By Matt Singer, ZS Principal
In a recent ZS survey with hospital executives in the U.S. and Europe, we found that 90% of respondents think that medtech manufacturers can’t succeed with product innovation alone. Moreover, that same number of respondents said that they didn’t believe that medtech companies understand the trends shaping the health care landscape and how those trends affect providers—and therefore, what medtech customers need and value.
How can medtech improve the relevance of a portfolio for evolving customer needs? We believe that this requires a mindset shift from featured innovation of the past to value-based innovation, which we define as solving customers’ important problems in a better way than alternatives, supported by evidence.
The key elements are, first, a broader definition of the customer. In our survey, only 10% of global hospital executives believe that medtech companies are launching new technologies that align with customers’ needs. To be a value innovator today, a medtech company must continue to broaden its definition of the customer, to include administrators and other stakeholders beyond the clinician, which introduces new sets of needs to address via innovation. While most downstream commercial organizations have evolved their go-to-market model accordingly, the innovation process hasn’t caught up yet; Now is the time.
The second key element is a deep insight into customer needs because, with a broader definition of the customer, the needs become different. With a focus solely on the surgeon, the needs will mainly focus on the procedure, the resulting clinical and sometimes financial outcomes. However, other stakeholders are likely involved in the buying decision and they may value something different or use a different yardstick to measure value. One hospital C-suite executive told us, “I don’t want to spend more simply to use a new technology that adds huge costs for only incremental improvements.” This executive may use a different definition for “improvements” than the clinician and may have a radically different set of priorities.
The third key element is to change the mindset to solution development rather than product development. Medtech is a product-driven industry with highly skilled engineers who excel at developing new products. In many cases, these products are highly complex and development cycles sometimes exceed five years. Today, with different types of competitors emerging, that take a much faster and nimbler approach (such as Google and Amazon), a new product idea might be irrelevant by the time of commercialization. And in some cases, the “solution” shouldn’t be a product alone or even a product at all. It could be a service or a mobile app, or some combination thereof; Product features come later. The point is that the focus is on solving important customer problems rather than on “if you build it, they will come.” Having a solution-driven approach can mean that innovations can come to market faster, increasing customer relevance and capitalizing on growth opportunities
Now let’s look at how to enable value innovation.
We believe that the most important decision an organization can make is when defining its value proposition—which includes who the customer is, what needs you want to address and how you demonstrate and address those needs better than alternatives. Consequently, the company needs deep insight into market dynamics, customer needs and the competitive landscape.
Seems obvious right? It’s not that these topics aren’t considered; it’s that they aren’t considered early or rigorously enough. Upstream marketing teams typically have limited budgets to conduct the rigorous work required. Instead, companies often rely on their deep experience, input from local sales teams and relationships with key opinion leaders. In many companies, upstream marketing will collect input from regional commercial organizations, which are very busy driving the base business. Unfortunately, this process results in an incomplete understanding or one too focused on where the market is today vs. in the future.
To truly enable value innovation, you have to invest in a rigorous and externally driven definition of the market fact base. While the investment may seem large, it pales in comparison to the amount of money spent on R&D or on developing products that customers won’t pay for and value. . One medtech CEO we interviewed recently discovered that their company spent $30 million on developing “innovations” that ended up having no commercial value because there was no mechanism to feed evolving customer needs into the innovation process. Spending a little more in advance to avoid such a catastrophe seems like a good investment.
A rigorous opportunity assessment:
- Includes the voice of the customer: Input from local commercial organizations is a start, but getting deep insight directly from customers through primary market research is critical. Innovative approaches exist to elicit true decision drivers and how these drivers might evolve in the future
- Is data-driven: Most medtech companies have deep experience in their relevant categories, however, this experience could become a double-edged sword, as you become too reliant on your internal hypotheses and assumptions. This becomes even more challenging when different stakeholders in an organization have different assumptions. Instead of arguing about who’s right, nothing works better than using true facts generated from data, which could come from different places: syndicated sources, primary market research, etc. Regardless of the source, the focus should be on validating key assumptions with real data vs. internal beliefs, especially around the most important inputs like market size and growth, segmentation, future dynamics, etc.
- Reflects key global markets: A trap that many medtech companies fall into is, developing products focused on the needs of the U.S., either because it’s the largest market or simply because the upstream marketing and R&D teams are U.S.-based and it’s easier and cheaper to visit local customers rather than international ones. It’s critical to ensure that global needs are reflected, but how do you do that efficiently? To avoid the “tail wagging the dog” fallacy, where you’re focused on addressing the needs of every country or small countries, focus on the ones that truly matter for the future. Using a “market archetype” approach can be helpful, where you define the different types of countries and include a limited number of countries per archetype. Examples of archetypes could be countries with a large income discrepancy, but a high willingness to pay private segments, single-payer system, distributor vs. direct go-to-market model, etc. You can likely make a good strategic decision only studying a limited number of countries per archetype.
After the opportunity assessment, the next step is to define the value proposition. In our experience, the most successful portfolio strategies, emanate from a compelling value proposition that’s then used to fuel the innovation process. This is counter to the typical process, where the innovation happens first and then the value proposition is defined. Consider the CEO who threw $30 million away: His team did their best to come up with a value proposition after the fact, but it wasn’t enough. Had the value proposition come first, the innovation would have focused in a better place.
With the value proposition as a guide, medtech companies can focus on driving growth in their entire business, both upstream and downstream. Portfolio strategy should outline not only the innovation plan to deliver on the value proposition, but also how to strengthen the existing portfolio and how the existing portfolio delivers on this value proposition, including the development of real-world evidence. The value proposition will likely need to be customized for different market archetypes, which may require different data and approaches across markets. The competitive landscape will evolve as will customer needs. Therefore, keeping the value proposition “alive” is critical.
Establishing a value innovation mindset can bring significant value to medtech. It won’t happen overnight given the strong product-focused legacy that exists in the industry, but companies that can achieve this vision can establish a meaningful competitive advantage in the global market. To leave you with a takeaway from our research, only 25% of the hospital executives we surveyed said that they would pay more for an innovative product, while 75% said that they would pay more with a compelling value proposition. The payoff of a value-driven mindset is there for the taking. Will you take it?
To read more on this topic, see our article “Medtech, Look to Marketing for the Solution.”
Matt Singer is a principal and leader of ZS’s marketing practice for the medical devices and diagnostics industry. Along with his consulting experience, Matt has held senior leadership positions in marketing, strategy, business development and commercial operations within medical device and biopharma companies. His expertise spans strategic and commercial marketing issues, including opportunity assessment, business development, product development, product launch, growth marketing, market research and marketing operations. Matt’s global experience covers the U.S., Canada, Europe, Latin America, Asia and Australia.