What are the right medical device pricing strategies?
Setting the right price for your products or services can be a delicate balancing act for medical device businesses. It's a decision that can make or break your profitability, market share and long-term success. One of the most challenging scenarios medical device companies often face is the "margin squeeze trap." Many factors influence your margin, but one of the easiest and fastest ways to adjust profit margins is the price. Let’s dive deeper and explore the margin squeeze trap, how it can affect your bottom line, and why selecting the right pricing strategy is crucial for your business's survival and growth.
The margin squeeze trap unveiled
What do we mean by margin squeeze trap in the medical device industry? Strong growth and healthy margins have long been characteristic of the med device industry. As healthcare costs continue to rise, medical device companies are under increasing pressure to provide affordable products that still meet the needs of patients and healthcare providers. The margin squeeze trap is precisely what we see in many companies where costs are rising while market forces and intense downward pressure on prices make it increasingly challenging to maintain current pricing strategies. It's a scenario that can quickly erode your profit margins and put your business at risk.
Let’s look at a real scenario facing the industry, a well-known global leader manufacturing ultrasound devices faced a significant dilemma. Their costs were steadily climbing due to heavy investment in research and development (R&D), a commitment to advanced technology, quality assurance and the costs associated with meeting regulatory compliance and customer expectations. Alternatively, the healthcare market was experiencing intense competition and pricing pressures. The healthcare landscape was rapidly evolving; new competitors were entering the ultrasound device market, and some offered lower-cost alternatives.
Despite investments in product excellence, this company found itself trapped in a margin-squeeze scenario. Adding to the pressure, hospitals and healthcare facilities were increasingly conscious of their budgets and sought cost-effective solutions. Reimbursement rates for medical device procedures using ultrasound devices were becoming more stringent, impacting the willingness to pay for these devices. Given these circumstances, the company faced the challenge of increasing costs and market pressures, making it difficult to raise prices without risking a loss of market share.
Market erosion and the search for solutions
The result was a situation where the cost of this company was outpacing the prices they could charge for their ultrasound devices. This margin erosion seriously threatened the profitability of their ultrasound product line.
Which options does the medical device industry have for solving for a margin squeeze?
Not all companies will thrive using the same strategies as our scenario company to loosen the squeeze on margins. In this example, they addressed their needs by utilizing the following multifaceted approach:
- Innovation: Continue investing in R&D to develop innovative features and capabilities that differentiate you from your competitors. These innovations will also justify premium pricing.
- Cost Optimization: Initiate cost optimization efforts throughout production and the supply chain to reduce manufacturing costs.
- Value-based pricing: Explore value-based pricing models that emphasize the clinical and economic value of your medical devices -- aim to demonstrate how your products could lead to cost savings over time.
- Customer education: Invest in customer education initiatives to help understand the long-term benefits of your premium products regarding patient care and cost-effectiveness.
Through these efforts, the company addressed its margin squeeze challenge, gradually restoring healthier profit margins for its ultrasound devices. This example highlights the importance of innovation, cost management and strategic pricing in the medical device industry when facing rising costs and competitive pressures. As mentioned, the strategies are not the same for all med device companies.
Join our webinar, “Prescribing Profitability: Mastering Pricing Strategies in the Medical Device Industry,” where we’ll navigate how to optimize revenue, maintain competitive advantage and ensure sustainable growth in the ever-evolving world of medical device manufacturing. I’ll uncover more unique challenges the industry faces and unveil innovative pricing strategies that can help you survive and thrive in this demanding landscape.