Medtech analysis shows an industry under pressure

Key findings from a medtech industry analysis has found that the industry is under increasing pressure against rising prices.

The Global Pricing Study 2016 was conducted by the international strategy and marketing consultancy, Simon-Kucher & Partners and involved more than 40 countries across all major industries.

The study found that nine in ten medtech companies are worried about rising price pressure and that half of industry players are actively engaged in a price war.

The reasons for price pressure include growing competition with low cost providers, an increase in professional procurement procedures and stronger negotiation power from clients.

The consequences of these factors mean that profit margins are set to decline further in 2016, and only five out of ten companies have managed to increase their margins compared to the previous year.

Joerg Kruetten, executive vice president of Simon-Kucher and head of its global Life Sciences practice explained: “Market developments have created a more difficult environment for medtech companies. On top of this, regulatory and reimbursement constraints are unlikely to ease up in the near future”.

The reasons for this is that medtech companies’ price increases are insufficient to offset their cost increases, resulting in a stronger decline of margins than across all other industries.

It was revealed that most companies haven’t invested enough in price management. 88% of the participants admitted that there is considerable room for improvement regarding price strategy, price control, and supporting tools within their company.

Companies who invested in price management were shown to be in a much better position than their competitors, with profits of up to 40% higher than the average of all other industries.

“These numbers underline the strong impact of efficient price management and the huge potential it holds. Some of the best companies have come a long way with pricing excellence by focusing top management attention on pricing and creating specific pricing functions. Their value-based price setting processes and tools, structured customer trade terms and a comprehensive approach to tender management have paved the way to 25 percent more successful price realisation compared to the ‘rest’. Said Carlos C. Meca, study author and director at Simon-Kucher.

Pricing was shown to be gaining importance in most companies however. Companies recognised that new innovative products and improved value communications were some of the best options to counter price pressure and those already doing so would see the benefits.