Cut Marketing and Slash Prices in a Recession? IVD Analyst Says No
The aspects of product commercialization presented here are useful when times are tough. They set the foundation for success when times get better and become part of the marketing strategy for all times. Of all marketing considerations, one is most crucial: pricing. And when the economy suffers, its tempting for pricing not to be a consideration, as it is often determined ad hoc by arrangements between sales managers and customers, and not carefully thought out. Care must be taken not to allow auto-pilot pricing decisions as a panic response to the company. So writes Kalorama Information’s lead diagnostic analyst Shara Rosen in her latest title In Vitro Diagnostics in a Recessionary Economy.
Pressures on IVD Pricing
In terms of the in vitro diagnostic industry, the pricing decision is one of the most perplexing aspects of the marketing mix in strong economic times; in a downturn it becomes even more critical. And pricing is especially fragile in 2009 because hospital finance is in jeopardy. In 2009 and for the next year or two, U.S. hospitals will be largely unable to maintain previous levels of financing other than what they earn from service payments. Some 80% of hospital asset financing is rooted in equity investments. With the constriction of the stock market, it is estimated that most hospitals now have at least 50% less money to spend.
This more precarious financial position leads to a less enviable credit rating and increases the rate at which many hospitals can borrow money. The total effect of this liquidity crunch, limits the flexibility of hospitals and their ability to carry on with strategic plans that may include discretionary spending on large capital expenditures. Many hospitals have delayed capital plans in the face of rising borrowing expenses and a reduced return on investment. There may also be more consolidation among providers since weaker hospitals may not survive and will be acquired. It is less expensive for larger hospitals to acquire smaller ones than to build a new facility.
What does the decreased availability of hospitals’ cash mean for the diagnostics industry? It can be expected that all new capital intensive projects will be subject to intense cost/benefit analysis, even projects that had already been approved. Existing tests and systems will be used longer. All of this has a greater effect on esoteric testing than on routine procedures. Thus the rush to be the first lab to use some cutting edge technique or test may be curtailed for the short term. In addition, fewer hospitals will engage in very esoteric tests and programs.
Speaking at the DxMA Annual Conference held March 18-19, 2009, in Chicago, Eric Berggren, managing partner at Axios Partners, Inc., Chicago, IL advised IVD companies to “hold your ground!” In general, Berggren emphasized the power of the value proposition and the various approaches companies can take to creating customer-centric value messages. Consistent and frequent discounting trains the customer to ask for more concessions. He suggested that companies use a number of pricing structures shown here and explained how they create value for the customer. Bundled prices offer customers lower administrative costs. Fixed prices increase the ability to manage margins. Performance guaranties reduce the risk of buying error. These types pricing are preferable to ad hoc discounts.
Don’t Lose Market Share – You Might Not Get it Back
In response to the prospect of decreasing sales in some market segments, companies are tightening their budgets and many of them are cutting their marketing budget and laying off employees. Marketing professionals emphasize that cutting the marketing budget at this time can harm the growth of a business.
Studies have shown that companies that continue to market during tough economic times often see growth during those times, where businesses that cut their marketing budget will often see a decrease in sales. It's not time to cut the marketing budget, it's time to re-evaluate your marketing and analyze what is working and what's not. Take time to explore new options of marketing that cost less, but speak to customers’ needs. Veteran product marketing professional, Proctor and Gamble CEO, Alan G. Lafley advises: “When times are tough, you build share.” Maintaining a well-executed marketing plan can have these effects: if your competitors reduce their marketing then there’s less noise to compete with, and your products stand out; customers will gravitate to businesses which appear to be active and in for the long haul; lowering brand awareness loses market share which is hard to win back -- this strategy is valid for start-up companies too. While the recession may reduce the bottom line for some established companies, for small technology startups the first few years are not expected to bring in money anyway. So money spent on highlighting the company can work to attract venture capital and future investors.
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