Question

This week’s case is Sunrise Medical’s Wheelchair Products, which is in the HBSP case packet. The case permits the application of ideas of industry analysis and competitive positioning to the US wheelchair industry in the mid-1990s. This case examines a more traditional looking industry that is also involved with the health care sector to show how health care issues influence the industry analysis in the context of an industry related to health care. The discussion questions for the case are listed below.

1. Is the U.S. wheelchair industry an attractive or unattractive industry in 1993?  What are the structural conditions affecting attractiveness?  Have these been changing?
2. Does the Quickie division have a competitive advantage?
3. Should Chandler allow Guardian to introduce a lightweight standard wheelchair?  How will Invacare react?
4. How will industry structure be affected if Sunrise introduces the lightweight standard wheelchair?

Answer 1

Requirement 1

Assessing the industry built on Porter’s Five Forces framework, the ensuing projected as the most important conditions making the industry unattractive: Negotiating Control of Customers: About seventy-five percent of wheelchair sales in the US were covered by insurance. Medicare was the main insurance package, and other insurers frequently trailed Medicare’s lead. Medicare limited repayments, which restricted the price of standard and lightweight standard chairs. More luxurious chairs were not fully covered, which could diminish demand for those products. Competition among Present Competitors: The American market for wheelchairs was conquered by three firms Sunrise Medical, Invacare, and Everest & Jennings. With possibly the exemption of some hi-tech power models, wheelchairs are principally commodity products, so there is little room for variation. And since manufacturers set prices to imitate Medicare standards, it doesn’t cost comparatively more to change from one manufacturer’s brand to another's. This being true, sales and sales growth were more reliant on on how competitors got their products through the network, and cost-effectiveness was a slave to cost structure. In Sunrise’s case, its competitor Invacare had gained noteworthy market share in every class other than ultralight ,and as low-cost producer, Invacare’s margins at year-end 1992 were the uppermost in the business. Hazard of Substitutes: It costs fundamentally nothing to shift from one wheelchair to the next, and while there may be some slight alterations between manufacturers’ chairs, there is no actual unique issue. On average, wheelchair operators get new chairs every two to five years, and without anyway to lock customers in or build noteworthy brand loyalty, users could certainly shift to another chair; for the most part, the chairs cost the same.

Danger of New Entry: Hurdles to entry in the wheelchair business were not important. The process was labor intensive, but fully combined manufacturing only required a $1 million investment in machine tools. Prefabricated parts were available for assemblers, who could enter the market with an investment of just $300,000. Furthermore, no competitor held any significant patents.

How are the conditions changing?

Medicare: Medicare, the primary insurer, augmented its compensation levels, spreading full exposure for lightweight standard models to $850, up from the old $650 exposure for standard models. This made the space more eye-catching. Technology: Notwithstanding an FDA delay, Quickie was controlled to unveil a new special-feature power wheelchair that excluded the need for a manual backup. While this could cannibalize some of Sunrise’s sales, it was more of a hazard to Invacare, and such a model had no replacements.

Requirement 2

Quickie does have an plus in ultralight wheelchairs instituted on the following: Leading market share 49% High price Retail prices range from $1100 to $3150 Variation Lively colors and used for wheel chair sports, which demands to a precise slot user. Seemingly, this user has a greater inclination to pay. What accounts for the alteration in ROS between Quickie, Guardian, Invacare, and Everest & Jennings (E&J)? E&J is vulnerable by its cost structure. The income examination shows that E&J’s costs are just not low sufficient to contest. Invacare has been able to keep costs low specifically SG&A; these economizing have benefitted the bottom line. And since it functions as single entity, the corporate expenses and regional overlay that result at Sunrise is not an problem. On a divisional basis, Quickie reports high ROS because its complete costs are inferior, which flows to net income notwithstanding having both higher interest expense and higher taxes than Invacare. The Guardian division, on the other hand, had a cost structure similar to E&J, particularly on the COGS line, which was a entirely ten percentage points higher than Quickie, Guardian’s sister company. Guardian’s slightly lower SG&A doesn’t come close to making up the difference, and thus drags returns lower. That’s the accounting of it. Observing the firms in terms of the Value Chain, it makes sense that Invacare has built a lead in ROS. Invacare is a strong sales and marketing organization which tries to offer its customers comprehensive service. The company works with an assimilated sales force, thereby refining competence and efficiency. It has a strong existence in every market segment and distribution channel, so its bundling policy was more operative despite the fact that almost all dealers carried every manufacturer’s product line.

Requirement 3

Nevertheless the two products would contend, I would endorse that Chandler give Guardian the go-ahead. With just a 2% portion of the standard wheelchair market and nothing else, Guardian as it is merely is not a player in wheelchairs. Market evolution for lightweight standard wheelchairs was projected to grow 15% yearly, triple the rate of the standard chairs that Guardian was selling. Guardian’s chair would vary from Quickie’s model in both design and features, so it is very likely that it would provide a different range of user. Given the evolution in the segment, the complete pie is growing, so Quickie ought not be excessively worry about market share loss. Chandler has to contemplate this on a company-wide basis and do the best he can for the entire firm. How will Invacare react? In my opinion, it is likely that Invacare will respond by let down its prices before Guardian unveils its product. Invacare is the low-cost producer in this space and has foremost market share. Invacare could see Guardian’s entry as a menace that needs to be compressed, and sinking its price could send the signal that it can remain both leading and lucrative at a price point lower than what the new entrant, Guardian, can. Whether this is true or not is unimportant; the point is to make the competition think twice. Guardian could be able to deal with this reaction from Invacare if its new product perhaps serves some variety of customers that differs from the average buyer of Invacare’s lightweight standard chairs. Guardian’s new features and design could signal this intent.

Requirement 4

If Sunrise’s Guardian unit announces a lightweight standard wheelchair, the edifice of the overall industry is not likely to considerably change. Why? Outside of the likelihood that Invacare sinks its price, the market itself is undergoing substantial growth, i.e. the pie is getting larger. Even if Invacare does lower price, who’s to say what Guardian’s costs actually are? And as the low-cost provider, Invacare is previously denting Quickie by 15% at wholesale. They could have very little room left.