Product Line Design Problem in Two Markets With Dependent Demand and Its Implications

Product Line Design Problem in Two Markets With Dependent Demand and Its Implications

Deepika Jain (Indian Institute of Management, Rohtak, India)
Copyright: © 2019 |Pages: 19
DOI: 10.4018/IJSDS.2019100105


The paper considers the product positioning problem faced by the hospitals in an emerging economy like India. The paper considers both non-profit as well as for-profit organizations. The paper considers two segments: one where there is high potential, but customers have low ability to pay; and the other where there is low market potential, but customers have high willingness to pay. The model suggests the product positioning along with the corresponding price. The authors characterize conditions for providing subsidy to low end segment.
Article Preview

1. Introduction

The paper addresses the issue of product positioning faced by the hospitals in an emerging economy like India. Product positioning is broadly classified as a product design problem; where the firm focuses on deciding the product design to satisfy the market demand. The problem of product positioning is more prominent in the case when the firm is trying to serve more than one market and each of the market demands a different service from the firm. For instance, “Aravind Eye Care (AEC)”; a non-profit organization started with a mission of eradicating needless blindness in India. According to Dr.G Venkataswamy (known as Dr.V, Founder, AEC), there is a large pool of people in India having vision problem which is curable but is not being cured yet due to either lack of awareness about the surgical process or lack of fund to meet the surgical expenses. Their mission is to eradicate the blindness which is needless and curable. Since awareness and affordability were the two issues for the needless blindness in India, reaching to the obscure part of the country was needed to work on the mission statement. Camps were organized in villages to bring awareness to the people as well as to serve them at a lower price compared to the market price or sometimes at a free of cost. Dr.V started this hospital with some personal saving and partial support from government1 to serve the patients from eye camps. Though serving at a lower price provides an opportunity to serve the volume, which in turn helps in realizing economies of scale and high expertise. AEC had also undertaken other initiatives (setting up a manufacturing facility for lenses used for surgery, having a separate research center, having a teaching institute to meet the future staff requirement etc.) to cut down on the cost further. Apart from all the initiatives taken to improve the efficiency, AEC also had a policy to serve both paying and free patients. The policy of serving paying patients helped AEC to cross subsidize the free patients in the hospital. Since AEC cannot charge different prices for the same services to both paying and free patients. The underlying question that is of existence is how should the firm differentiate the offerings to both paying and free patients? And of course, pricing each of the product offerings becomes an issue.

Similarly, Apollo Hospital (AH); a for profit organization started with a mission to serve high-end segment, do serve low-end segment too. Though by serving the high end segment, AH was able to make money from the market, but were left with the underutilized resources due to low volume. By serving low-end segment, AH got volume, which helped in realizing economies of scale, high expertise, and increased utilization of the resources. High expertise provided an increased demand in high-end segment, which further led to increased revenue. Though, there were different drivers for AEC and AH to enter two ends of the market, but the question of service differentiation and pricing remains the same.

We characterize the two segments as follows. The segment, where AEC initially started with is defined as “Bottom of pyramid market (BOP)”, having low ability to pay customers and high market potential. The other segment, where AH initially operated is defined as premium market (Swami and Tirupati (2012)), has high willingness to pay customers and low market potential.

Though, both for-profit and non-profit organizations seek different incentives in reaching two segments of the market. A for-profit organization explores low end segment to get economies of scale and expertise. A non-profit organization achieves both economies of scale and expertise with the low-end segment, but explores high end segment for fund raising so that the expenses in the other segments are met. Apart from the direct advantage that the firm gets from two ends of the market, we observe one more added advantage. Since a high volume brings expertise to the doctors and expert doctors in- creases the patient’s valuation for the hospitals and which attracts more patients. Each of these hospitals has to decide on the type of services to be offered for each segment and then pricing decision accordingly. The presences of both for-profit and non-profit organizations in two ends of the market explains the development of an analytical model for both types of organizations and suggest pricing and positioning decision for each of the markets.

Complete Article List

Search this Journal:
Open Access Articles: Forthcoming
Volume 11: 4 Issues (2020): Forthcoming, Available for Pre-Order
Volume 10: 4 Issues (2019)
Volume 9: 4 Issues (2018)
Volume 8: 4 Issues (2017)
Volume 7: 4 Issues (2016)
Volume 6: 4 Issues (2015)
Volume 5: 4 Issues (2014)
Volume 4: 4 Issues (2013)
Volume 3: 4 Issues (2012)
Volume 2: 4 Issues (2011)
Volume 1: 4 Issues (2010)
View Complete Journal Contents Listing