,000 Personnel Required without Partners QtyAnnual Salary (HKD) Total (HKD) Test Administrator1120,000 Marketing Personnel0.5300,000150,000 Sales Personnel2120,000240,000 Total510,000 Forming partnership reduces DiagCor’s HR costs by 76.5%

21. Appendix

22. 21 Over 90% of High Value Customers would pay $401-600 for take-home HPV test Customer Preference: Price * Study based on Online Customer Survey, Oct2009 (N=50)

23. 22 Age 26-33 women strongly prefer buying the test kit from pharmacies Customer preference: Distribution (1/2) * Study based on Online Customer Survey, Oct2009 (N=50)

24. 23 Customer preference: Distribution (2/2) Age 26-33 women strongly prefer buying the test kit from pharmacies * Study based on Online Customer Survey, Oct2009 (N=50)

25. Poster/Pamphlets are among the most preferred marketing channels Customer preference: Promotion * Study based on Online Customer Survey, Oct2009 (N=50)

26. 25 Sample Customer Case Age : 26-33, Accountant Conduct body check-up on regular basis Feel embarrassed going to clinic for HPV screening Willing to pay equal price to run the test anonymously Would like to get the testing kit from pharmaceutical stores * Study based on Online Customer Survey, Oct2009 (N=50)

27. Costs and Expenses of Self-Collection HPV Test Project Cost of Goods Sold ItemsHKDRemarks Test90Test taking fee Mailing Charges3.3Bulk mail, to/from customers Test Result Handling2 Total per unit cost95.3 Marketing Expense Testing Kit ItemsHKDRemarks Sanitary bag0.42C printed sanitary bags at 50,000 pcs Instructions0.14C printed instructions @ 50,000 pcs Return mail envelop0.32C printed envelops @ 50,000 pcs Wrap0.24C printed PVC bags @ 50,000 pcs Packaging Cost1Including testing kit packaging and bundling, @ 50,000 pcs Total per unit cost2 Operating Expense ItemsHKDRemarks Salary of Test Administrator120000HKD10000/month, including benefits Website Revamp50000Development and Maintenance of backend test tracking system Overhead50000Transportation, etc Total220000 * Study based on Interview with DiagCor, Oct2009, and market research

28. 27 Proposed Implementation Schedule After the promotion campaign is designed, the bundled testing kit will be distributed to Customers in 4 phases, each phase’s duration is 1 quarter