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Breaking through the sales plateau in 3 stages

 

In the US most medium-sized in-vitro-diagnostic (IVD) companies are confronted with a growth hurdle when the sales of their introductory products begin to plateau. This may be a result of changing customer needs, first competitors’ reactions or simply of products having reached their natural revenue peak in the US. To overcome this critical hurdle, companies have to quickly adapt their strategy to the new situation in terms of a market growth perspective. In numerous growth projects, we developed a how-to for midsize IVD companies in order to overcome their most critical growth hurdle.

 

We differentiate three project phases, each with two parts: In the (a) descriptive phase the fact base and trends are depicted. In the (b) interpretative phase results of the descriptive analyses are systematically integrated and interpreted with respect to possible growth dimensions. In the (c) normative phase (i.e., rule formation phase) previously collected information and insights are integrated to form a solid growth strategy. Derived from this strategy, separate implementation steps and milestones are embedded in a transformation map before the company finally begins to enact the new strategy.

A. Descriptive Phase: Analysing the status quo and identifying trends

The first phase follows the overarching goal to understanding the US market, but also potential foreign target markets. This phase is dedicated to a fact-based description and to the collection of perspectives. To that end, several sources can be used. Secondary sources (e.g., internet research, practical and academic journals, market research reports, company databases) are useful for collecting information, reaching a basic understanding and formulating hypotheses about market processes and interdependences. Qualitative, primary research such as internal (company specialists and managers) and external expert interviews (practical and academic experts; former, actual and prospective customers) then help to complement and refine the basic understanding as well as to provide deeper insights and to test the formulated hypotheses.

Strategie zur Überwindung des Sales Plateau

    Figure 1: Process of growth strategy development

Step 1: Understanding the status quo

To achieve a thorough understanding of the current market situation we recommend an adapted version of the 5C framework shedding light on the specifics of the company, competitors, customers, clinical fields, and country specifics (see figure 1).

Company: With respect to the company, the focus lies on how the company currently cultivates the market (e.g., distribution channels, customer targeting, customer relationship management, positioning), the changes it is able to accomplish and the resources it can mobilize (i.e., unique selling propositions, brand, quality of tests, diagnostic machines). In addition, the 4P model (i.e., product, price, place and promotion) gives structure when analysing the company’s products and their price tags: To identify key products in the company’s portfolio (e.g. central assays) an ABC-analysis can be conducted (e.g., A-products are the TOP products in the portfolio that together contribute 20% of overall sales, B-products the next 30% of sales and C-products the rest). Next, places where products are promoted (i.e., the distribution channels) and the communicational specifics of promoting them have to be scrutinized. Central to these analyses is the mix of these elements (e.g. type of product, distribution channels, price tags) as well as their fit with preferences and needs of the targeted laboratory types. In general, IVD companies rely on direct channels such as a sales force and online shops or indirect channels such as wholesalers who in turn sell the products to laboratories.

Competitors: The competitor analysis basically mirrors the elements of the company analysis, however with respect to the relevant competitors. After the market leader(s) and competitors, as well as their strategic positioning, are identified and characterised, we recommend, for instance, benchmarking competitors’ product portfolios (e.g., broad vs. follower, me-too vs. niche). To learn from successful growth strategies of other companies, best practice cases can be identified by using the 4F model (i.e., family, friends, fellows, and foreigners): For an immunodiagnostic (IDx) company, family is a comparable company in the same market (clinical diagnostics), of similar size, producing tests for similar indications (e.g. in the field of oncology) based on the same technology (i.e., immunodiagnostics). Friends would also be located in the same market (i.e., clinical diagnostics), also using the same technology (i.e., immunodiagnostics), but providing tests for other indications (e.g., in the field of haematology). A fellow would be a company using another technology (e.g., molecular diagnostics, MDx), but addressing the same indications, whereas a foreigner would be an MDx company located in another (but close) market (e.g., veterinary diagnostics) that also addresses other indications (e.g., in the field of infectious diseases).

Customers: Customer types should be grouped according to relevant characteristics (e.g., test throughput per annum and grade of laboratory specialisation based on, for instance, indication fields or testing technology) in order to identify their central needs. US hospitals show increasing interest in point-of-care testing based on immunodiagnostic techniques for hospital acquired infections – that recently become a serious challenge. With respect to laboratory size we learned that, due to their high throughput of tests, large laboratories in contrast to small laboratories might be more focused on variable costs associated with a diagnostic platform. That is, prices of reagents running on the platform. Small laboratories might be more interested in the test portfolio that the platform offers rather than reagent prices, as the platform itself already represents a severe investment.  Several platforms to cover all types of relevant tests cannot be afforded by these labs.

Clinical fields: Based on the analysis of clinical indications and their comorbidity and prevalence, we recommend sketching a map of customer needs associated with the relevant clinical or indication fields. The map illustrates which products and tests are more likely to be bundled together (i.e. requested often in combination by physicians when sending blood probes to a diagnostic laboratory and thus more frequently tested at the same time in that very laboratory) and this way helps to identify options for portfolio expansion and optimization. For instance, from a recent analysis we learned that immunoassays for vascular calcification are more likely to be requested together with tests for blood coagulation than with tests for most allergies. This suggests that a company that has, to date, concentrated on tests for vascular calcification might be also successful with tests for blood coagulation with the same customers.

Country specifics: Regarding country specifics, one can isolate regional (e.g. European) or national (e.g. German, French) differences in comparison to the US market. We recommend doing a PEST analysis (i.e., analysing political, economic, social and technological factors) to examine country and regional specifics. To identify markets with high potential, companies should analyse prevalence rates of diseases, socio-cultural standards, the political framework, legal market barriers and key success determinants. In China and India, for instance, testing for infections associated with hygienic standards is more popular than testing for fertility, which in turn is more popular in developed economies where older people strive to have children.

Step 2: Making the future predictable

Trends will form the future market and thus determine the success of the company’s positioning and marketing efforts. In the US as well as in other western countries, for instance, it is expected that the prevalence of cardiovascular diseases and diabetes will increase further in the coming years and thus will increase market volumes for associated testing. The trend analysis should be performed with respect to the fields defined in the 5C framework in the sense that relevant market developments are extrapolated into the future. We recommend assessing each trend quantitatively and rating it according to two criteria: first, the likelihood of its occurrence and, second, its prospective effect on the company’s business. With respect to indication fields, it becomes evident that various indications in the fields of infectious diseases and oncology that are currently being tested with immunodiagnostics will be done through molecular diagnostics in the future. That switch will be most relevant for companies generating high sales within the fields of infectious diseases and oncology but less so for those in other fields. In this example the likelihood of the trend could be quantified by percentage estimations of market experts (e.g., “likelihood of occurrence = 80%”), and the business impact of the share of affected assays in the company’s portfolio (e.g., “30% of all assays”). For instance, because of its aging population it is expected that the demand for oncological testing will increase by ~1% in the US within next 10 years. This trend would affect 75-100% of the portfolio of a producer of oncology tests and will occur with a certainty of more than 95%.

B. Interpretative Phase: Identifying the relevant insights and interpreting their consequences

In the interpretative phase, market characteristics and trends that are relevant for the company’s success are identified. Based on this analysis, initial tactical and strategic analyses are performed to derive possible future fields of growth for the company.

Step 1: Doing a thorough SWOT analysis

SWOT analysis: By doing a SWOT analysis (strengths, weaknesses, opportunities and threats), the previously collected information regarding the 5 Cs and respective trends is integrated and interpreted. The SWOT is used to identify relevant internal and external potentials. First, one detects market opportunities and threats resulting from market trends to then analyse whether and how those can be realized or avoided by making use of the company’s strengths and overcoming its weaknesses. For instance, the trend to substitute immunodiagnostics through molecular diagnostics for some oncological tests is an opportunity for IVD companies that have the strength to quickly provide those molecular tests. On the other hand, it is a threat to those who do not have the required resources or enter a crowded market too late. Strengths that have no value for realizing market opportunities and avoiding threats are of minor relevance. The same is true for weaknesses that are not related to the actual market situation and future trends.

Step 2: Defining the fields of growth

Growth dimensions: As a result of the SWOT analysis, go and no-go areas for future growth evolve. These areas provide the boundaries within which the company defines relevant dimensions for growth, before it decides whether and how to expand on these dimensions. For instance, based on previous experiences and success with opening new subsidiaries in other countries, a company might opt for geographical expansion, thereby identifying a go area. The same company might be able to develop molecular tests; however it fears the high competitive pressure, thereby identifying a no-go area. We learned to differentiate four basic growth dimensions:

  • Market Segments: A company only serving retail and hospital laboratories (i.e., private laboratories with all types of customers) might expand by also addressing CROs (i.e., contract research organizations), pharma laboratories (i.e., laboratories of pharma companies) and research laboratories (e.g., laboratories of universities). This could also imply that the company has to make use of new distribution channels in order to reach the targeted customers. Research laboratories, for instance, might prefer to order their products online rather than being contacted by sales representatives.
  • Workflow: For instance, a producer for manual immunodiagnostic platforms could expand by automating its systems. A producer of automated systems could start to provide further services like regular software updates for their platforms, which would ensure revenue streams in addition to reagents with one customer after a platform is placed.
  • Product: The product portfolio can be expanded, for instance, by adding testing technologies (e.g., molecular diagnostics, multiplex testing) or new tests (e.g., by entering other indication fields).
  • Geographic: An established but nationally active company might also decide to enter new geographical regions that match their existing portfolio. For instance, a company selling automated tests for hospital infections in the US could expand to China, where automation of many hospital laboratories has just started.
C. Normative Phase: Building the strategy house and drawing the implementation map

The final strategy is developed based on the previously defined growth dimensions. It specifies company goals, action guiding principles as well as internal requirements. In order to be motivating, the strategy needs to be ambitious but also feasible. Furthermore, it should be precise to enable the derivation of the required actions to implement it and should be easily understood to be supported by the company’s stake- and shareholders.

Step 1: Building the strategy house

“Building” the strategy house helps to formalise the strategy and to clarify the measures required for implementation. The strategy house depicts a temple with the following elements and contents:

  • Roof: Standing on top of all other elements, the roof shows the vision of the company’s future situation and strategic goals. This vision simplifies what the company aims to achieve and stands for in a given time (3-7 years). A vision should be formulated as a simple statement comparable to a slogan (e.g., “The leading rapid care MDx company in 2025”). The roof should also include objective goals (e.g., financials and market shares, like $200m sales in year 2025 and 5% of all testing systems in the market) detailing the vision and facilitation to control and steer the goal-directed progress.
  • Pillars: Holding the roof and thus the vision, each of the pillars stands for a separate guiding principle for strategy implementation as previously defined with respect to the growth dimensions (e.g., geographical expansion and employee skill excellence). For each guiding principle the required actions are also listed (e.g., “expanding to Russia,” “sales force training”).
  • Basement: Providing a stable ground and holding the pillars, the basement shows the company’s internal requirements that enable it to follow the guiding principles, that is, supportive measures. Such supportive measures often relate to functional and organizational structures (e.g., up-to-date IT system, research and development optimization).
Step 2: Defining the transformation map

After the strategy is conceptualized, a timeline plan for the implementation should be created to give guidance for enacting the strategy. To that end, we recommend drawing a transformation map that details the actions to be performed for the implementation of the strategy, the time required to perform these actions and the organisational functions responsible.

The transformation map gives an overview of the actions and measures every division has to take in order to realize the strategy. It also specifies the timelines and central milestones for implementation. The transformation map spans between two dimensions: the timeline for the strategy implementation and the associated sales volume estimates. The space between these dimensions is separated into fields, each corresponding to an organizational function (e.g., research & development, marketing & sales, human resources). It is in these fields that the separate actions to implement the strategy are located (e.g., “sales force training” in the case of the human resources division).

Despite being the last step in formulating a new strategy, the implementation map is, of course, not the final step of leading a new strategy to success. Action plans are therefore required, detailing the separate actions subsumed under the guiding principles. Also, responsibilities for the enactment of those action plans have to be assigned (e.g. head of business development oversees the build-up of a new business unit, head of research & development guides the market screening for new tests to be licensed) and Key Performance Indicators have to be defined that allow monitoring the progress of enactment through regular audits. In most cases the road of implementation is bumpy, in that unexpected hurdles will be faced that can force minor adjustments to action plans and sometimes even to the strategy necessary in order to overcome them. However, patience with respect to goals and persistence with respect to the vision help companies to cope with such setbacks and, in the end, to realise the strategy.

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