1. Pricing Strategies for Consumer Medical Devices December 3, 2014 Fast Forward to Customer Success

2. © Pacific Consulting Group. All Rights Reserved. | December 2014 1 Introduction  Speaker Introduction  Agenda –Why pricing matters –Alternative pricing strategies –Pricing without research –Research based pricing –Recommendations based on product-type

3. © Pacific Consulting Group. All Rights Reserved. | December 2014 2 Why Pricing Matters  Pricing is one of the most important factors in product (and your business’ success) –Price too high and its sales will be limited –Price too low and you “leave money on the table” –Lower valuation of your company –Fewer profits for founders and investors –Less margin with which to attract and retain staff  There are 6 Primary Pricing Models –What are they –How do I chose?

4. © Pacific Consulting Group. All Rights Reserved. | December 2014 3 What to consider  In arriving at a pricing strategy, consider: –Strategic objectives –Development costs –Manufacturing costs –Target customer(s) –Product positioning/Competition –Price sensitivity –Lifecycle stage

5. © Pacific Consulting Group. All Rights Reserved. | December 2014 4 What do you need to conduct pricing research?  Product –A sketch –Written description –Developed product profile –Picture/Video of product –Prototype –Actual product  People –Target customers –Current customers

6. © Pacific Consulting Group. All Rights Reserved. | December 2014 5 Pricing alternatives  There is a basic choice to make when pricing: –Cost Based Pricing –Market Rate Pricing “what the market will bear”  This presentation will focus on Market Rate Pricing

7. © Pacific Consulting Group. All Rights Reserved. | December 2014 6 Six Market-Based Pricing Models  Direct –Market Scan –Willingness to Pay  Indirect –Gabor Granger –Brand Price Trade Off –Van Westendorp –Consumer Choice Modeling

8. © Pacific Consulting Group. All Rights Reserved. | December 2014 7 Case Story: Picking the Wrong Price  Background: –First product sold out all 10,000 units – considered a successful launch –Price was set at $75 based on market scan of similar products – revenue = $750,000  Conducted Van Westendorp –Price range found to be $80 to $170 –Based on 10,000 units, revenue could have been $1,700,000

9. © Pacific Consulting Group. All Rights Reserved. | December 2014 8 Case Story: Responding to a price drop  Background: –Company launched first product in new market. Competitor product launched at a lower price and began to took market share.  Conducted Consumer Choice Model study. –Isolated key product features that were more important than price – allowing first to market to alter messaging. –Identified new competitive price point – higher than competitor – that recaptured market share.

10. © Pacific Consulting Group. All Rights Reserved. | December 2014 9 Direct – 2 methods

11. © Pacific Consulting Group. All Rights Reserved. | December 2014 10 Market Scan/Analog  Step 1: Identify products within market or products in similar markets  Step 2: Determine product value within market  Effective in a highly defined markets. No customer sample needed.

12. © Pacific Consulting Group. All Rights Reserved. | December 2014 11 Willingness to Pay  Step 1: Describe product  Step 2: Ask “How much would you pay for this?”  While this is simple, the findings are often flawed –Bargain hunters –Irrational exuberance  Can be used with Key Opinion Leaders (KOLs)

13. © Pacific Consulting Group. All Rights Reserved. | December 2014 12 Indirect – 4 methods

14. © Pacific Consulting Group. All Rights Reserved. | December 2014 13 Gabor-Granger  Step 1: Describe product  Step 2: Ask purchase intent at a specific price on a 5-point scale (1=Definitely Would Not, 5= Definitely Would) –If no, ask the same question and display a lower price –If yes, ask the same question with a higher price  Step 3: Calculate demand and revenue curve  Useful when the range of prices is already known.

15. © Pacific Consulting Group. All Rights Reserved. | December 2014 14 Brand Price Trade Off (BPTO)  BPTO is an extension of the Gabor-Granger approach to a competitive context. –Simple discrete choice  Step 1: Describe product  Step 2: Ask for choice from a group of priced brands/concepts. This task is iterated 8-10 times.  Useful for developed market with defined competitors. Brand ABrand BBrand CBrand D $75$90$60$110

16. © Pacific Consulting Group. All Rights Reserved. | December 2014 15 Van Westendorp (VW)  The VW approach aims to establish limits of price elasticity, or price thresholds (upper/lower bound)  VW contains answers to four indirect questions to calibrate price from different perspectives: –Too Cheap –Not a Bargain –Not Expensive –Too Expensive

17. © Pacific Consulting Group. All Rights Reserved. | December 2014 16 VW: Standard Questions  What price is so low you would question its quality?  What is the highest price at which the product would still be a bargain?  What is the price at which the product is starting to get expensive?  What is the price at which the product becomes too expensive to consider buying?

18. © Pacific Consulting Group. All Rights Reserved. | December 2014 17 VW: Sample Data Data is graphed for analysis

19. © Pacific Consulting Group. All Rights Reserved. | December 2014 18 VW: Range of Competitive Prices - $80 to $170 Point of Marginal Cheapness Point of Marginal Expensiveness Optimal Price Point

20. © Pacific Consulting Group. All Rights Reserved. | December 2014 19 VW: Propensity to buy?  Caution: While VW can isolate a range of prices, it does not measure propensity to buy  For propensity, use the following question: –How likely are you to buy this product within [time range] if it is available between [Bargain Price] and [Starting to Get Expensive Price]?

21. © Pacific Consulting Group. All Rights Reserved. | December 2014 20  CCM (or “trade off analysis”) is used to determine the most successful product-brand-price mix 1.Determine the product-brand-price mix that will appeal to the greatest proportion of the target market 2.Understand product expectations and purchase drivers across different customer segments 3.Reduces the commercial risk of over- or under investing due to mismatch between product development and customers’ expected price points 4.Results can drive forecasts by showing brand preference and competitive tradeoffs Consumer Choice Model (CCM)

22. © Pacific Consulting Group. All Rights Reserved. | December 2014 21 Product Acceptance CCM: Can Simultaneously Measure Many Attributes Product Features Aesthetics Performance Brand Price Financing Comparative Residual Value Switching cost Experience Expectations Function Emotion Social proof Access Channels Regulation Location Timeliness Service Access to service Customer care Warranty Purchase

23. © Pacific Consulting Group. All Rights Reserved. | December 2014 22  This matrix represents 21,600 possible combinations CCM: Example Attribute Table

24. © Pacific Consulting Group. All Rights Reserved. | December 2014 23  Divides a product into all its key attributes/product features  Combines these attributes/product features into a selection of “hypothetical products”  Testing the boundaries and not just current features CCM: Question Example Which of the following medical devices would you be most likely to purchase?

25. © Pacific Consulting Group. All Rights Reserved. | December 2014 24 CCM: Market Simulator Sample Market Configuration Preference Share Simulations Add products to the marketplace Change product attributes “What if” scenarios for any possible market changes External metrics can be calculated

26. © Pacific Consulting Group. All Rights Reserved. | December 2014 25 CCM: Market Simulator Sample Market Configuration Preference Share Simulations Add products to the marketplace Change product attributes “What if” scenarios for any possible market changes External metrics can be calculated

27. © Pacific Consulting Group. All Rights Reserved. | December 2014 26 How to Decide Which Pricing Test to Use Recommendations: For “me too” products—consider Market Scan or Brand Price Tradeoff Effective way to compare vs. known products For “disruptive” or complex new products—consider Consumer Choice Modeling Enables pricing based on value across many product feature variables

28. © Pacific Consulting Group. All Rights Reserved. | December 2014 27 Contact For more information or a demonstration, please contact: Jonathan Honiball Senior Director, Customer Research jhoniball@pcgfirm.com Direct: 650-223-8228 | Office: 650-327-8108 | Mobile: 267-992-6730 Pacific Consulting Group | 643 Bair Island Road, Suite 212 | Redwood City, CA 94063 www.pcgfirm.com