Case Study Sunrise's Quickie Division

1. Chandler should allow Sunrise’s Guardian division to introduce the lightweight standard wheelchair even though there is concern that it might compete with Sunrise’s Quickie division. There are many reasons for this. First, due in part to Medicare’s recent recognition of the lightweight standard wheelchair category, the annual U.S. sales of $70 million in this category is expected to grow 15% annually. Second, Quickie and Guardian both penetrate the distribution channels in different ways. Quickie sells its products through rehab suppliers, and caters to new users and younger, active patients. Guardian, on the other hand, who caters to the elderly, does not sell its products through rehab suppliers. If Guardian introduces the lightweight standard

wheelchair, it can cater to the elderly, with little to no competition from Quickie. Furthermore, since the lightweight standard wheelchair is preferred by the elderly, it lies is Guardian’s territory. Quickie also sells through general HME dealers, but concentrates on only the large dealerships that accounted for the bulk of volume. Guardian on the other hand calls all general HME dealers to promote its non-wheelchair lines. If Guardian introduces the lightweight standard wheelchair, it could target the smaller dealerships, without affecting Quickie’s sales. The med/surg distributors have two representative manufacturers which are Guardian and Invacare. With only a 20% product volume for lightweight standard wheelchairs, analysts “observed that the new Medicare guidelines might lead to greater demand for lightweight standard models in this channel” (McGahan p4). Since Quickie is not a representative manufacturer, there will not be competition between both the Sunrise divisions.

Third, according to Chandler, Invacare tries “to supply 100% of their dealers’ needs under the “One Stop Shopping” program” (McGahan p6). In essence, it provides volume discounts to dealers. Quickie and Guardian do not do this. If Guardian introduces the lightweight standard wheelchair, it could attempt to emulate Invacare’s strategy. Senn rationalized that “Invacare was subsidizing its commodity lines with profits on wheelchairs” (McGahan p10). Furthermore, Chandler recalled that “he had recently been pressed by several large general HME dealers to provide discounts based on volume across Quickie’s and Guardian’s product lines” (McGahan p12). Fourth, with a 57% versus 13% share of 1993 revenue in the lightweight standard wheelchair category, if Guardian introduces the lightweight standard wheelchair, it would most probably affect Invacare. This is due to the differentiation in the lightweight standard wheelchairs and the end user between Quickie and Guardian. Coupled with the fact that the lightweight standard wheelchair category is expected to grow 15% annually as opposed to the 5% for the standard wheelchair category that Guardian is currently in, Chandler should try to reap the

benefits where possible.
2. Based on Porter’s Five Forces analysis of the wheelchair manufacturing industry, the threat of new entrants is high as the barriers to entry are relatively low. “Wheelchairs were manufactured in a labor-intensive cutting, bending, welding and assembly process. No competitor had a significant patent. Fully integrated manufacturing required a $1 million investment in machine tools” (McGahan p4). Furthermore, assemblers “could enter with only a $300,000 investment if they purchased prefabricated parts” (McGahan p4). The bargaining power of suppliers is relatively low. “Raw materials accounted for 70% to 80% of total manufacturing costs and consisted of commodities available from many suppliers” (McGahan p4). The bargaining power of buyers is relatively high. Since “seventy-five percent of wheelchairs in the U.S. were at least partially covered by insurance” (McGahan p2), many users replaced their wheelchairs every two to five years. Since Medicare was the hallmark insurance program in the U.S., other insurance carriers often followed its guidelines. As a result, for the standard and lightweight standard wheelchairs, the suggested retail prices reflect what Medicare reimburses its patients. For the more expensive wheelchairs, Medicare pays only what is “medically necessary” and the patient paid the difference. Furthermore, “discounts at the wholesale level were more common than retail discounts” (McGahan p2). “The wholesale price paid by the dealer to the wheelchair manufacturer was 60% of the suggested retail price. Large dealers negotiated additional discounts and paid as little as 42% to the manufacturer” (McGahan p2 and p3). The threat of substitute products or services is relatively low. Sunrise and Invacare sells similar products with little differentiation at similar prices. Both manufacture crutches and walkers that could be used as a substitute by some patients. However, the products do not have the relatively higher margin potential and usability compared to wheelchairs. Furthermore, it costs nothing to switch from one brand to the other. Rivalry among existing customers is relatively high. In the U.S., there are three major manufacturers. They are Everest & Jennings, Invacare, and Sunrise. Of these three manufacturers, “Everest & Jennings’ auditors indicated uncertainty about the viability of the firm as a going concern” (McGahan p5). Between Invacare and Sunrise, both offer similar discounts to wholesalers and have similar suggested retail prices, due to Medicare. As such, a huge factor for profits is the Cost of Goods Sold. Though the sales potential of 5% to 15% was high for new entrants, the cost aspect deters many from entering.