Discover insights on pricing in medtech and diagnostics from our 2024 Global Pricing Study report. Our experts reveal the latest developments in medtech pricing and the most important actions to consider for better price management in 2024.
In 2024, the medical technology (medtech) and diagnostics sectors must prioritize effective price management to sustain their traditional success.
While both sectors have seen profitable growth in the past, they now face challenges that require pricing innovation in healthcare. The long-term effects of adverse macroeconomic trends are fundamentally reshaping commercial priorities.
Our new Global Pricing Study uncovers critical pricing trends in our ‘State of Pricing’ report, offering insights into navigating these complex market forces. We outline key insights from the report to help both sectors strategize for price optimization toward continued growth.
The new pricing dynamics in medtech and diagnostics
Macroeconomic tailwinds stemming from inflation, supply chain challenges, and intensified competition are here to stay. In recent years, these challenges have pushed companies to shift their pricing agenda from focusing solely on innovation to broader initiatives optimizing pricing across the entire portfolio throughout its lifecycle.
Since rising costs will remain a permanent reality, it’s critical not to view the typically successful price increases taken in the post COVID years as a one-time event. Regular price management help offset rising expenses and ensure profitability.
This is confirmed in our GPS report, suggesting that for 2024, approximately half of companies are planning to raise prices. Out of these companies, 41 percent have plans to increase prices to match inflation, while 6 percent plan to exceed it.
Although this is a smaller figure compared to 2022/2023, where in light of skyrocketing cost associated with the COVID crisis, 81 percent of companies raised prices, it demonstrates that companies understand the importance of regular price management for long-term success.
At the height of inflation, these recent price increases achieved historically high success rates, reaching up to 2/3 of the target. This year, more headwinds regarding price increases can be expected, highlighting the need to transition to a more thoughtful process rather than largely flat across-the-board price adjustments seen in previous years.
Competitive pressure, a bigger challenge than customer resistance
Before raising prices, medtech and diagnostics companies must evaluate potential barriers to success. Failure to understand these challenges can hinder the ability to reach price targets, despite offering a differentiated value proposition and focusing on customer value creation.
Our research uncovers several factors behind companies missing price targets. A major challenge is the difficulty in convincing customers to accept price increases (60 percent). Following this, companies also identify inadequate value proposition and ineffective communication (12 percent each) as key challenges.
However, we see that market competition is back as a major limiting factor, with higher product availability due to stabilizing supply chains.
Strategic pricing excellence is key for medtech and diagnostics sector growth
We see two solutions as critical for achieving pricing excellence in 2024.
- Recognize active price management as a key lever for growth
If a company has been successful in raising prices and achieving profitable growth recently, we recommend continuing the price excellence strategies. And based on our GPS report as well as our extensive project experience, we advise against treating the recent price increases and positive margins as a last-minute solution.
Moving forward, companies must consider implementing regular price management by focusing on customer value creation.
Why is this critical for medtech and diagnostics companies? To date, price increases have at best been a one-time response to unexpected challenges, such as the global pandemic where supply chain disruptions caused product shortages. Customer demand and prioritization of product access over price considerations led to successful price hikes. As a result, many companies saw margin improvements despite the difficult conditions.
Considering this achievement and the effect of macroeconomic trends on businesses, it is vital to plan for future price hikes to maintain continuous growth.
- Establish price management as a regular business function
Price increases, necessitated by quickly rising costs, were viewed and executed as a one-time fire drill, sometimes after many years of declining prices in the market. They tended to be executed in a simplistic across-the-board approach, often without clear processes or defined roles and responsibilities.
With the need for active price management here to stay, medtech and diagnostics companies should consider developing an organizational muscle for it. It should be established as a regular year-over-year process following a standardized process with roles, responsibilities, and tracking toward a target. This is an important step for companies aiming to build a resilient business model and stay ahead in the competitive market.
Many companies are already focusing on price positioning and price differentiation to achieve pricing excellence. For starters, businesses can identify a smarter way to raise prices by pinpointing which products can handle increases, rather than across-the-board hikes.
This approach also considers individual customer segments. Where can companies maximize price increases without alienating customers? Which segments are more competitive, requiring caution? It's about being strategic and thoughtful, rather than applying a blanket percentage increase to every product.
Take action now to enhance your price optimization
Medtech and diagnostics companies need to establish regular price management as a core business function, dedicated to defined roles and innovative pricing and technology solutions.
Our experts at Simon-Kucher can assist you with your price optimization journey as you transition from one-time price adjustments to more regular price hikes.
Act today to elevate your pricing strategy and drive profitability in the competitive market and reach out to us!
