Sunrise Medical's Wheelchair Products Essay

1159 Words Nov 3rd, 2005 5 Pages
1. The average return on sales (ROS) in the US wheelchair industry is between 1-2% in 1993. What are the most important structural conditions that make the industry unattractive?

Evaluating the industry based on Porter's Five Forces framework, the following stand out as the most import conditions making the industry unattractive:
• Bargaining Power of Customers: About seventy-five percent of wheelchair sales in the US were covered by insurance. Medicare was the primary insurance program, and other insurers often followed Medicare's lead. Medicare limited reimbursements, which kept a lid on the price of standard and lightweight standard chairs. More expensive chairs were not fully covered, which could dampen demand for those products.
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The process was labor intensive, but fully integrated 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, increased its reimbursement levels, extending full coverage for lightweight standard models to $850, up from the old $650 coverage for standard models. This made the space more attractive.
• Technology: Despite an FDA delay, Quickie was poised to launch a new special-feature power wheelchair that eliminated the need for a manual backup. While this could cannibalize some of Sunrise's sales, it was more of a threat to Invacare, and such a model had no substitutes.

2. Does Sunrise's Quickie division have a competitive advantage in wheelchairs?
Quickie does have an advantage in ultralight wheelchairs based on the following:
• Dominant market share – 49%
• High price – Retail prices range from $1100 to $3150
• Differentiation – Bright colors and used for wheel chair sports, which appeals to a specific niche user. Presumably, this user has a higher willingness to pay.

What accounts for the difference in ROS between Quickie, Guardian, Invacare, and Everest & Jennings (E&J)?
E&J is hampered by its cost structure. The income analysis
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