Read the case and prepare for class discussion, but do not need to hand inanswers to these questions.Case discussion leaders are required to lead the class in a discussion of the case (approximately30 – 45 minutes).This includes: 1) preparing answers to all the case questions below whenworking on the case, and 2) submitting a Powerpoint slide deck (approximately 12 to 20 slides)to clearly address Q1, Q2, Q3 and Q5. Case discussion leaders should use data from the case to support the team’s arguments.
1. What is the target market for Niconil? What is the demand for the product?
2. How should Niconil be packaged and priced? What are the pros and cons of the alternativepackaging and pricing approaches?
3. What is the total gross margin and breakeven volume and under each pricing strategy?
4. What is the physician/consumer decision making process for purchasing Niconil? Whatpromotional/communication strategies should WL use to influence the decision making ofdoctors, pharmacists, and consumers?
5. When should Niconil be launched? Are there "first mover" advantages? How can Niconil bestestablish itself against future competition?
Warner-Lambert Ireland: Niconil Harvard Business School 9-593-008 Rev. November 5, 1993 Research Associate Susan P. Smith prepared this case under the supervision of Professor John A. Quelch as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1992 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1 Warner-Lambert Ireland: Niconil Declan Dixon, director of marketing for Warner-Lambert Ireland (WLI), examined two very different sales forecasts as he considered the upcoming launch of Niconil®, scheduled for January 1990. Niconil was an innovative new product that promised to help the thousands of smokers who attempted to quit smoking each year. More commonly known simply as “the patch,” Niconil was a transdermal skin patch that gradually released nicotine into the bloodstream to alleviate the physical symptoms of nicotine withdrawal. Now in October of 1989, Dixon and his staff had to decide several key aspects of the product launch. There were different opinions about how Niconil should be priced and in what quantities it would sell. Pricing decisions would directly impact product profitability as well as sales volume, and accurate sales forecasts were vital to planning adequate production capacity. Finally, the product team needed to reach consensus on the Niconil communications campaign to meet advertising deadlines and to ensure an integrated product launch. Company Background Warner-Lambert was an international pharmaceutical and consumer products company with over $4 billion in worldwide revenues expected in 1989. Warner-Lambert consumer products (50% of worldwide sales) included such brands as Dentyne chewing gum, Listerine mouth wash, and Hall’s cough drops. Its pharmaceutical products, marketed through the Parke Davis Division, included drugs for treating a wide variety of ailments, including heart disease and bronchial disorders. Warner-Lambert’s Irish subsidiary was expected to generate £30 million in sales revenues in 1989:1 £22 million from exports of manufactured products to other Warner-Lambert subsidiaries in Europe and £4 million each from pharmaceutical and consumer products sales within Ireland. The Irish drug market was estimated at ,155 million (in manufacturer sales) in 1989. Warner-Lambert was the sixteenth-largest pharmaceutical company in worldwide revenues; in Ireland, it ranked sixth. Dixon was confident that WLI’s position in the Irish market would ensure market acceptance of Niconil. The Parke Davis Division had launched two new drugs successfully within the past nine months: Dilzem, a treatment for heart disease, and Accupro, a blood pressure medication. The momentum was expected to continue. The Irish market would be the first country launch for Niconil 1In 1989, one Irish pound was equivalent to US$1.58. For the exclusive use of M. Joseph, 2022. This document is authorized for use only by Michael Joseph in Marketing Management 2022 T1 & T2 taught by WENDY BOLAND, American University from Dec 2021 to Jun 2022. 593-008 Warner-Lambert Ireland: Niconil 2 and thus serve as a test market for all of Warner-Lambert. The companywide significance of the Niconil launch was not lost on Dixon as he pondered the marketing decisions before him. Smoking in the Republic of Ireland Almost £600 million would be spent by Irish smokers on 300 million packs of cigarettes in 1989; this included government revenues from the tobacco sales tax of £441 million. Of 3.5 million Irish citizens, 30% of the 2.5 million adults smoked cigarettes (compared with 40% of adults in continental Europe and 20% in the United States).2 The number of smokers in Ireland had peaked in the late 1970s and had been declining steadily since. Table A presents data from a 1989 survey that WLI had commissioned of a demographically balanced sample of 1,400 randomly chosen Irish adults. Table B shows the numbers of cigarettes smoked by Irish smokers; the average was 16.5 cigarettes. Table A Incidence of Cigarette Smoking in Ireland (1988-1989) Of adult population(16 and over) 30% (100%) By Gender Men 32 (50) Women 27 (50) By Age 16-24 27 (17) 25-34 38 (14) 35-44 29 (12) 45-54 29 ( 9) 55+ 27 (19) By Occupation White collar 24 (25) Skilled working class 33 (30) Semi- and unskilled 38 (29) Farming 23 (17) Note: To be read (for example): 27% of Irish citizens aged 16-24 smoked, and this age group represented 17% of the population. Media coverage on the dangers of smoking, anti-smoking campaigns from public health organizations such as the Irish Cancer Society, and a mounting array of legislation restricting tobacco advertising put pressure on Irish smokers to quit. Promotional discounts and coupons for tobacco products were prohibited, and tobacco advertising was banned not only on television and radio but also on billboards. Print advertising was allowed only if 10% of the ad space was devoted to warnings on the health risks of smoking. Exhibit 1 shows a sample cigarette advertisement from an Irish magazine. Table B Number of Cigarettes Smoked Daily in Ireland (based on 400 smokers in a 1989 survey of 1,400 citizens) More than 20 16% 15-20 42 10-14 23 5-9 12 Less than 5 4 Unsure 3 2Adults were defined as those over the age of 15, and smokers as those who smoked at least one cigarette per day. For the exclusive use of M. Joseph, 2022. This document is authorized for use only by Michael Joseph in Marketing Management 2022 T1 & T2 taught by WENDY BOLAND, American University from Dec 2021 to Jun 2022. Warner-Lambert Ireland: Niconil 593-008 3 Smoking as an Addiction Cigarettes and other forms of tobacco contained nicotine, a substance that induced addictive behavior. Smokers first developed a tolerance for nicotine and then, over time, needed to increase cigarette consumption to maintain a steady, elevated blood level of nicotine. Smokers became progressively dependent on nicotine and suffered withdrawal symptoms if they stopped smoking. A craving for tobacco was characterized by physical symptoms such as decreased heart rate and a drop in blood pressure, and later could include symptoms like faintness, headaches, cold sweats, intestinal cramps, nausea, and vomiting. The smoking habit also had a psychological component stemming from the ritualistic aspects of smoking behavior, such as smoking after meals or in times of stress. Since the 1950s, the ill effects of smoking had been researched and identified. Smoking was widely recognized as posing a serious health threat. While nicotine was the substance within the cigarette that caused addiction, it was the tar accompanying the nicotine that made smoking so dangerous. Specifically, smoking was a primary risk factor for ischaemic heart disease, lung cancer, and chronic pulmonary diseases. Other potential dangers resulting from prolonged smoking included bronchitis, emphysema, chronic sinusitis, peptic ulcer disease, and for pregnant women, damage to the fetus. Once smoking was recognized as a health risk, the development and use of a variety of smoking cessation techniques began. In aversion therapy, the smoker was discouraged from smoking by pairing an aversive event such as electric shock or a nausea-inducing agent with the smoking behavior, in an attempt to break the cycle of gratification. While aversion therapy was successful in the short-term, it did not prove a lasting solution, as the old smoking behavior would often be resumed. Aversion therapy was now used infrequently. Behavioral self-monitoring required the smoker to develop an awareness of the stimuli that triggered the desire to smoke and then to systematically eliminate the smoking behavior in specific situations by neutralizing those stimuli. For example, the smoker could learn to avoid particular situations or to adopt a replacement activity such as chewing gum. This method was successful in some cases but demanded a high degree of self- control. While behavioral methods were useful in addressing the psychological component of smoking addiction, they did not address the physical aspect of nicotine addiction that proved an insurmountable obstacle to many who attempted to quit. Niconil Warner-Lambert’s Niconil would be the first product to offer a complete solution for smoking cessation, addressing both the physical and psychological aspects of nicotine addiction. The physical product was a circular adhesive patch, 2.5 inches in diameter and containing 30mg of nicotine gel. Each patch was individually wrapped in a sealed, tear-resistant packet. The patch was applied to the skin, usually on the upper arm, and the nicotine was absorbed into the bloodstream to produce a steady level of nicotine that blunted the smoker’s physical craving. Thirty milligrams of nicotine provided the equivalent of 20 cigarettes, without the cigarettes’ damaging tar. A single patch was applied once a day every morning for two to six weeks, depending on the smoker. The average smoker was able to quit successfully (abstaining from cigarettes for a period of six months or longer) after three to four weeks. In clinical trials, the Niconil patch alone had proven effective in helping smokers to quit. A WLI study showed that 47.5% of subjects using the nicotine patch abstained from smoking for a period of three months or longer versus 15% for subjects using a placebo patch. Among the remaining 52.5% who did not stop completely, there was a marked reduction in the number of cigarettes smoked. A similar study in the United States demonstrated an abstinence rate of 31.5% with the Niconil patch versus 14% for those with a placebo patch. The single most important success factor in Niconil effectiveness, however, was the smoker’s motivation to quit. “Committed quitters” For the exclusive use of M. Joseph, 2022. This document is authorized for use only by Michael Joseph in Marketing Management 2022 T1 & T2 taught by WENDY BOLAND, American University from Dec 2021 to Jun 2022. 593-008 Warner-Lambert Ireland: Niconil 4 were the most likely to quit smoking successfully, using Niconil or any other smoking cessation method. There were some side effects associated with use of the