Navigating Pricing Trends in the MedTech Industry

The MedTech sector finds itself at the epicenter of a whirlwind. Thriving in an environment that’s as fluid as it is dynamic, this sector is propelled by ceaseless technological advancements, relentless innovation and ever-evolving customer demands. The competitive and complex nature of this industry poses significant challenges for developing and implementing successful pricing strategies. What percentage of cost increases should be passed on to customers? Are our discounting guidelines in line with the industry, or are we cutting into margins? Are we raising prices enough? 

So how do leaders in MedTech approach pricing and what does high performance look like? To answer this question, MedTech executives in North America and Europe were surveyed to discover their pricing strategy and revenue performance from 2023 and targets for 2024. All participants represented organizations with annual revenue above $100 million. Through benchmarks and regional performance comparison, the findings clearly indicated two differentiators of high performing companies within the sector.  

2023 Benchmarks

Europe is Outperforming North America

As the second largest market globally, Europe is outperforming North America on several metrics. In 2023, European companies had higher price increase targets, approximately double those of North America, and they exceeded those targets. North American companies fell short of their relatively modest targets. A similar outcome was seen in revenue growth with European companies exceeding targets, representing 33% higher revenue growth than North American organizations.

Overall Category Sales Volume Is Increasing

In 2023, medium-sized MedTech companies ($500M-$1B) achieved the greatest net price increase, while large companies ($1B+) experienced the highest revenue growth. However, all companies, irrespective of size, reported higher revenue growth than net price increase, indicating an overall rise in category sales volume. Larger companies were able to offer higher discounts than their smaller counterparts, reflecting their capacity to absorb more cost increases. Despite similar inflation rates in North America and Europe (3.4%), these dynamics highlight the differing impacts on pricing and revenue strategies based on company size.

Differentiators of Highest Performing Companies

Leading MedTech Companies Implement Discounting Structure

In the MedTech industry, companies that empower their sales teams to offer discounts exceeding 10% without requiring management approval achieved significantly higher net price increases compared to their counterparts. This approach leaves low-level pricing approvals close to the customer which can then enable the sales team to focus on delivering material pricing changes.

A well-structured discounting framework allows the sales team to offer higher discounts, leading to improved financial performance. MedTech companies that allow their sales teams to offer discounts over 10% without management approval have seen significantly higher revenue growth and price increases compared to those that do not. This strategy enhances the sales team’s understanding of the pricing process, fosters better customer relationships, and streamlines the customer journey by eliminating delays caused by managerial approval. Additionally, higher customer satisfaction translates into superior financial outcomes, as evidenced by the substantial revenue growth and price increases achieved and projected for 2023 and 2024.

Limit Cost Passing to Customers

MedTech companies are significantly more likely to pass cost increases directly to customers compared to other industries. In 2023, 53% of MedTech companies passed 100% of cost increases to customers, compared to 35% in other industries. This figure is also expected to rise to 64% in 2024, versus 48% in other industries. However, MedTech firms that used this strategy experienced poorer performance in revenue growth and price increases, often failing to meet their targets. Additionally, they offered lower discounts. This highlights the importance of absorbing some cost increases to maintain strategic discounting and better appeal to customers. It also suggests that optimizing cost-sharing with customers could lead to improved financial outcomes and customer satisfaction.

Final Thoughts on Pricing for 2024

In the fast-paced MedTech sector, the challenges of staying competitive and driving innovation are continuous, but it is important to take time to reevaluate where you stand in comparison to your competitors. Taking a page from the playbook of high performers can reap enormous benefits. Implementing a balanced and methodical approach to pricing and discounting is essential for sustaining growth. That, coupled with increased marketing team engagement and C-suite level input, enhances the understanding and promotion of pricing strategies, resulting in improved customer relationships and streamlined processes.

Note: In addition to MedTech, the pricing survey received responses from executives within nine sectors including Life Sciences, Pharma and Healthcare Services. Reports on all nine sectors can be accessed on the Revenue Management Labs website.