As hospital systems consolidate, and as more physicians become hospital employees, the business side of the hospital has taken control over the acquisition of new procedures and technologies. For medical device companies, the days of driving sales via physician champions is over.
For providers, acquiring an innovative new medical device means offering a new service to patients. For a provider, the decision to acquire a new medical device is a business decision to grow the hospital’s service share. The more novel the service, the more business risk faced by the hospital, and the more complicated the purchasing decision. Philip Kotler’s book “Strategic Marketing For Health Care Organizations” gives an example of the new reality:
A hospital is considering adding a sports medicine program to its portfolio of services. Before deciding whether to launch such a program, it plans to do market research to gauge the size of the community need, discover which competitors already offer such a program, consider how it will organize and deliver the program, understand how to price its various services, and determine how profitable the program is likely to be.
Medical device sales and marketing needs to adapt. Intuitive Surgical shows us how.
In a 2006 presentation, Intuitive touted data that by implementing the da Vinci marketing programs, large hospitals could triple their prostatectomy volume from pre-robotic surgery levels, and small hospitals could grow their volumes by a factor of 10.
A great procedure and a consumer brand are necessary but not sufficient to drive adoption. Referring physicians can still be a bottleneck, preventing patients from even getting to your proceduralist. Many patients are like my mom, who routinely asks her doctor about new medications and procedures for her various medical conditions. If her physician doesn’t know about the procedure, or doesn’t feel comfortable with it, she won’t recommend it.
Robotic surgery has great consumer appeal. But it wasn’t always that way, and patients definitely prefer one brand – Intuitive Surgical’s DaVinci robot. Consumer preference helps drives system sales and ongoing device usage. We can learn a lot from Intuitive.
“Build it and they will come” doesn’t work when it comes to new medical procedures. For patients, unfamiliarity and unawareness breeds anxiety. Patients don’t come, and many companies experience slower-than-planned early revenue growth (aka the valley of death).
Treating and referring physicians have precious little time to explain new procedures during typical office visits. So most medical device companies create patient brochures for physicians to hand out, posters and videos for providers to display, and patient-friendly websites for additional research. Then they hope for the best.
Big pharma, on the other hand, goes big with Direct-to-consumer (DTC) advertising. Who doesn’t know the Nexium purple pill for heartburn? Valeant and Astra-Zeneca even advertised during the 2016 SuperBowl. Pharma experience makes one thing abundantly clear: a strong consumer brand can really drive prescriptions and brand preference. Yet for most medical device companies, DTC is simply out of reach.
That didn’t stop Intuitive and its DaVinci robotic surgical system. So how have they built the DaVinci brand?
No one does the vision thing better than Elon Musk. But he is even a visionary about vision. His grand visions inspire consumers and employees. But he also knows that visions need grounding in credibility. Overly grand ambitions generate skepticism and backlash. So Tesla has smartly scaled its vision over time, as its accomplishments have grown.
Medical device companies and auto manufacturers depend on a network of dealers or distributors, to market, sell and service manufacturers’ products around the world. It’s the accepted way of doing business, and it’s expensive. I’ve had great relationships with distributors, in the US and around the world. They perform an important set of services, but they are also expensive. Distributors can cost 25% of revenues (or more depending on local pricing). Compare that percentage to the percentage of revenues you spend on R&D.
So I’ve been pretty impressed that Tesla has gone dealer-free. They’ve up-ended the traditional model, and I think it’s time for medical device companies to rethink the role of the medical device distributor. If you’re a medical device distributor, it’s time you rethink your business model too.
To understand why Tesla went dealer-free, let’s look at the reasons auto manufacturers needed dealers in the first place, and what has changed.
In almost every business, customers weigh the downside of poor product reliability more than the upside of new product features. Consumer demand for reliability has driven automotive industry design improvements for the last few decades.
Achieving reliability for innovative products is pretty hard. Tesla has delayed new models to hit performance, cost and reliability objectives. My guess is that they have some pretty sophisticated product testing. Nevertheless, real world experience is never the same as bench testing, and even for Tesla the need for after-sales service is a fact-of-life.
Most vehicle manufacturers and medical equipment manufacturers manage after-sales service as a profit center. Tesla has taken a different approach to its real world reliability issues. Innovative medical equipment companies can learn a few things from Tesla’s approach.