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Larsson Kolb Dialysis Services

Case is intended to be a part of instruction material developed for teaching at a Marketing class in Business Schools. Larsson Kolb is not a real company any resemblance to a real corporation is co-incidental. Case facts are for discussion only and are not intended to be a demonstrator of correct or incorrect handling of management situation.

The Larrson Kolb Company (LKC) was formed in 1956 by Dr. Larsson (Ph.D Mechanical Engineering) and Dr. Kolb (Ph.D Instrumentation Engineering) with the objective of manufacturing Haemodialysis machines. They followed the success of their first model the HBA1c with more sophisticated machines and built a strong reputation for reliability among the hospital market in Denmark and the Netherlands. Over the next couple of decades the company grew from strength to strength until it came to occupy a position among the top 3 players in Europe in Dialysis Machines. The medical fraternity swore by LKC calling them the MercedesBenz of Dialysis Machines. This analogy was not without reason. LKC machines were built to exacting engineering and medical standards and sold for a large premium over Dialysis Machines from other manufacturers.

By the turn of the century, however, growth in Europe was slowing down and LKC was looking at expanding in emerging markets such as India. However, even after 2 years of setting up their sales office in India, LKC had not sold a single machine. The country head resigned citing Headquarters lack of understanding of the Indian market and unwillingness to consider building more economical models for price-sensitive markets like India.

LKC top brass then decided to recruit another young manager who had graduated 5 years earlier from a Well-known Institute of Management in Central India. Rahul Roy had a medical degree in Urology from AIIMS and had worked in the Nephrology department at a prestigious hospital in New Delhi for a couple of years before he decided to pursue an MBA.

Rahul joined the company and put together a young team of talented sales people to approach the market anew. He reckoned that India was now witnessing a rapid proliferation of new private hospitals that were being built to cater to the growing middle class in new cities such as Gurgaon. He noticed that these hospitals spent substantially more on building specifications and interior decoration than the hospitals of old. He surmised that this new generation of hospitals would be willing to consider the Mercedes-Benz of Medical equipment too. He was wrong.

After eight months of effort, his team was unable to clock any sales. On the verge of resigning, he tried to think back to his strategy course at this business school. What would my Professor have suggested in this situation? Think across customer lines. That was it! Why are we trying to sell

the machines? Why not sell dialysis services directly to consumers? They could set up a chain of Dialysis centers across the country with our machines and offer Dialysis as a service.

He knew that Chronic Kidney Disease had a prevalence of 17% in urban India and of these 6% had stage III kidney failure1 requiring dialysis twice a week. Government hospitals charged Rs 800 per dialysis service and Private hospitals charged between Rs 1600 2000. He believed there was a market for a premium 5-Star service that could be priced at about Rs 4000-5000. The consumables for each service cost about Rs 800-1000 on the LKC machines and he figured other consumables like a disposable paper-fabric bed sheet and towel set for each patient would be another Rs 100-200. The 5-star service could include a welcome beverage and free wifi for the patients.

He had to put a business plan together soon and started gathering the facts. He envisioned a center with 10 machines in Gurgaon. Each machine had a landed price in India of Rs 2 Crores. Each machine required a cabin admeasuring 8ft x 10 ft to accommodate the machine itself and a bed for the patient while s/he was plugged into the machine for the 3-hour duration.

Now for the spreadsheet work

http://articles.timesofindia.indiatimes.com/2013-06-08/india/39833869_1_kidney-diseasekidney-failure-ckd

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