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Launching Revolutionary Products in Slow-Changing Markets: Who to Target? What to Charge? When to Launch? (Pt. 2)
1. Who Will Buy This New Product?
The first challenge is to understand how to segment the health care market, as well as who will champion this new product in targeted hospitals. For our client, it was important to identify each hospital system’s strategy for winning in their specific market and determine their “fit” for our client’s product. Some focus on operational efficiency, for example, and others focus on patient experience, which incorporates everything from waiting times and traditional bedside manner to the architectural and interior design of the hospital itself. Importantly, some hospitals, such as public hospitals with razor thin margins and high Medicare/Medicaid populations, may not be in a position to risk spending more on an unproven innovation.
Related Reading: A Market-Driven Framework: Aligning Product Development and Markets
Using these insights, we developed a launch plan that targeted patient experience-focused hospitals first, followed by operational efficient hospitals, and then, finally, cost-conscious hospitals. We then conducted extensive analysis to estimate the size of each of these segments, which would be necessary to select the subsequent pricing strategy.
For identifying champions, we knew the traditional champions in the hospital consisted of those who sat on the value analysis committee, such as high-ranking nurses and doctors, procurement/supply chain leaders, and people in finance and administration. We determined that nursing managers would be the primary champions for our client’s product at targeted hospitals. The champion will vary, though, depending on which health care professional usually delivers the product to the patient, the product’s share of the hospital’s overall spend, and how the patient perceives the product’s influence on their experience. Our next step was to develop playbooks for the sales reps, laying out specific questions to validate the hypothesized champion and value analysis process at each hospital.
2. What Will Customers Pay for This New Product?
The second challenge is understanding what to charge for a new product to maximize our client’s returns yet still provide outcomes-based value to a hospital. Value is extremely difficult to calculate and is not consistent across hospital systems due to different reimbursement rates, patient population mixes, operational standards, etc. Even further, the methodologies used to calculate value at the hospital vary wildly. Some hospitals heavily invest in resources, such as staff, software, and specific protocols, to track and measure value, while others will use tribal knowledge to deliberate in a value analysis committee session and come to a consensus. Still others will simply defer to the most influential voice in the room.
We also considered what percentage of the product spend accounts for the overall hospital’s products and supplies spend. There will be significantly more value analysis conducted on a $2M Da Vinci Surgical System compared to cotton swabs, for instance. We found that our client’s innovative product was at the low-end of the hospital’s overall spend, so hospitals are not likely to spend as much time and resources analyzing its value. And with little to no evidence of cost savings, a significant increase in price (except in certain use cases, such as neo-natal intensive care units) would not be feasible. However, this could be an advantage, as a large number of targeted hospitals were willing to consider more moderate price increases since it was not worth their time to justify the value.
3. When to Launch This New Product?
The third challenge was determining the timeline for launch. The key factor driving this decision was our prediction of the adoption rates relative to willingness to pay across customer segments when there is limited evidence versus strong evidence. With more evidence, assuming case studies and/or clinical trials clearly indicate benefits to a hospital’s bottom line, higher prices can be charged. However, this evidence could be very costly, and could take a minimum of 6-12 months build—and there’s a real risk that it might not be financially feasible for a majority of the market, not to mention the possibility of losing first-mover advantage in a competitive market.
One final underlying layer of complexity when trying to determine the launch date is the increasing transparency and long-term contracting in today’s health care market. With the rise of Group Purchasing Organizations (GPOs), and even aggregators of pricing across GPOs, there is little room to charge different prices for different hospitals. Also, GPOs are getting more aggressive in locking in contracts that last 3-5 years, which can sometimes be the entire lifecycle of a product. So once the price for the new product is set, it would be difficult to adjust moving forward, even if the product is creating much more value than it’s capturing.
Answering These Questions for Your Revolutionary New Product
If you thought the hard part for a business in a slow-changing market like health care is figuring out how to revolutionize efficacy, think again. The commercial team is challenged as much, if not more, than the R&D team when providing a sound go-to-market strategy. That’s why it’s imperative for both teams to work in parallel, using a customer-centric approach to create and deliver new products to the market. Identifying target customer segments, what those segments are willing to pay based on varying evidence, and when to launch the product requires disciplined internal communications, data-driven and fact-based approaches to understand the market, and a willingness to be bold.
Are you ready for your next product launch?