Chain Model - Pharmalodiagnosticon

Man with out stretched hand holding pills

Pharmalodiagnosticon, an up and coming pharmaceutical company, has ingeniously found a way to sell off surplus placebo pills originally manufactured for R & D.

The modified placebo is used throughout the region by medical facilities as delicious snacks located in patient waiting rooms. Each package of the product (SuppleMint) is sold to hospitals and medical practices at $2 a package, unless the purchase exceeds 50 packages, in which case it is offered at a discounted price of $1.50.

It costs Pharmalodiagnosticon 50 cents per package for flavoring and packaging, and another 50 cents per package for shipping. There are approximately 2,000 medical facilities in the region, a full three-quarters of which are interested in using SuppleMint. The region's medical community is comprised of 10% large institutions (hospitals and clinics with over 20 employees), and the remaining facilities are considered small (private practices and independent specialists).

Large facilities typically place three orders per year, each for 75 units, and the smaller practices demand an average of 10 units, twice per year. What are the segment values for large and small medical facilities?

Segment Value = Number of Customers X Value Per Customer

Large: (2,000 x 10% x 75%) x (225 x $.50) = $16,875

Small: (2,000 x 90% x 75%) x (20 x $1.00) = $27,000