Since Niconil offers a long-term alternative to cigarettes, and since its purchasers are likely to be highly motivated to begin with, there is a strong argument for pricing Niconil at a premium over cigarettes. In exchange for the higher purchase price over the short-term (six weeks), consumers are able to break free of the cigarette habit and its associated costs. This should be worth a premium. However, Warner-Lambert needs to be mindful that its Irish customers will be paying for the patch out of their own nonreimbursable funds, with the result that there may be some reluctance, or even inability, to fund a significant premium. Thus the company should adopt a pricing strategy which enables it to capture a premium over cigarettes and thus reduce its payback time, but which also recognizes that the consumers have a low elasticity of demand and may not tolerate a much higher than cigarette price.
The sales forecasts associated with Niconil pose a more difficult problem. Depending on which sales forecasting technique is used, demand for the product varies from under 50,000 units total over five years to more than 350,000 in the same time period (see pages six and seven). More careful analysis should be given to these estimates in order to determine which is more accurate.
The aggressive figure is based on a survey conducted by Warner-Lambert in which 17 percent of smokers indicated that they would go to a doctor, request and pay for a nicotine patch, although these consumers did not know what the cost of that patch would be. By dividing the resulting number of possible Niconil users by three (to account for variances in those who say they would perform these actions and those who actually do), Warner-Lambert has a high number of potential consumers.
There are problems with this reasoning, however. To begin with, even the one-third variance that is built into the equation is suspect and arbitrary since it was not develop...