“Glaxo Italia S.P.A.: The Zinnat Marketing Decision”

1743 words - 7 pages

Glaxo Italia Case1. What are the relative advantages and disadvantages of co-marketing arrangements versusdirect sales? Why is Glaxo considering co-marketing for its new Zinnat antibiotic?2. Evaluate Glaxo Italia's criteria for evaluating decisions about sales strategies (i.e., paybackand internal rate of return). What are the strengths and weaknesses of these criteria asopposed to net resent value? On which criteria would you base your recommendation?3. Evaluate the forecast. Are all relevant cash flows present? Are the assumptions reasonable?Should the cost of new sales recruits be included in the forecast?4. If, in response to the question above, you believe the analysis should be ...view middle of the document...

Mr. Rottoli focused highly on payback and IRR for his criteriafor evaluating results. Based on these criterion, Rottoli's results specifically implied theco-marketing option would be the best method of distribution. The question is, however,whether Mr. Rottoli has properly taken into account all significant costs in his models andwhether these generated results from the payback and IRR criteria accurately representingthe firm's market position and value.Summary of AnalysisWe came to the conclusion immediately that Mr. Rottoli has not accounted for all of therelevant costs involved with this product. He stated that soley manufacturing andpromotional costs are considered relevant and that the remaining items, such as G&A,historical and future R&D, medical testing costs, real financial charges, and taxes, are nottaken into account. We feel that these costs are in fact relevant and should be included inGlaxo's forecast. First we included R&D expenses, local production and bottling costs, andcustom and transportation fess in our forecast. Calculated by 80%, 20%, and 4% of thetransfer price and product mix we forecasted 3.66 billion, .91 billion and .02 billion lira,respectively. We also decided to include the expected Italian Lira inflation rate of 4%instead of using 0%. Furthermore, we felt that a 6 year forecast to 1996 was not sufficientenough for a forecast of Zinnat's potential seeing as most product lives are 10-20 years.Therefore our second step was forecasting market demand of antibiotics and the specificmarket share for Zinnat through both the direct sales strategy and co-marketing strategyfurther into the future, up to year 2000. We used a rolling average of the market forecastsfrom 1993-1996 as our basis for any market forecast past 1996 and for the market sharefor Zinnat, we used the estimated rate of decline of 5% that Mr. Rottoli had estimated as areasonable rate of decline beyond 1996(Glaxo Case Study, Footnote 13). After calculatingboth the expected market share of Zinnat and the market demand forecasts for antibioticswe were able to forecast expected quantities of units sold by Glaxo and furthermore,revenues. We then extrapolated Gross Margin and marketing expenses as percentages ofrevenues just as Mr. Rottoli had in his forecast and were able to determine thecompensation cost for sales force #1 by assuming that the cost per salesperson would growby 4%, the inflation rate of the lira(as noted in Glaxo Case Study, Footnote 12). We thenincluded our costs for other expenses that we calculated in our first step above to come upwith our projected profits (or losses) for each year, which would prove to be our best proxyfor Glaxo Italia's free cash flows (FCF's) outside year 1996.Once we finished calculating the FCF's, we calculated the necessary numbers to find theweighted average cost of capital (WACC) (shown in Tables 1 and 3 for direct sales and comarketingrespectively) so we could discount our FCF's and find the net present...

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