Pricing Strategies for Consumer Medical Devices December 3, 2014 Fast Forward to Customer Success

Pricing Strategies for Consumer Medical Devices

December 3, 2014

Fast Forward to Customer Success

© Pacific Consulting Group. All Rights Reserved. | December 2014 2

Introduction

Speaker Introduction

Agenda

–Why pricing matters

–Alternative pricing strategies

–Pricing without research

–Research based pricing

–Recommendations based on product-type


Why Pricing Matters

Pricing is one of the most important factors in product (and your business’ success)

– Price too high and its sales will be limited

– Price too low and you “leave money on the table”– Lower valuation of your company

– Fewer profits for founders and investors

– Less margin with which to attract and retain staff

There are 6 Primary Pricing Models

–What are they

–How do I chose?


What to consider

In arriving at a pricing strategy, consider:

–Strategic objectives

–Development costs

–Manufacturing costs

–Target customer(s)

–Product positioning/Competition

–Price sensitivity

–Lifecycle stage


What do you need to conduct pricing research?

Product

– A sketch

– Written description

– Developed product profile

– Picture/Video of product

– Prototype

– Actual product

People

– Target customers

– Current customers


Pricing alternatives

There is a basic choice to make when pricing:

– Cost Based Pricing

– Market Rate Pricing “what the market will bear”

This presentation will focus on Market Rate Pricing


Six Market-Based Pricing Models

Direct– Market Scan

– Willingness to Pay

Indirect– Gabor Granger

– Brand Price Trade Off

– Van Westendorp

– Consumer Choice Modeling


Case Story: Picking the Wrong Price

Background:

– First product sold out all 10,000 units – considered a successful launch

– Price was set at $75 based on market scan of similar products – revenue = $750,000

Conducted Van Westendorp

– Price range found to be $80 to $170

– Based on 10,000 units, revenue could have been $1,700,000


Case Story: Responding to a price drop

Background:

– Company launched first product in new market. Competitor product launched at a lower price and began to took market share.

Conducted Consumer Choice Model study.

– Isolated key product features that were more important than price – allowing first to market to alter messaging.

– Identified new competitive price point – higher than competitor – that recaptured market share.


Direct – 2 methods


Market Scan/Analog

Step 1: Identify products within market or products in similar markets

Step 2: Determine product value within market

Effective in a highly defined markets. No customer sample needed.


Willingness to Pay

Step 1: Describe product

Step 2: Ask “How much would you pay for this?”

While this is simple, the findings are often flawed

–Bargain hunters

– Irrational exuberance

Can be used with Key Opinion Leaders (KOLs)


Indirect – 4 methods


Gabor-Granger


Step 2: Ask purchase intent at a specific price on a 5-point scale (1=Definitely Would Not, 5= Definitely Would)

– If no, ask the same question and display a lower price

– If yes, ask the same question with a higher price

Step 3: Calculate demand and revenue curve

Useful when the range of prices is already known.


Brand Price Trade Off (BPTO)

BPTO is an extension of the Gabor-Granger approach to a competitive context.

– Simple discrete choice


Step 2: Ask for choice from a group of priced brands/concepts. This task is iterated 8-10 times.

Useful for developed market with defined competitors.

Brand A Brand B Brand C Brand D$75 $90 $60 $110


Van Westendorp (VW)

The VW approach aims to establish limits of price elasticity, or price thresholds (upper/lower bound)

VW contains answers to four indirect questions to calibrate price from different perspectives:

– Too Cheap

– Not a Bargain

– Not Expensive

– Too Expensive


VW: Standard Questions

What price is so low you would question its quality?

What is the highest price at which the product would still be a bargain?

What is the price at which the product is starting to get expensive?

What is the price at which the product becomes too expensive to consider buying?


VW: Sample Data

What price is so low they would

question its quality?

What is the highest price at

which the product would

still be a bargain?

What is the price at which the

product is starting to get expensive?

What is the price at which the

product becomes too expensive to consider buying?

Too Cheap Not a bargain Not Expensive Too ExpensiveResp 1 $45 $100 $150 $175Resp 2 $50 $75 $100 $110Resp 3 $75 $150 $175 $200… … … … …Resp N $55 $100 $120 $150

• Data is graphed for analysis


VW: Range of Competitive Prices - $80 to $170

Point of Marginal Cheapness

Point of Marginal Expensiveness

Optimal Price Point


VW: Propensity to buy?

Caution: While VW can isolate a range of prices, it does not measure propensity to buy

For propensity, use the following question:

– How likely are you to buy this product within [time range] if it is available between [Bargain Price] and [Starting to Get Expensive Price]?


CCM (or “trade off analysis”) is used to determine the most successful product-brand-price mix

1. Determine the product-brand-price mix that will appeal to the greatest proportion of the target market

2. Understand product expectations and purchase drivers across different customer segments

3. Reduces the commercial risk of over- or under investing due to mismatch between product development and customers’ expected price points

4. Results can drive forecasts by showing brand preference and competitive tradeoffs

Consumer Choice Model (CCM)


Product Acceptance

CCM: Can Simultaneously Measure Many Attributes

ProductFeatures

Aesthetics

Performance

Brand

PriceFinancing

Comparative

Residual Value

Switching cost

ExperienceExpectations

Function

Emotion

Social proof

AccessChannels

Regulation

Location

Timeliness

ServiceAccess to service

Customer care

Warranty

Purchase


This matrix represents 21,600 possible combinations

CCM: Example Attribute Table

Level 1 Level 2 Level 3 Level 4 Level 5 Level 6Brand Company 1 Company 2 Company 3 Company 4Effectiveness 99% 97% 95% 90% 85% 80%Market Usage Used by 50% Used by 35% Used by 25% Used by 10% New to marketSize 2 cubic feet 4 cubic feet 8 cubic feet 12 cubic feet 20 cubic feetRun Time 30 minutes 25 minutes 20 minutes 15 minutes 10 minutes 5 minutesPrice $200 $300 $400 $500 $600 $700


Divides a product into all its key attributes/product features

Combines these attributes/product features into a selection of “hypothetical products”

Testing the boundaries and not just current features

CCM: Question Example

Company 1 Company 2 Company 3

90% effective 95% effective 80% effective

Product is new to market

Product is used by 10% of consumers


4 cubic feet 2 cubic feet 8 cubic feet

10 minutes 15 minutes 20 minutes

$500 $600 $200

m m m

Which of the following medical devices would you be most likely to purchase?


CCM: Market Simulator Sample

Market Configuration

Preference Share

65%

35%

Simulations• Add products to the

marketplace• Change product

attributes• “What if” scenarios

for any possible market changes

• External metrics can be calculated

Company 1 Company 2

90% effective 95% effective



2 cubic feet 4 cubic feet

10 minutes 15 minutes

$600 $600


CCM: Market Simulator Sample

Market Configuration

Preference Share

45%

55%

Simulations• Add products to the

marketplace• Change product

attributes• “What if” scenarios

for any possible market changes

• External metrics can be calculated

Company 1 Company 2

90% effective 95% effective



2 cubic feet 4 cubic feet

10 minutes 15 minutes

$300 $600


How to Decide Which Pricing Test to Use

Recommendations:• For “me too” products—consider Market Scan or Brand Price

Tradeoff

• Effective way to compare vs. known products

• For “disruptive” or complex new products—consider Consumer Choice Modeling

• Enables pricing based on value across many product feature variables


Contact

For more information or a demonstration, please contact:

Jonathan HoniballSenior Director, Customer Research

[email protected]: 650-223-8228 | Office: 650-327-8108 | Mobile: 267-992-6730

Pacific Consulting Group | 643 Bair Island Road, Suite 212 | Redwood City, CA 94063

www.pcgfirm.com

http://www.pcgfirm.com/

Documents

Pricing Strategies for Consumer Medical Devices December 3, 2014 Fast Forward to Customer Success