Dealing with commoditization and price in Spine has become in recent years, the key issues and most important trends for manufacturers and distributors in this spinal industry. This process fundamentally changes the nature of competition in the spine segment. Instead of competing on attributes such as brand, and quality, products in a commoditized industry compete largely along just one dimension: price. Generally speaking, the journey to commoditization and price competition takes place in three steps: a) a shift in customer perception (surgeons and purchasers) ; b) lowered barriers to market entry (there are more than 350 spinal manufacturers); and c) full-on price competition. This process is beginning to play out in the Spinal market, in several ways.
A shift in customer perception
The first step to commoditization is for products to become undifferentiated in the eyes of surgeons and purchasers (Hospitals Administrations, Insurance Companies). This can result when products are functionally identical —Peek cervical cages, lumbar screws. But commoditization can also occur when products still have distinguishing attributes (state of the art deformity systems), but purchasers become unwilling to pay a premium price for these features.
There is also a clear shift in the most important influencers of purchasing decisions over the next three years. Surgeons are expected to become significantly less influential, while the influence of hospital managers and administrators is expected to rise. Insurers and other payers are expected to see the most significant increase in influence.
So, it seems likely that companies will need to demonstrate the value of their devices in terms of measurable improved outcomes for patients and lower total system costs if they are to make the cut.For spinal companies, the repercussions are clear: to succeed, firms will need to design and market their products to appeal not just to the preferences of physicians in the field, but also to the value-driven considerations that are becoming top-of-mind for administrators and managers.In these situations, products will be left with only one variable on which to compete: price.
Low barriers to market entry
The pressure on price becomes even greater when the barriers to market entry are low.Now, we can account for more than 350 manufacturers and to say nothing of spinal devices distributors.
Full-on price competition
Once a segment has been commoditized, a company must choose one of three directions:
1. Move downstream into the lower-margin, price competition space and compete aggressively on price. Strategies to remain competitive could include partnering with companies in emerging markets, reverse innovation or acquiring scale to gain bargaining power and economies of scale.
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Innovating within existing product lines or adding new products. This is the preferred approach for companies with products that are already well differentiated and that want to continue to demonstrate that their products add value and merit premium pricing.
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Create stickiness. Explore other ways to create customer loyalty and differentiate your offering. This could include expanding into services, and complementary product categories.