Read this blog to learn more about how to price your medical device, including viable approaches for pricing any project, the pros and cons of each approach, and more.
How To Price Your Medical Device
Three viable approaches for any pricing project
In the rapidly evolving medical device market, defining an optimal price is a key challenge for product managers.
Buyers are constantly searching for products that provide the best features at the most reasonable price, while your goal is to maximize profit and capture market share.
In this article, we will explore three market research methodologies that can provide insights on pricing that can help you decide on the optimal pricing strategy for your product.
If you’re looking for a more in-depth overview, download our free eBook on medical device pricing strategy, which includes a detailed analysis of how each of these methods can be used to help guarantee success in your pricing projects.
Gabor Granger
The Gabor Granger methodology is a simple approach that works by evaluating the percentage of respondents that would be likely to buy a product or service at different price points.
In a typical Gabor Granger study, respondents are asked whether they would buy the product at a specific price point.
To plan the project, you should first establish a set of price levels, ideally between 6 and 10. Respondents are then randomly assigned a starting price.
If they are willing to pay that price, they are shown a higher (randomly chosen) price; if they are not willing to pay that price, they are offered a lower (randomly selected) price.
The algorithm is repeated until the highest price each respondent is willing to pay is determined, and the value is then logged.
Once you’ve been through the process with a sufficient sample size, you can plot each of the agreed prices on a chart, visualizing the demand curve for the product that shows the percentage of respondents willing to accept each price point.
This makes it possible to determine the optimum pricing strategy to obtain maximum revenue and can also measure price elasticity.
Pros of Gabor Granger:
- Does not require the respondent to know the price of the product category upfront
- Measures willingness to buy and purchase intent
- Easy to understand the results, which show elasticity of demand
Cons of Gabor Granger:
- Its transparency means respondents can bias their answers to an agenda
- It doesn’t take competitive products or pricing into account (no market share indication)
- It doesn’t identify the respondents’ existing price perception
IDR Medical Verdict:
The Gabor Granger methodology is great for manufacturers interested in indicative, high-level pricing insight early in a product’s development.
It’s easy to implement, only requires a small amount of respondent time and effort, and can help manufacturers get an early idea of a likely pricing strategy to maximize the revenue of a product.
Van Westendorp
The Van Westendorp pricing model provides insights into the range of prices that customers are likely to find acceptable for a specific product or service.
In this approach, respondents are prompted to identify price points based on their perception of value.
A typical Van Westendorp study would ask 4 questions, which would be similar to the examples below:
- At what price do you think the product/service is priced so low that it makes you question its quality?
- At what price do you think the product/service is a bargain?
- At what price do you think the product/service begins to seem expensive?
- At what price do you think the product/service is too expensive?
By plotting the cumulative curves for each of the four prices, the crossing points can be used to inform pricing strategy. The resulting area between these curves helps identify a range of key pricing benchmarks, such as:
Optimum Price Point (OPP)
The intersection at which the same number of participants rate the price as “too expensive” or “too cheap.”
Indifference Price Point (IPP)
This is where an equal number of participants rate the price as either “cheap” or “expensive”.
Pros of Van Westendorf:
- The respondent is not educated or biased, the prices are identified by them
- Can include supplementary questions to understand the reasons behind each choice
- Can be useful for price positioning studies to inform understanding of how a product is perceived
Cons of Van Westendorf:
- For a highly innovative product, it’s difficult for respondents to come up with price points
- Respondents may have limited knowledge about pricing, which is a specific issue for clinical respondents (as a result, you may see widely varying responses)
- The way the questions are formulated may lead respondents to underestimate the relative price points
- Does not provide information on how to maximize revenues or profits, as there’s no information about the respondent’s willingness to purchase the product at specific price points
- Does not consider competitive products and relative values or prices
IDR Medical Verdict:
The Van Westendorf model is good for understanding how customers see the value of a product based on its price.
But it's not ideal for highly innovative medical devices or when asking clinicians who may not know typical market prices. It also doesn't identify the best price from a profitability perspective or how a product sits against competitors.
So overall, we’d advise that the Van Westendorf model is helpful, but it's best used alongside other pricing methods.
Conjoint analysis
Conjoint analysis delves into understanding how individuals prioritize and value different product attributes, influencing their pricing perceptions.
By showcasing various attribute combinations, it pinpoints which attributes sway a respondent's choices the most and how these decisions are traded off against price.
While several conjoint methodologies exist (as detailed in our comprehensive eBook on the topic), IDR Medical often leans towards the Choice Based Conjoint (CBC) for medical device pricing.
In CBC, respondents are presented with a series of tasks where they compare various product concepts, each defined by a specific set of attributes, one of which could be price. They are then prompted to select their preferred 'product' based on these attributes and the price shown. The analysis of the chosen options reveals the most favored attribute combinations.
In a competitive context, the data can be used to evaluate price elasticity for products with various feature combinations.
Pros of conjoint analysis:
- Respondent does not need to know the current prices
- Presents the respondent with a range of reference pricing information but does not coach or bias the respondent
- It is a realistic “purchasing task”
- Estimates psychological trade-offs that customers make when evaluating several attributes together
- Gives insight into the value of a brand and its product features
- Determines price sensitivity and measures preferences at an individual level, as well as marketplace activity
- Can be used to develop forecast models where share, revenue, and profit can be projected
Cons of conjoint analysis:
- Time-consuming and complex to design and set up, it requires significant levels of knowledge and experience
- Respondents can resort to simplification strategies
- It assumes a level playing field for products. For example, within a conjoint survey, products are given equal prominence, whereas, in practice, within a marketplace, a company may have a limited sales and marketing reach
IDR Medical Verdict:
Where a client wants detailed and robust guidance on pricing strategy and needs to develop a resilient market model, IDR Medical recommends a conjoint study.
Pricing Methodologies in Qualitative & Quantitative Research
While pricing strategy research predominantly leans on quantitative samples for solid results, methods like Gabor Granger and Van Westendorp can be included in qualitative discussion guides - although they perform optimally with more extensive samples.
Conjoint, given its need for a web/PC platform, fits best within quantitative online surveys, but can also be incorporated into phone or in-person interviews.
IDR Medical: Your ally for medical device pricing
If you are planning to launch a new medical device or service, and you would like advice or guidance on which pricing methodology to use, please get in touch.
We would be pleased to offer a primary consultation completely free of charge.
Our consultations include an initial discussion, followed by a concise proposal outlining IDR Medical’s approach to address the business decisions you need to take.
Book a consultation today, or learn more about pricing strategy in our eBook.
