With 11 years of experience in the top management of established healthcare companies, including B. Braun, as well as over 20 years as an independent consultant with an internationally represented team, Dr. Claus Michelfelder can truly be called an expert for the successful distribution of medical devices. As a lecturer in the “4C Accelerator” workshops, he regularly passes on his knowledge to young entrepreneurs. We asked him what medtech startups should pay attention to when it comes to pricing and sales.
As a young company in the healthcare industry, how does one start the process of pricing?
Claus Michelfelder: With research! A solid pricing strategy can only be developed through market research and competitor analysis. This also means looking at markets and market segments that may not seem obvious at first sight. That in turn includes, for example, competitors with similar products but developed for a different medical indication, as well as completely different products for the same indication. Such research cannot be done from the comfort of one’s own computer. You have to go out there! At trade fairs, congresses, to patient and physician associations. It is also worth taking a closer look at the strategy of competitors – especially to avoid repeating their mistakes. My tip: representatives of companies usually talk more openly about such topics with students in the context of research projects.
Ultimately, startups but also already established companies should never be afraid to invest too much time in market research. After all, pricing is a continuous process that must be constantly pursued even after market entry through analysis, evaluation, and adaptation.
As the title already reveals, differentiation is the key. What does that mean in concrete terms?
CM: On the one hand, this means price differentiation depending on the market or market segment. For instance, the price for the same product in the USA may be completely different from the price in Germany, and again different from the price in Japan. Likewise, the individual customer groups should be taken into account when setting prices. Different groups – patients themselves, health insurers, hospitals, resident physicians, or OEMs – differ in the price they are willing to pay.
On the other hand, this means product differentiation, whereby different product variants can in turn be accompanied by different pricing. Every young company should ask itself, where else could our product idea find application? Are there applications that, for example, do not require medical CE marking or are even outside the healthcare industry and thus in a less heavily regulated field? Such product variants offer the advantage of a faster market entry. Apart from this, a market entry should not take place with the completed, all-features-inclusive end product. The market and customers want to see constant updates. It is therefore worth asking yourself early on which features are a “need to have” and which are only a “nice to have”. Making the latter accessible only step by step enables cycle management or the penetration of more “exclusive” customer groups.
Finally, product differentiation can also be achieved by providing additional services. Since this is usually always where the greatest market volume lies, every startup should ask itself whether it can offer services associated with its product. For software products, these are usually IT services. In the case of hardware products, maintenance of the product or optimization of operating processes in connection with the product can be offered as services.
It seems that price differentiation also goes hand in hand with the use of different distribution channels, correct?
CM: Not necessarily, but yes, every young company should also strive to use diverse sales channels in parallel. This is the only way to fully exploit the potential of a product idea and, in the long term, to ensure that one is not dependent on the success of a single distribution channel. Here, too, the first step is market research: Which sales channels come into question? How large is their respective market share? With which channel can I enter the market most quickly? What is their cost-benefit ratio? The various channels must then be evaluated and subsequently prioritized, for example by means of a SWOT analysis. If external partners are involved in sales, there are a few more points to consider:
- Exclusivity should never be given too early and without attaching conditions to it, such as a regional limitation to specific countries, a time limit to the contract period or the achievement of defined performance indicators.
- With regard to potential strategic partners, founders should be open to “smaller” partners and not focus on the one big “player”. Especially in the early phase, speed, agility and experience from different approaches are important. Here, several smaller partners are often superior to the one big partner – they too need quick successes.
- Startups also learn from the various negotiations themselves. Therefore, the most promising partner should not be negotiated with first.
- Contracts should never be negotiated without someone with the relevant experience on your side – even if that means spending money on it.
- Getting direct feedback from end users is crucial for further product and company development. Therefore, direct sales should never be completely abandoned.
And again, as with pricing: „There is no such thing as one best sales and distribution channel!“
In the healthcare industry, companies face additional challenges when it comes to pricing and setting up a sales structure. What tips would you give to any medtech startup?
CM:
- Do test marketing! Suitable for this are countries that are less regulated, such as South Africa, or countries with a smaller but innovation-open market, such as the Netherlands. This way, you don’t spoil the biggest market by making initial mistakes.
- Be aware that in the non-reimbursement market you can always achieve higher prices.
- If the product is related to the pain of patients, this fact should be at the core of your pricing considerations. Because in such cases, pain relief will always be the core motivation for the purchase.
And – even though this applies to all industries, but it cannot be said often enough – do not give exclusivity too early and, above all, not unconditionally!
Beyond regulatory requirements, such as those related to reimbursement by health insurers, there is also a lot to consider in the area of C1-Commercialization with regard to pricing and sales. In the end, these topics must be understood as part of a continuous process of analysis, evaluation, and adaptation, for which there is no single, universally valid result. The linking of pricing and sales with the other Cs is another matter – for the development of such a holistic business model, our MII experts are at your side.
