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.
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.
In my last post, I mentioned Tesla’s brand identity – technology, performance, design. Tesla consumers pay up for the brand and its design. In brand strategy, I (and others) see a lot of parallels between Tesla and Apple. Both are status brands, and both use their brand identity to maintain premium pricing. Tesla has clearly been paying attention.
Take a look at Apple’s brand – design, performance, and reliability. People pay significantly more for Apple products than for similarly performing products from other companies. When the iPhone first appeared, its performance blew away other then-existing smartphones. Over time, it’s hard to say that Android phone performance hasn’t caught up with the iPhone. All the same apps. Great processing, camera and screen technologies. Sharp-looking industrial design. Most reviewers rate Google Now as better than Siri. Yet Apple is the smartphone company making the profits.
Apple leveraged their early technology lead to build their brand, and now the brand delivers the economic rents. Apple Music is a late entrant to the streaming music market, but its brand enabled it to quickly become a top player.
Now let’s look at Tesla and its electric vehicles. Nothing else on the road performs like Tesla’s current lineup, and Tesla can charge a premium for their products. Like Apple, Tesla’s product design, manufacturing quality and subsequent product reliability are outstanding. Tesla is using its early technology lead to build its brand identity for technology, performance, design and reliability. If/when competitor technologies eventually catch up to Tesla, Tesla will still be able to earn economic rents on their brand.
I’ve had a series of Tesla posts on my mind for a while, but finding the time to write them has been elusive until now. I’ll post them over the next few weeks.
Tesla is today’s “It Car” – the cool, sexy, electric performance vehicle of choice. Who wouldn’t want to take a Model S for a spin? While there is a lot to admire about Tesla’s vehicles, Tesla Motors has also been masterfully executing its business strategy. For those paying attention, Tesla’s business activities can teach important lessons about bringing innovative products to market. Medical device companies could learn a thing or two. Today I’d like to talk about segmentation strategy and building a brand.
I’ve been tracking first-time venture financing of medical device companies in New England since 2005. Whew!
Startups are where innovation really happens. It takes the dedicated focus of a startup to drive real change to our healthcare system. A first venture funding is a validation of technology, market and business model. A key metric of the health of our local medical device innovation economy is the rate of new startup funding.
I also track startups because I want to provide a list of funded startups to the local community – job seekers, venture investors, and service providers. Startups have a hard time finding the right connections in the community, and vice versa. Maybe I can make it a little easier.
I’ve counted nine venture-funded medtech startups in 2015, of which one is a restart, one has no medical device products (but may), and one is a Ukrainian company with a Boston-area office. Given the venture funding environment, 2015 was a respectable, thought not stellar, year for venture funded medical device startups in New England.
No question – 2015 was a really busy year for me. So, it’s been more than 12 months since I updated my list of healthcare venture firms that have raised new funds. I finally found some time this weekend.
I had coffee with a former colleague last week, and he told me something surprising he learned about himself. His new company has bench desking, and everyone’s space is a little less than three feet wide. At his previous company, he had a large desk with a sweet window view. He told me that “If someone had tried to get me to give up my old desk I would have put up a big fight, but at my new company, it’s not an issue. The space works. When we hire a new person, everyone squeezes together to make room.”