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INSIGHTS

Medtech, Look to Marketing for the Solution

KEY TAKEAWAYS:

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Marketing can help product launches be more successful.
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Marketing can help improve the relevance and profitability of the portfolio.

We don’t need to tell you that the healthcare landscape is growing more complex and competitive, and that achieving growth is becoming more challenging for medtech organizations. We don’t need to mention that bringing true innovation to market—innovation that customers will pay for—isn’t as easy as it used to be or that many new product launches fail to deliver on expectations. We’ve sat in the offices of many industry leaders and discussed these very challenges.

One medtech CEO talked about how his R&D organization was highly successful at developing and launching new features, and the company benefitted for years from launching new products based on this “feature innovation.” However, the market has changed. Today, customers often prefer products with fewer features that deliver equivalent outcomes for a lower price. This market insight wasn’t brought to the R&D team and therefore wasn’t reflected in their pipeline. The CEO recently discovered that $30 million was spent on developing “innovations” that ended up having no commercial value.

We heard about an entrepreneurial country manager who was fighting for a big tender and felt that a new product was warranted to win. He called an R&D manager friend, who helped get the new product developed and released. The customized solution helped the country manager win the deal, but the annual cost of keeping the product alive is close to the value of the tender itself. Since the product was so customized for this one situation, no other customer or country wants to sell it.

In the past, medtech companies could rely on incremental feature improvements and sales reps’ relationships with clinicians to drive sales. But 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. Customers are demanding something different. They are now much savvier and more selective about what innovations they’re willing to pay for, as shrinking budgets have driven them to economically driven decision-making in many cases.

In response to disappointing financial performance, we see most companies taking steps like restructuring or resizing their sales organization, changing out their R&D capabilities, or acquiring external companies or products—or, worst case, downsizing their organization to better align to the revenue growth. We believe that marketing, which is often overlooked, is the right solution to the new market reality in medtech.

We believe that marketing, which is often overlooked, is the right solution to the new market reality in medtech.

Many companies in other industries have gained a stronger competitive advantage via an empowered marketing capability. So why shouldn’t medtech?

Why Marketing Is the Answer

By “marketing,” we mean the discipline as it’s intended to be practiced, not as it currently exists within many medtech organizations. Philip Kotler, a professor emeritus of marketing at Northwestern University’s Kellogg School of Management who’s often considered the father of modern marketing, defines marketing as “the science and art of exploring, creating, and delivering value to satisfy the needs of a target market at a profit.” As Kotler put it:

Marketing is the homework the company does to figure out what people need and what the company should make. Marketing determines how to launch, price, distribute and promote the product/service offering in the marketplace. Marketing then monitors the results and improves the offering over time. Marketing also decides when to end the offering. … When marketing is done well, it occurs before the company makes any product or enters any market; and it continues long after the sale.”

Is this what marketing does in your company today? Are your marketing teams consistently empowered to drive these objectives across all of your divisions, all the time, globally? Based on our experience working across medtech categories, we’d argue that, while great marketing does happen, it doesn’t happen consistently. This isn’t the fault of the marketing teams in most cases. It stems from the historical approach of the sales force being put at the center and marketing existing to support sales, while innovation was driven by the engineering talent in R&D.

How can marketing help new product launches be more successful?

  1. Move from “feature innovation” to “value innovation.” We believe that a lack of rigorous customer and market opportunity assessment is the root cause of medtech launches routinely not meeting expectations. In our experience, it isn’t that the right questions aren’t asked. It’s that the questions aren’t asked objectively or analyzed rigorously, and the insights from the analyses aren’t discussed early enough to shape pipeline and portfolio decisions. As one medtech CEO we spoke with put it, “In today’s world, you better know how you’re going to commercialize before you build the product or you’re likely to fail.” Good marketing is about being objective and focused on customer needs (including who the right customer is), and determining how to deliver value against those needs. By being focused on the customer, and not the product, the industry can evolve from feature innovation to value innovation. In our survey, 90% of global hospital executives said that they didn’t believe that medtech companies understand the trends shaping the healthcare landscape and how those trends affect providers—and therefore, what medtech customers need and value.
  2. Ruthlessly revisit business case assumptions along the stage gate process and make the gates true “go/no go” decisions. At most companies we work with, the stage gate process has become a technical milestone review rather than the true “go/no go” that was originally intended. The gates have become either “go” or “go back and do some homework and then we give you a go.” Given the long life cycle of product development, it’s highly likely that the external environment, and even the product that’s eventually launched, changed from when the original business case was created at gate 0 to when the product was completed. A medtech CEO we interviewed shared that very experience. “We had a product exit the stage gate process having achieved all its technical milestones, but the regional commercial organizations refused to launch due to lack of market opportunity,” he said. “It would have been great to have known this earlier. Lots of money had been spent, and likely wasted.”

    How often is the business case rigorously updated at your company? How frequently do you stop R&D programs once started? As one global marketing medtech leader we interviewed told us: “We are too focused on technical requirements and not commercial requirements. We do not ask, ‘Is this device meeting customer needs?’” Based on our research, only 10% of hospital executives think that medtech manufacturers are launching new technologies that are completely aligned with their needs. Marketing can be the connection between the external market and the internal development process, and can ensure that the business review is as thorough as the technical review.

    Based on our research, only 10% of hospital executives think that medtech manufacturers are launching new technologies that are completely aligned with their needs. Marketing can be the connection between the external market and the internal development process, and can ensure that the business review is as thorough as the technical review.

  3. Evolve launches to be a demand maximization exercise rather than a commercial release exercise. You only get one chance to launch, so why not do it right? So much effort is put into the development of a new product, but the same level of effort isn’t always put into determining how to drive product demand. Prior to launch, medtech companies often don’t fully explore topics like market development, patient engagement, integrated promotional planning via digital and other channels, pricing and contracting strategy, product positioning and messaging, and differentiated tactics and messages by customer segment.

    The first step is to complete an honest assessment: Is this truly a new product launch, or is it actually a line extension/portfolio filler? Our survey indicates that only 20% of global hospital executives believe that new medical technologies launched in recent years represent significant advancements in their therapy areas.
    This marketing-led assessment should drive the level of attention and commercial investment that’s given to new product launches versus portfolio fillers. Strategic, new product launches should be well-resourced 18 to 24 months pre-launch with a high sense of urgency placed on launching on time with a strong commercial push. Portfolio fillers require a very different approach. They should be evaluated in the context of other products in the portfolio to determine when, and sometimes even if, this new product or feature should launch.

    This marketing-led approach can create a multitude of business benefits. It offers customers more relevant products and a simpler buying process; arms country organizations and sales reps with products with stronger value propositions, a smaller portfolio to promote, and less distraction from minor products with minimal revenue opportunity; and helps commercial leaders reallocate resources to the limited number of launches that matter from the others that don’t.

How can marketing improve the relevance and profitability of the in-market portfolio?

  1. Be rigorous in assessing the quality and value of each product in the portfolio. A vice president of U.S. sales summarized it nicely: “We need to move from launching anything to better launches, and to actually retiring [products].” Most companies that we work with keep adding products to the portfolio, but they rarely retire anything. The portfolio keeps growing, creating complexity for the customer and the sales rep in the buying process, and also for internal functions such as quality, supply chain and engineering in keeping existing products alive. Many companies are afraid to retire products for fear of customer and sales force backlash. But in reality, a more streamlined portfolio improves the customer experience through a simpler buying experience, helps the sales rep deliver a more streamlined and relevant narrative, and increases company profitability by reducing sustaining costs and freeing up valuable R&D resources for innovation. In addition, the supply and quality issues that are created by a bloated portfolio can create external risks to companies and the executives that lead them in terms of the implications on delivering on financial commitments to investors.

    Marketing can lead an objective assessment of portfolio relevance and long-term viability, synthesizing external data including evolving customer needs, market dynamics and the competitive landscape, along with internal data on the true costs of keeping a particular product line alive, including well-understood facts like revenue, gross margin and growth rates, as well as “hidden costs” that might exist in other functions or commercial regions. Armed with this objective view, marketing can facilitate the best portfolio management decision for the company, working with cross-functional partners. This likely will lead companies to make the difficult, yet appropriate, decisions to retire more products.
  2. Drive the commercial strategy and execution at the region and country level. It bears repeating that, in today’s world, having a great product sold by a rep with a great customer relationship isn’t necessarily a recipe for success like it used to be. Customers demand proof of value, not just features and benefits. Ninety percent of the global hospital executives we surveyed don’t think that medtech manufacturers have compelling and differentiated evidence to support their offerings’ value propositions.

    Ninety percent of the global hospital executives we surveyed don’t think that medtech manufacturers have compelling and differentiated evidence to support their offerings’ value propositions.

    Medtech marketing teams typically aren’t well-positioned to equip sales reps to win. As the vice president of U.S. sales said, “U.S. marketing spends two-thirds of its time on resolving issues for reps and creating brochures, and only one-third driving marketing initiatives, and I don’t think that’s the right use of time.” Medtech must put their marketing organization in the position to drive commercial execution by bringing together the insights, evidence, content and tools, and utilizing the appropriate mix of promotional channels to deliver the value proposition to customers.

What Will It Take to Succeed?

“Historically, given the product orientation, marketing ends up being product management and not really being marketing,” a medtech CEO said. “They end up supporting R&D and losing the connection to the customer. The companies that are doing very well think differently: Marketing does marketing.” Here’s how to enable your marketing organization to “do marketing.”

Build alignment around the idea of an empowered marketing function—and the resulting benefits The first and most significant obstacles that medtech organizations have to overcome is how marketing is viewed, and the value and the power that company leadership assigns to these teams. Medtech organizations historically have grown and thrived on R&D- and sales-led approaches, and marketing has evolved to support these functions in many respects.

  • Get buy-in from leaders across the organization. Better marketing can deliver meaningful impact to medtech companies’ bottom lines by solving some pressing business problems. Theoretically, everyone should benefit from this, but many leaders may see a loss of power. Understanding these concerns from the beginning will be critical so that they can be mitigated in the change management program. For example, the R&D leader may perceive a diminished role in owning the portfolio. In fact, now R&D can focus more energy on driving true innovation and developing solutions that customers applaud and buy. What R&D leader wouldn’t want that?
  • Build alignment throughout the ranks. Achieving alignment at the executive level is a great start, but it isn’t enough. The alignment must permeate the organization at the levels where work is actually done—within the cross-functional working teams, commercial regions, etc. Executives’ messaging must be consistent and frequent, and they have to model the right behaviors.

Shape marketing responsibilities and decision rights so that marketers can be effective
Our analysis of typical marketing activities reveals that the vast majority represent “keeping the lights on.” This isn’t a criticism. Someone has to do it, of course, but this stuff takes a lot of time, energy and follow-through. Our time allocation studies with global marketing teams across the medtech industry consistently find that a significant amount of time (nearly 100%, in many cases) is devoted to more day-to-day product management activities, such as attending cross-functional project meetings, dealing with back orders and inventory management, supporting remediation efforts, and just trying to keep up with other function-specific initiatives related to the portfolio like R&D replacing parts suppliers because the old ones went out of business, manufacturing driving cost-out initiatives in the plants, etc.

Marketing needs to focus equally on long-term value creation efforts like spending time in the field globally, assessing future trends and driving market development for innovative, new products.

Marketing needs to focus equally on long-term value creation efforts like spending time in the field globally, assessing future trends and driving market development for innovative, new products. While it’s always challenging to hire more people for these marketing activities, customers tell us that this effort is worth it: In our research, about 75% of customers would pay more for an innovation with a compelling value proposition supported by evidence, while only 1 in 10 think that the industry really understands their needs. The payoff is clearly there.

  • Resource marketing. In many companies, marketing very likely will need a larger budget to drive the types of activities and decisions that we’ve outlined. And as mentioned earlier, in a year-over-year comparison, the budgets will look out of whack compared to how companies typically view SG&A. That said, many of the actions that we’ve highlighted likely will free up resources, such as by streamlining unprofitable product lines and reducing one-off product development. These resources can be used to fund the incremental, value-add activities such as robust global market research ahead of new programs being started. In addition, investing in global capabilities can provide leverage to OI-strapped regional and country teams, especially those outside the U.S.
  • Empower marketing. The way that decisions are made in many companies will need to shift either to put marketing at the center or to have marketing play a much larger role in facilitating a team decision. This could be addressed in many ways, such as by shifting budgets to marketing from other functions or establishing governance models that ensure that decisions are made in the desired way. Executive support will be critical. For example, in a stage gate review, the global business unit leader should be asking questions about the market fact base and looking to marketing for the answers. This can also be accomplished through a more established career path for marketing. While in many companies, the career path for sales leaders to move to P&L and senior executive roles is well-established, executive leaders whose impact is most associated with marketing are more the exception than the rule.

Recognize that this isn’t a small change and won’t happen overnight
Getting past historical perceptions of marketing and the role that the marketing function plays isn’t easy. Changing inertia in a large, global corporation takes time. Many medtech companies’ marketing budgets are less than 3% of revenues, while marketing budgets in other industries are in the 7 to 10% range. If medtech marketing becomes resourced at a higher level than it is today, the year-over-year comparisons will be tough for a lot of organizations to stomach when building the P&L. However, we believe that these barriers are worth overcoming.

  • Stay the course when times are tough. In the quarter-to-quarter nature of managing earnings and commitments to investors, companies often look to SG&A targets as a common tool to hit these commitments. To build a strong and empowered marketing organization, it will be important to not reduce marketing investments disproportionately in these exercises or the company will never realize the long-term benefits. Building an empowered marketing organization likely will require an incremental approach for most companies. However, some companies might be able to jump ahead.
  • Consider leapfrogging. Medtech companies could take a cue from other industries or areas of the healthcare ecosystem in which new capabilities via artificial intelligence, digital and connected health programs, and the like are being experimented with to enhance and, in some cases, replace classical approaches to analytics, research and even marketing. Rather than building slowly toward the ideal future state, some medtech companies might be able to apply lessons learned in those other industries and build a cutting-edge approach from the outset. That said, while this may sound enticing, it will be difficult for many companies to take this path.

Customers are clearly telling us that they want more from the industry, and marketing can help deliver this change. Medtech companies that can figure out how to break from the past and work toward building a world-class marketing capability can increase their customer relevance, differentiate their offerings from the competition, and sustain long-term financial success.

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ABOUT THE AUTHORS

Authors
Matt Singer
Principal

Matt Singer is a principal and leader of ZS’s marketing consulting practice for the medical devices and diagnostics industry.

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Authors
Sundeep Karnik
Principal

Sundeep Karnik is a principal and leader in ZS’s medical products industry vertical, where he focuses on marketing and strategy.

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