Pricing and Agreement Management Strategies During Times of Demand Fluctuation
The life sciences and medical consumables industry spans a very broad continuum of players and businesses with ultimately the same goal. That is, developing cures for diseases and improving health outcomes for patients. This effort starts with basic research, typically at large universities, and then development and manufacturing of pharmaceuticals/medical devices, and finally the clinical setting where care is administered in hospitals and physician’s offices. The network of suppliers, regulatory agencies and funding sources is extraordinarily complex and companies working in these industries need to be perpetually adjusting their strategies to changes in the environment and innovations in the field.
Distributors working in this space are often managing demand for products that potentially have real life-and-death consequences. Critical research work can fail if essential materials aren’t available and, as we have seen so recently with the COVID-19 pandemic, demand for personal protective equipment (PPE) in the clinical setting can save the lives of patients and workers. Sales teams need to be aware of the needs of their customers, effectively communicate to maintain supply, educate on innovative new products and be timely in their responses to quote requests on essential items. As the pace of commerce has increased, tools and technology that assist in this environment have become essential.
The COVID-19 pandemic has added another layer of complexity to this already challenging environment by creating an incredibly wide range of supply and demand for products. Across all dimensions of the industry the demand for PPE, gowning, hand sanitizers, testing kits and face shields has skyrocketed. One leading PPE manufacturer/distributor cited that it had shipped 15 million more face masks through the end of March than they had in all of 2019. This demand will remain strong for a period of time, but as vaccines are developed and the spread is abated, there will certainly be a shift in that demand.
Simultaneously, other areas within the industry have seen an enormous contraction. The university systems have been shut down for the past three months, eliminating the demand for many of the products used in basic research. In the clinical setting, non-COVID related treatments have seen a dramatic decline with most elective surgeries being postponed. One source estimated that 28 million surgeries would be cancelled as a result.
Developing a commercial strategy in this environment is daunting. It requires the integration of leadership, field expertise, tools and technology that can enhance an organization’s ability to efficiently execute. Appropriately setting price points to avoid over- or under-responding to demand is critical. The ability to pass along cost increases, tied to challenges in the supply chain, has become more complex than ever.
There is also an increased need to serve customers remotely. Sales teams and buyers alike are working from home, with less access to face-to-face communication. A strong eCommerce strategy is a competitive advantage in this current environment and customers are demanding a personalized experience online.
This combination of factors has created an opportunity to leverage technology to help model scenarios, anticipate needs, automate responses and more rapidly communicate insights to sales teams. In fact, as demand remains uneven during the crisis and expects to rise and fall unexpectedly during the recovery, a modern toolset driven by data science is fast becoming a requirement.
Managing Price and Facilitating Sales of High-Demand Products with Deal Management
Distributors that are selling PPE and vaccine-related lab equipment have never seen so much demand for these products. This demand, combined with an often-dwindling supply, has created an environment of scarcity. First and foremost, it’s critical to avoid overpricing in the market, while still accounting for cost increases and properly adjusting price for different customer segments. Easier said than done, right? Like any high-wire act, the trouble comes when you lose confidence and start to panic. To avoid slipping off the tight rope into misaligned market pricing, you need a system that accounts for all the factors that influence price, measures price sensitivity and delivers real-time guidance based on market trends.
With Zilliant’s price optimization and management solutions, distributors in this industry have been able to:
- Test different strategies and model out what-if scenarios based on revenue or margin goals, and predict the effect of price changes before they happen.
- Account for all of the factors that influence price to build a strategic and statistically relevant price segmentation structure.
- Automate the management of incoming cost increases, and more efficiently decide how much to pass along to their customers.
High demand, low supply environments also create intense competition. Many of the life sciences and medical distributors we talk to tend to have an arduous quoting process, sometimes churning through more than a thousand quotes per day. Without the right governance or price guidance, this process takes up valuable time and can lead to lost deals.
A reimagined approach to deal management, powered by cloud-native data science-driven applications, allows distributors to:
- Automate workflows and approval processes.
- Provide sales reps and managers with a deal score.
- Provide sales reps visibility into the profitability of each line item.
- Provide an optimized deal envelope that raises alarms when prices get too close to the floor.
Finally, we must address eCommerce, as it’s quickly becoming the dominant mode of purchase. Imagine you work as a buyer for a hospital and you’ve been working from home since March. An email comes in from the nursing staff at the hospital’s COVID wing, urgently seeking more PPE. You can’t meet with your distributor in person due to social distancing and in fact, you don’t even have time to set up a meeting if you could. You’re aware of the scarcity of supply and yet you want to order as much PPE as you can without blowing a hole through the hospital’s budget. The distributor that ends up booking this order (and securing goodwill for future business) will be the one that:
- Provides a seamless online buying experience, with rational and market-aligned price points that are consistent across other sales channels.
- Allows for automated negotiation via AI, machine learning, and a robust REST-based API so the customer can self-serve rather than wait for a counteroffer. Speed of reply is paramount, and the technology exists to consistently automate quotes at mutually acceptable prices.
- Provides relevant product recommendations based on similar customer transactions.
Of course, the winning distributor will need to actually hold the inventory in stock, something that is no longer a guarantee in these high-demand categories. As some hospitals have even begun sourcing their own PPE, it’s imperative that distributors act swiftly to reestablish themselves as the reliable supplier of choice.
Strategies for Low-Demand Products
Distributors that stock products with little to no demand right now must first quantify their exposure. By determining what percentage of revenue those products represent in the overall business, companies can measure their risk. If a disproportionate amount of inventory is negatively affected, the temptation may strike to drastically drop price in an effort to stimulate demand. This is usually a mistake. In our current environment, demand is not necessarily tied to price, so this strategy not only won’t magically result in more business, it also will cut profits on the small number of deals that do get done.
Instead, a strategic price increase campaign on in-demand inventory can help compensate for the lagging stock and give cushion to the top and bottom line for as long as it takes for the market to recover. Price sensitivity awareness at the product and category level will ensure that these price increases don’t come at the expense of market share.
In addition, distributors must take advantage of their full portfolio of products and services to make the most of each order, by providing cross-sell and upsell product recommendations at the point of sale. The technology is available that can deliver this information to an online customer at checkout or directly to a sales or customer service rep.
In uncertain times, sales teams need every advantage. There is major opportunity, through predictive sales analytics, to sell net-new products to existing customers. With customer purchase pattern profiles that compare each customer’s purchase patterns to that of ideal customers, insights can be surfaced that point sales reps to the specific items a customer should buying, but currently isn’t. Additionally, it can identify when customer purchase volume has dropped indicating partial or outright defection, empowering reps to retain more customer revenue and combat churn. Closed loop reporting shows the win rate for these cross-sell and churn insights, giving sales management definitive insight into which products’ demand is coming back during a turbulent recovery and at what rate, rather than waiting on word of mouth from rep to rep. The closed-loop reporting also feeds directly back into the system, allowing it to grow smarter over time.
The eventual recovery will be uneven. Different geographies, customer segments and product categories will come back online at their own pace. Organizations within this industry will need to be highly responsive to their customers, mindful of the dynamics of cost and price changes and agile in their ability to offer alternative product options.
The life sciences and medical consumables industry is on the front lines of this pandemic. Researchers, pharmaceutical companies and medical professionals are working tirelessly to develop innovative testing kits, life-saving equipment and drugs to fight COVID-19. The commercial organizations that support this industry need to be as dedicated to working efficiently and intelligently as their clients. A crucial part of this fight includes using the latest tools and technology that provide critical insights.
About the AuthorMore Content by Mick Naughton