Medicus case study

Medicus uses overseas manufacturers to supply small medical instruments and supplies. Among several channels to distribute its products, Medicus uses a national distributor, Axel, which does half its Medicus business selling directly to large hospitals and the other half to small local dealers that supply small hospitals and clinics. Margins are conveyed through a suggested discount off “list.” Small hospitals and labs pay about list. Large hospitals typically buy at list less 10 percent. Wholesalers buy at list less 40 percent. Dealers pay, on average, list less 25 percent. What are the prices paid by all resellers and users for examination lenses sold by Medicus for $14? What is the average gross profit earned by the wholesaler on Medicus products? A small clinic pays the $42 list price on a water-activated fiberglass splint.

  1. What are the prices paid by the dealer and Axel on the splint? Why should the intermediaries receive different discounts?
  2. What increase in sales must Axel produce to cover the new debt service costs of $350,000 per year for its truck fleet expansion?
  3. Clark is a little disappointed with the account coverage Axel has provided it in the South. One solution up for discussion is to try to line up Augusta Supply(a leading distributor in the South), which has made several acquisitions in the past two years in trying to establish a national presence. What are the possible consequences on prices, channel margins, and channel functions if Medicus adds Augusta to its distribution system?

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