Gaining Differentiation and Profitability
First in a series of eBriefings from The HSM Group for Medical Device Companies
In today's economy, pressure to lower price can be relentless, and the threat of commoditization is hauntingly real. How can business leaders with medical device companies create sustainable growth in this environment? They can learn what many successful manufacturers outside healthcare have found - branching into service offerings can help them stay competitive and increase profits.
As described by Stephen W. Brown, PhD, in today's Wall Street Journal (see link to Beyond Products below), an increasing number of companies are expanding existing services or cultivating new ones to raise the bar on customer expectations, satisfaction, loyalty, and confound copycat competitors. Dr. Brown is director of the Center for Services Leadership at Arizona State University, and one of the founders of The HSM Group.
In his role as Vice President of Global Services, Diagnostics Division for Abbott, Mark Wheeler observed that the company was giving away services they could potentially charge for. "We knew we could provide even more value to customers," he recalls, and an averted acquisition by another company was "a terrific catalyst for becoming better organized with our service offerings." In doing so, the company found a way to generate a recurring services revenue stream.
At ConvaTec, a developer and marketer of medical technologies, Ostomy Care division President Nino Pionati sees expanded services as a way to help resolve potentially conflicting agendas of clinicians, purchasing managers, and patients. "Historically, services have been about product support. But the product alone isn't the whole solution," he notes.
At Abbott Medical Optics, Division Vice President of Global Customer Services Angelo Rago says, "We have to do more than provide a better "gadget" as a reaction to slumping sales. In poor economic times, people stop buying products, so we have to find the hole in the market, not the hole in the portfolio."
One of the first tasks when considering offering services for a fee is to conduct research to determine what "job" the customer is trying to do. Interviewing stakeholders at all touchpoints with your company can create a picture of unmet needs. Probes that help map larger work processes (of which your product may be a small part) can reveal hidden service opportunities and lead to innovation that originates with the customer.
In our second Ebriefing, we'll talk about the hurdles companies have encountered in developing a services model. You can also click here to see a copy of Steve Brown's article in the June 22, 2009 edition of the Wall Street Journal.