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Three Barriers to Optimizing Your Pricing and Contracting Practices

Posted by Carlos Garmendia on May 4, 2017



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The power of optimized pricing and contracting practices can be distilled down into a simple formula: Selling more at a higher net price while reducing the cost of operations will result in sustainable profit growth. Yet many medtech companies struggle to find effective ways to aggregate, assess and analyze pricing and contracting data, and to generate relevant insights to maximize sales for existing contracts, optimize price offers for new contracts, and streamline all supporting processes. Put simply, they’re leaving money on the table.

Graphic_Contract_Analytics_blogpost (2).jpgMedtech manufacturers typically face three barriers to optimizing their pricing and contracting practices:

  1. The inability to capture, analyze and monitor contract data and performance: If you don’t have visibility into what is or isn’t working, you won’t be able to improve your practices.
  2. Inconsistent and often unjustified pricing and discounts across customers: When you lack the right data, you lack the ability to make data-driven pricing and discount decisions.
  3. Failure to track contract compliance: Customers who aren’t complying with contractual terms could lead to high operations costs compared to the value offered by the contracts. In other words, you might be spending too much money to serve a customer in a deal that’s worth too little.

Some of these barriers originate from storing data in disparate, disconnected data sources, and this shortcoming increases the complexity of gathering data and aligning on a single version of the truth. To further complicate matters, there’s a huge disparity in how pricing decisions are made in the industry. At one extreme, some organizations have centralized pricing committees that are responsible for reviewing and approving pricing for deals above a specific threshold. This approach often results in increased bureaucracy, delays and bottlenecks.

At the other end of the extreme, some organizations leave the price negotiation at the discretion of the sales force. In this scenario, sales organizations have the incentive to always close a deal (we call this the winner’s curse) because incentive compensation often is based on revenue and not on profitability, and reps often have the authority to negotiate. If not executed correctly, the result could be significant net price variations between customers in similar segments. This increases the risk of price erosion and the need to justify misaligned price points in the event of market consolidation—a prevalent trend in medtech today.

Despite the barriers, there are three steps that medtech companies could take to generate the right insights. First, create a better and more consistent way to access contracts and pricing data and integrate it with other sources of data, like sales, compensation and segmentation. The second step is to streamline your contracting and pricing business process to leverage analytics more effectively. And lastly, define and prioritize the right metrics and data visualizations to interpret the data and generate actionable insights for the business.

Here are some of the benefits when it comes to sales, pricing and operations:

Sales:

  • Better compliance analysis: being able to understand if customers are fulfilling their side of the deal so that medical device organizations aren’t paying unearned rebates and promotions
  • Having visibility into the contracts driving sales and growth across different customer segments

Pricing:

  • Being able to co-create pricing grids with input from the sales organizations for various customer segments and channels
  • Having clear accountability and guidelines for pricing decisions
  • Providing a defensible argument in uncomfortable conversations around price discrepancies between customer segments
  • Providing a framework to advise customers on earning better pricing by purchasing more volume or giving a greater share of wallet
  • Having accurate ROI analysis on all contract promotional activities

Operations:

  • Identify and resolve inefficiencies in the pricing and contracting processes
  • Streamline approval workflows
  • Ability to automatically alert the sales organization on contract renewals and expiration

By organizing internal data sets and gathering relevant insights, medical device companies can be better prepared to tackle today’s pricing and contracting challenges. Achieving world-class pricing and contracting practices isn’t easy, but when done correctly, it enables organizations to understand, quantify and, ultimately, seal more profitable deals.


RELATED CONTENT 

ARTICLE: Building Better Pricing and Contracting Analytics

BLOG POST: Three Steps for Medtech's Analytics Success


   

Topics: sales, Analytics, medtech, Carlos Garmendia, manufacturers, insights, pricing, operations, metrics, pricing and contracting

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AUTHORS
Brian_Chapman_thumbnail
Brian Chapman
Principal,
ZS Associates
Tobi_Laczkowski_thumbnail
Tobi Laczkowski
Principal,
ZS Associates
Will_Randall_thumbnail
Will Randall
Manager,
ZS Associates
Matt-Scheitlin-London_thumbnail
Matt Scheitlin
Associate Principal,
ZS Associates
Andy-kach_thumbnail
Andy Kach
Associate Principal,
ZS Associates
Bhargav_Mantha_thumbnail
Bhargav Mantha
Associate Principal,
ZS Associates
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