Pricing Medical Devices and Consumables in Tender Markets

Medical device and consumables suppliers recover margin in tender markets by pricing complex products and procedure packs on value and cost to serve, governing tender discounts, and building a value case for each stakeholder in the hospital buying group. Pricing Insight has published four engagements in this sector that show where the margin goes.

Your products reduce infection risk, theatre delays and rework. The tender scores you on unit price.

Why is healthcare pricing different?

Medical device and healthcare consumables suppliers sell into tender-driven markets where the buying group includes surgeons, theatre nurses, sterilising services managers, procurement and finance. Each defines value differently, and the tender process strips most of that value out before price is compared. Suppliers respond with cost-plus prices, price matching and discounts approved informally to keep the contract.

Pricing Insight has published four engagements in this sector: three medical device and consumables manufacturers and one healthcare distributor. Across the three manufacturer engagements, three problems recur. Complex products and custom procedure packs carried standard margins that ignored their value and their cost to serve. Tender discounting had no margin-based governance. Sales teams knew their products and could not defend the price to procurement or finance.

Where does the margin go?

• Cost-plus on complex lines. At an Australian manufacturer of medical devices and consumables, high-complexity stock-keeping units (SKUs) and custom procedure packs were priced on cost-plus and habit. Value the business created, such as infection control and customisation, was not priced.
• Informal discount approval. At the Australia and New Zealand business of a global medical device company, discount approvals were informal, with no margin-based governance, and prices relied on legacy cost-plus logic and internal reference points.
• Price matching in tenders. The Australian manufacturer matched competitor prices routinely, with no structured override control and no tracking of competitor prices.
• Value nobody wrote down. At a medical technology supplier to hospitals, up to 30% of the value drivers that mattered to hospital customers were missing from sales material or undocumented. Value at Risk, the cost of delays, downtime and cancelled surgery, was not communicated.

How does value differ by stakeholder?

A hospital does not buy as one customer. In one engagement, more than ten structured interviews across a major hospital group covered surgeons, theatre nurses, procurement, sterilising services managers and the chief financial officer (CFO). The output was a value map for each role, with its top five to ten value drivers.

The questions below are a starting point for those interviews. They are prompts to test, not findings.

• Surgeon: which product attributes change the clinical result or its consistency?
• Theatre nurse: how much set-up time, waste or rework does the product add or remove?
• Sterilising services manager: what does reprocessing cost, and how does turnaround affect theatre lists?
• Procurement: which contract terms, compliance requirements and supply guarantees score in the tender?
• CFO: what does a delayed or cancelled procedure cost the hospital?

The answers become a value case procurement and finance can test, in their own units: minutes of theatre time, procedures rescheduled, units reprocessed.

What changes recover the margin?

Three changes. Each was applied in at least one of the published engagements.

1. Price packs and complex SKUs on value and cost to serve. Standard margins are replaced with prices that reflect the value created and the true cost of assembly, customisation and service. Value-based criteria are added to costing reviews.
2. Govern tender discounting. Override thresholds, audit tools, quote procedures with margin guardrails and a tiered model of delegated authority set who can approve what, and record every exception.
3. Build role-based value maps and quantify Value at Risk. Sales teams are trained in value selling and pricing maths, and equipped with a value case for each stakeholder in the buying group.

What did the engagements find?

Every figure below is an opportunity identified in a diagnostic, not a realised result.

• Medical devices and consumables manufacturer: A$4.2m to A$6.8m of earnings before interest and tax (EBIT) opportunity across high-volume SKUs and pack pricing, with a pricing maturity baseline of 56%, within 10 to 12 weeks.
• Global medical device company, Australia and New Zealand business: A$2.7m to A$4.2m of margin improvement across selected product categories within the first 12 months.
• Healthcare distributor: A$1.5m to A$3.0m of quick-win earnings before interest, tax, depreciation and amortisation (EBITDA) from rebates and promotions.
• Medical technology supplier to hospitals: structured value discovery adopted and role-based value maps built within 12 weeks.

"The diagnostic made it clear that we were undervaluing what makes us different." (Executive Director, medical devices manufacturer)

Next step

Talk through your next major tender with Ron Wood: which value the tender ignores, and how to price it. Ron's number is +61 410 534 099.

Engagement details and figures are as published in Pricing Insight case studies, with clients identified by sector only. All financial figures are identified opportunities, not realised results.