Medical Innovations: The Health of the Consumer OR Company

Saymeer Jain was a first-year sales associate at RMD, a medical devices company that specialized in developing MRI (magnetic resonance imaging) equipment. For years, RMD’s model XR-U72 had been the standard imaging device found in most hospitals. But RMD’s R&D department had just made an internal announcement that the company had produced a new model, MR-S72, which was much less expensive to produce and much more effective (studies showed that it was 30% more effective in imaging than the XR-U72 model).

As the marketing manager of RMD’s MRI equipment, Jain had a difficult challenge: to unload the seven remaining XR-U72 models. At nearly $2.9 million per unit, the XR-U72 model commanded a very high price compared with its competitors (the range for MRI equipment was anywhere from $1 million to $3 million). Given RMD’s high fixed costs (primarily R&D expenditures) and the high cost of parts, Jain realized that it was not feasible to drop the model’s price. In fact, his boss had given the mandate that the price could not be reduced—there could be no “bargain basement” pricing to unload the XR-U72s.

Jain pondered his options. What kind of advertisements could he create for the old product, knowing very well that the new model was 30% more effective? Should he wait to sell the new model until after the old ones were sold out? If so, what would the ethical implications of his actions be?