Five sales strategies medical device startups should avoid
The medical device industry faces a challenging year ahead battling pricing pressure, healthcare reform and regulatory scrutiny. Succeeding in this climate requires astute sales and marketing strategies.
These five successful strategies of the past are doomed to fail in 2012, says Gunter Wessels, partner and healthcare practice principal at TIGI Inc. So listen up and find out what alternatives will work:
1) Pricing confidentiality agreements
This is quite a common practice and coming under scrutiny not just from Congress but hospital associations and group purchasing organizations.
“The problem that the industry was trying to solve with pricing confidentiality agreements was the ability to meet unique demand for special pricing,” Wessels said. “It’s become a dominant form of practice and it’s being alleged by several parties … (including) the federal government that these things are being done to exploit and increase price variance and not accommodate a small issue.”
Wessels said that consulting groups and other organizations can benchmark such prices and the “price hits the street” and the whole concept of controlling pricing boomerangs.
“While you are trying to maintain your margins, once those prices see the light of day for various reasons … that becomes the new normal,” Wessels said.
Companies that use this strategy need to take a long, hard look at their overall pricing strategy.
“If you are using price confidentiality agreements, you have probably lost control of your pricing policy as a corporation,” Wessels said.
Medical device makers really need to have justified price variance, Wessels advised. He noted that volume-based discounts are justifiable and easy for customers to understand, but an overall disciplined approach to pricing needs to be adopted.
“If you really need to do one-off pricing … do them with a third party like a purchasing consortium or a GPO,” Wessels said, which shows clearly that this is a volume-based discount. “Lift the veil, don’t try to hide it.”
2) Adding to the sales force and 3) Geographic segmentation of sales reps
Consolidation in the marketplace and the continued fall of hospital beds per 1,000 people necessarily mean that adding to the sales force will not be a particularly helpful plan in 2012.
But in addition, a proposed Centers for Medicare & Medicaid Services rule may lead hospitals to centralize their purchasing decisions. That would make geographic segmentation of the sales force a failed strategy as well.
And then there are the Accountable Care Organizations who are driving a major shift in healthcare upending the traditional model of healthcare providers being paid to perform more procedures on more people.
“Now we are going to a reduced-volume system where a healthcare provider can make money by doing less,” Wessels said. “That’s really unwinding the helix of the healthcare delivery DNA and rewinding it in the opposite direction.”
All of this requires less intensive sales effort, but a smarter sales force.
“Upgrade the skills of your sales force so they are able to say how your medical device can reduce utilization,” Wessels said.
He added that having mobile hyper-specialists who can speak to a product’s clinical, operational and financial advantages will be a winning strategy, too.
4) Appealing to physician preference
Medical device manufacturers prize their relationship with doctors, but Wessels said that because of the Physician Payment Sunshine Act, this relationship is under a microscope. Although the law is still controversial and implementation has been delayed, it is going to be a reality soon.
“This law forces organizations to report any gifts over $10,” he said.
And violation of the law leads to stiff penalties. That makes appealing to a physician’s preference for a product a tricky path to go down.
Focus instead on the economic and clinical value of the product. Evidence-based data is the best tool.
5) Relying on feature advantages compared to competitor’s product
Sales reps do this all the time and Wessels said that just sounds like “we love ourselves” — again, not a winning approach when it comes to the current environment.
Develop skills such that, depending on the type of entity device makers are marketing to, sales reps can talk about clinical utility, operational efficiency and financial performance of the device.