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Hard Pricing strategy

In You to Give

#Biotech/life sciences
ProHub Comment

This is a value-based pricing case requiring the candidate to identify which costs in the blood supply chain are actually valued by the end customer (hospitals/clinics) rather than all costs in the value chain. The key insight is recognizing that customers only care about undersupply costs and compatibility testing, not donor recruitment, testing for pathogens, or overage costs—allowing HemoTrue to justify a $12.50 premium over the $200 market price.

Estimated Time 15 minutes
Difficulty Hard
Source HKUST
50 / 100
HemoTrue is a start-up working out of San Francisco in the US. Its sole product is a blood product containing red blood cells (RBCs) manufactured using in vitro stem cells that are otherwise functionally identical to RBCs from donated blood. As a revolutionary new product, HemoTrue believes their product can completely disrupt and take over the blood market in the US. The product is still two years away from commercialization, but investors are interested to know what plans HemoTrue has already made towards that goal. HemoTrue has hired us to determine: What is a suitable price for their manufactured blood product?

Clarifying Information

Current product (e.g. donated blood):

  1. Blood has several major serotypes types according to the ABO system (A, B, AB, O) and Rhesus system (positive or negative). Despite O-negative type blood being the most versatile as the “universal donor” type, all donated RBC blood products are priced the same regardless of blood type.
  2. Blood has a shelf life of 42 days; expired blood is discarded.
  3. Identifying and recruiting suitable donors (e.g. with O-negative blood) from specific geographies is typically very time-intensive.

HemoTrue’s Product: 4. The product is 100% functionally equivalent to donated biological blood; it is bona fide blood, not just a blood substitute. 5. Blood is produced from an immortalized stem cell line from a donor with O-negative blood type; this allows any amount of blood to be created from anywhere with a short lead time.

Market: 6. The US blood market is mature with consolidation in blood centers and healthcare providers (e.g. hospitals and clinics). Cost reduction initiatives are common, and the entire process is operating lean. 7. Current blood products are priced using a cost-plus model; blood is provided free from donors, and costs are added from testing, administration, and storage plus a small markup.

Competition and substitutes: 8. There are no other products on the market with the same function; blood substitutes typically target niche uses such as resource-limited settings without full hospital support.

Value-Add: 9. Although blood is a commodity typically donated free of charge, HemoTrue believes its product removes the costs of all testing, of oversupply, and of undersupply that makes it attractive to customers.

Required Data: 10. A unit of blood on average costs $200, with regional variability. 11. There were 16 million units of transfused blood in the US last year. 12. Costs for expired blood effectively needs to be subsidised by the remaining blood. 13. There were 400,000 units of expired blood in the US last year. 14. Undersupply incurs a delayed elective surgery opportunity cost. 15. There were 5000 delayed elective surgeries last year from insufficient blood. 16. Each delayed surgery incurs an opportunity cost of $80,000. 17. All tests performed by blood centers cost a combined $50. 18. The blood type test performed at hospitals and clinics costs $10.