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At a time when providers to the Life Sciences sector are under increasing margin pressure, the importance of value in effectively differentiating the business is more important than ever.

By James Robinson on Oct 1, 2013

In one sense nothing much has changed. Buyers have long considered value as a component within the purchasing decision. What is different today is that the balance in equating price and value has shifted dramatically, as buyers look to extract the best possible deal in an environment of tighter healthcare budgets across the globe.

It is not surprising therefore that the topic of value-based selling is often discussed in defensive terms, as companies look to protect profitability by aligning the whole organisation – from R&D to sales support – to build the sales case.   

The difficulty for providers is that, unlike price, the concept of value is not objective, in that the various stakeholders involved in the buying decision will put a different value on what is on offer. As a result, although marketing initiatives and training programmes have always been designed to educate clinicians and economic buyers of the value that justifies the price, this aspect has moved centre stage, demanding a very different set of sales skills.

Help is at hand however. In what has become a more complex world of market segmentation, margin controls and new commercial structures, companies no longer have to rely on the cottage industry of paper and spread sheets. They can now benefit from advanced software solutions that provide the visibility and sophisticated analytics to inform effective decision-making throughout the negotiation process – at all points of the product pricing lifecycle.         

Some way to go

The majority of firms (54%) do not believe their sales teams understand and systematically highlight value as part of the sales process.

In a recent Model N survey, almost two-thirds (65%) of senior industry executives recognised that customers see value as an important asset distinct from pricing. Yet this is not being reflected at the point at which the seller meets the buyer, as the majority of firms (54%) do not believe their sales teams understand and systematically highlight value as part of the sales process.

Further, an overwhelming majority believe that service quality must match that of the product, yet are more evenly split when considering whether their organisation effectively highlights its overall value when pitching to customers.

So what is meant by value? In areas such as medical devices, for example, improved performance can cover a wide range of attributes, from lower mortality rates to a reduction in the number of days that the patient has to stay in hospital and a lesser requirement for post-operative care. So a higher ticket price may well be justified by the level of knock-on cost savings that an innovative new therapy or technology may deliver.

In the medical arena such complex cost/value analyses must be evidence-based but, handled skilfully by the sales team, can command additional value to the economic buyer as well as the clinician.

Conversely, in a commodity-based environment, where price is the dominant differentiator, creating distinctive value is much more difficult. Rather than better clinical outcomes, this demands a creative assessment of what additional services can provide a more commercially-attractive proposition, one which clinches the deal at a price which both parties find acceptable.

There are however some common denominators here. First, although what is seen as value may differ depending on the stakeholder, this trade-off with price will still translate back into their spending less overall in the context of the squeeze on healthcare expenditure.

More fundamentally however, at a time when customers are putting the pressure on reducing the price they have to pay, the business must first determine what each individual buyer perceives as value as part of a more consultative sales approach, before an appropriate proposition can be put together which can have a winning appeal beyond unit cost.  

This is already impacting on the skills needed at the point where seller meets buyer. In an environment of typically shrinking sales teams, the old volume-driven sales role is fast evolving into a key account model, in which the sales person has greater control and influence across the complete portfolio. This demands expertise in solutions selling, based on the needs of the customer rather than the attributes of individual products or services.

Once the buyer’s perception of value has been identified, this can then be embedded in all aspects of the provider’s relationship with that customer, ranging from product or service design and price bundling to customer service to clinical evidence support. Critically this remains equally important post-launch and throughout the life of the customer relationship with the solution and has a place in value-based selling.                          

Handled well, this can have surprising outcomes. It would be reasonable to expect, for example, that the emergence of generic alternatives would put irresistible pressure on branded manufacturers to cut prices.

The customer definition of value is recognised as reaching beyond product features to include all aspects of service.

Yet studies have identified what has been described as the generic competition paradox, in which in certain commercial circumstances and handled deftly by the manufacturer, the price of branded drugs can actually be increased when they come off patent, through a single-minded focus on key aspects of value delivery.

As a consequence of all this, the sales team is increasingly seen as a core component in identifying, delivering and demonstrating value. Equally, the customer definition of value is recognised as reaching beyond product features to include all aspects of service, including delivery and consultancy advice, ensuring the customer gets the best return from their buying decision.

Next steps

Wherever a company sits on the value maturity curve, it is important to regularly review the product portfolio versus the customer portfolio in order to understand where there is potential for incremental value to drive up prices or, at the very least, prevent price erosion. Put another way, this will show where a value-based sales strategy and approach could deliver greatest benefit to the business.

Having quantified the opportunity, as in any transformational project it is vital to get internal buy-in at both senior and operational level, by convincing people that there is a worthwhile goal to be achieved.

At the same time, the whole business needs to understand what each customer sees as value and develop the right skill-sets within the sales team to drive a value-based selling strategy. A sales model will not be changed overnight and a practical way to address this challenge is to pilot change in lower- risk parts of the business, analyse the results and then adapt and roll out based on the success achieved.

Finally, having established an effective value-based sales approach for the existing product portfolio, the value-focused business can then review how this can be extended to the product pipeline.

Importantly, technology acts as a facilitator rather than a barrier to better performance in all this, with best practice software solutions providing the visibility, access and analytical capability to support a more customer-aware and responsive business model.