From the medtech sector’s growth figures and revenue outlook, you would assume the industry’s success is guaranteed. Across the world, the population is aging, pushing up the demand for medical devices. However, as we dig a little deeper into market trends, we see that a positive revenue outlook doesn’t necessarily result in profitable growth.
In fact, the medtech sector is below average at improving its margins. What we have seen during the last years, is that market pressures are mounting steadily due to price erosion with increased competition, constrained healthcare budgets and drop in reimbursement rates. In order to face the budget pressure and patient demands for more information and higher involvement, healthcare providers expect medtech suppliers to support them in improving their treatment efficacy and efficiency by going beyond plain product-selling and product related services.
Full customer solutions, combining products, services and new business models to solve specific healthcare providers’ problems, offer considerable and incremental value to customers and help medtech companies to differentiate themselves from competition. For this reason the concept of solution offering is on the rise as the Holy Grail for future commercial growth opportunities within the medtech industry. Unfortunately, our experience shows that most companies are unable to fully monetize this opportunity.
Five types of solution offers
In our work within the medtech sector, we have started to see innovative solution offers implemented – each one helping customers to tackle one or more specific challenges. That does not necessarily mean that these have to be full-blown sophisticated approaches in order to be successful and useful. Depending on the maturity of their core offers and the financial muscle, companies choose the one that suits them best. As such, we have identified five main types of solution offers:
Operator model: This solution approach involves the highest level of ownership of customer processes by the medtech supplier, and potentially involves cooperation with external third party companies. In this model, suppliers take over operation of facilities or a part of the customer’s infrastructure through long-term service agreements. With suppliers taking on all budgetary risk from the customer, this option clearly paves the way for medtech companies to forward integrate towards provision of health care services.
New business model: With this approach, suppliers offer a tailored and customised product-service bundle from their current portfolio. In many cases, we see these offerings linked to budget guarantees with the medtech companies taking over the majority of budgetary risks. In return, solution offerings are often tied to binding exclusivity agreements.
Integrated service offering: Medtech companies can address specific bottlenecks for providers by packaging and adjusting existing services and products. Varying the level of customization of the offer ensures it answers an explicit (or under perceived) customer need.
Product bundle offering: Individual product bundles via a combination of two or more related products are offered from the company’s current portfolio based on customer needs and usage behaviour. This product offering usually goes beyond the core product sales.
Innovative product offering: This approach focuses on the supplier’s current portfolio. It involves one product and one among several price models that always include a certain level of risk-sharing between medtech companies and their customers. Customers can be charged per treatment, per patient, per month, etc.
This is the first part of this article. Stay tuned for the second part where the authors will elaborate on sustainable solutions, their commercialisation framework and will look into two medtech case studies.
 Almost 10% growth for Medical Device and 0.5% for In Vitro Diagnostics in 2015 (The European Medical Technology Industry – in figures – 2016 from Medtech Europe)
 On average 5.6% revenue growth expected for 2017; Simon-Kucher’s Medtech barometer 2017 (http://www.simon-kucher.com/en-gb/resources/research-papers/medtech-barometer-2017)
 Across industries the realisation rate of margin improvement is 61%, whereas for medtech companies it only ranges around 51%; Simon-Kucher’s Global Pricing Study 2016 (http://www.simon-kucher.com/en-gb/resources/research-papers/global-pricing-study-2016-medtech-industry-focus)
 Medtech companies see themselves at best mediocre in truly monetising innovation, with highest confidence still on the product side; Simon-Kucher’s Medtech barometer 2017 (http://www.simon-kucher.com/en-gb/resources/research-papers/medtech-barometer-2017)