Imagine this: your business is preparing to launch a new medical device onto the market. The product has been built and refined through many iterations, and now you are ready to get it into the hands of customers. Only one question remains:
What price should you charge for your device?
Like any product or service offered in the market, pricing is a critical factor that often determines success. This is especially true in the fiercely competitive medtech industry, where a whirlwind of factors (tech advancements, evolving patient needs, customer demands, and so on) are placing immense pressure on medtech companies to suitably price their devices.
This is easier said than done, however. Leaders and decision-makers in the medical device sector have the rigorous challenge of driving innovation and maximizing profits while remaining competitive and growing. It’s a Herculean task, but with a smartly devised medical device pricing strategy, you can potentially accomplish it all. In this blog, we’ll explore some of the basics of medtech pricing strategy and what you can do to optimize yours before going to market.
Why finding the right medtech pricing strategy is important
It’s important to note that finding the “right price” has always been a challenge for medtech companies, as there is no singular silver bullet solution.
Medtech companies commonly manage different contracts across their product portfolio, which could range from high-use products purchased daily to large, service-line-defining equipment that might only be purchased once or twice a decade. Group purchasing organizations (GPOs) and other intermediaries for health systems and IDNs can also influence (and complicate) pricing and contracting.
Shifts in the broader economic market layer on additional pressures to find an optimal price point for your medical device. In recent years, hospitals have experienced declines in profits amid changing patient care preferences, increasing labor costs and staff shortages, and shrinking government relief. To combat these concerns, hospitals are placing significantly greater emphasis on cost containment—which means it’s even more challenging to sell your medical device to hospitals and get your device in the hands of the people who need it at a beneficial price point.
It’s now more important than ever that medtech companies deeply understand their customers’ wants, needs, and pain points, including their willingness to pay. Without that knowledge, your pricing strategy might be a little like throwing darts blindfolded—you might hit something, but it probably won’t be the dartboard.
Three types of medtech pricing strategies
There are a multitude of different pricing strategies you can consider when bringing a medical device to market. Below, we’ve outlined three that are commonly used among medtech companies and may align with your needs and future growth.
Value-based pricing
Also known as performance-based pricing or outcomes-based pricing, this strategy ties the price of a medical device to the actual clinical outcomes it delivers, such as lowering costs, reducing readmissions, or improving diagnosis accuracy. This strategy is increasingly popular in healthcare as it aligns the interests of manufacturers, healthcare providers, and patients.
The benefits are rather straightforward: Medtech businesses are rewarded for innovative devices that demonstrably improve patient outcomes. In doing so, they can justify higher prices for solutions that deliver superior results. And at the same time, companies can build strong and lasting partnerships with providers as both parties are incentivized to focus on patient success.
Implementing this strategy, however, can be challenging. You’ll need a vast amount of data and powerful analytical tools to understand and segment the market, target the most valuable accounts, and get your foot in the door. Contract agreements, as always, will be complex to navigate, as they involve setting clear, measurable criteria for success.
Solutions pricing
This pricing strategy goes beyond selling individual medical devices and instead focuses on offering a comprehensive solution to specific problems provider organizations face. This strategy often involves bundling products, services, and even software into one integrated package.
For example, a medical device company specializing in infection control products could offer a comprehensive solution instead of selling individual products like disinfectants, sterilization equipment, or antimicrobials separately. This all-in-one solution could include infection control products, on-site training and support, maintenance services, and software that integrates with a health system’s existing EHR.
A “solutions” approach to pricing could be beneficial if you are positioning your company as a partner in solving key challenges rather than just a supplier. This also allows for premium pricing because solutions are tailored to meet the specific needs of the customer. Just like value-based pricing, however, you will need a deep understanding of customer needs to make this strategy a success, in addition to the ability and resources to integrate various products and services into one cohesive solution.
Portfolio pricing
Similar to solutions pricing, portfolio pricing involves setting prices for a group of related products or services offered by the medtech company, rather than pricing each product individually.
The primary difference between the two is that portfolio pricing places lesser emphasis on the medical device company positioning itself as a provider of a “turnkey solution.” Instead, it might offer a range of devices for a variety of use cases or procedures. For example, a medtech company might have a portfolio that includes different types of diagnostic imaging equipment, such as X-ray machines, MRIs, and ultrasound devices.
This strategy leverages the overall value of the portfolio to optimize revenue and capture a larger share of the market. Lower-priced items can drive volume sales, while higher-margin products increase profitability. A portfolio pricing approach can also help build customer loyalty if they can buy multiple products from the same company. However, this approach demands a sophisticated sales and marketing strategy to communicate the value of your entire portfolio to customers. In addition, offering discounts, which is a common tactic when bundling products, can sometimes erode profit margins if not managed carefully.
The role of data in medtech pricing
It’s clear that finding the right price for your medical device—a price that simultaneously maximizes profits for you and value for your customers—is difficult to nail down. But it starts with data that allows you to gain a comprehensive view of the market, develop insight into who your competitors are, discover the major players in your region, and clarify the wants and needs of your customers. Once you have those insights in hand, you’ll have a clearer picture of the ideal price point.
How to optimize your medical device pricing
Know your customers.
Work with your marketing and sales teams to understand who your customers are and how willing they are to pay for your solution. Our ebook on a comprehensive guide for all things medtech marketing is your go-to resource.
Find your “value metric.”
Add further depth to your customer base by determining the value your device provides and see if that aligns with your target accounts. This could include clinical outcomes, operational efficiency, or cost savings.
Mine for insights.
Analyze the data you’ve collected in search of valuable insights. The data will tell you how different customer segments respond to different pricing models, and patterns in consumer behavior can guide future pricing adjustments.
Track and adjust pricing as needed.
Optimization isn't over once you set your price. Continuously monitor market trends, competitor actions, customer feedback, and your KPIs to adjust your pricing strategy accordingly.
By following these four steps, you can develop and maintain an optimized medical device pricing strategy that is responsive to customer needs, market dynamics, and company objectives.
Unlock the key to better medtech go-to-market strategies
For more resources on bringing your next medical device to market, read our ebook on launching your medical device. Then, check out our comprehensive guide on medtech for best practices, tips, and knowledge on how to define your market, find customers, and sell to them.
And to get the latest healthcare commercial intelligence you need to navigate the medtech landscape, start a free trial with Definitive Healthcare today.
