Marketers face challenges in today's diagnostics industry

It's no secret that the urge to merge has finally hit the diagnostics industry. The $11 billion acquisition of Corange by Roche and the marriage of Dade and Behring are only the most noticeable announcements of the past spring. In many ways, these and the deals that are sure to follow predictably mirror - and are prompted by - the consolidation that has been occurring elsewhere in the health care industry. The independent laboratory market, for example, is now dominated by just a handful of firms including Laboratory Corp. of America, Quest Diagnostics and SmithKline Beecham. Consolidation on both the vendor and customer sides of the equation are a sure recipe for increased price sensitivity and extended market share battles.

These conditions present the diagnostics sales and marketing executive with special challenges. On the one hand, there is the increased expectation to offer a full product line to customers looking for a one-stop shop. On the other hand, there is increased scrutiny of testing costs that at times approaches full-blown skepticism. After all, the doctor who routinely orders a plethora of tests is a bogeyman that has been long invoked by those leading the cost-containment charge. Along the way, managed care has transformed the lab from profit center to cost center.

Turning the emphasis on cost to one's own advantage

Such developments call for new tactics that turn the emphasis on cost to one's own advantage. At Diametrics Medical, a St. Paul, Minn., company specializing in critical-care diagnostics, salespeople begin by working with potential customers to identify the intersection of clinical and economic benefits. "We start by examining the total cost of testing, from reagents to service expenses. Then we're able to look at the ways that moving to point-of-care testing can help a hospital cut costs," says Mary Audette, the firm's director of marketing. "There are a lot of pre-analytical time robbers - drawing blood, labeling the sample, running it over, and so on - that can be eliminated with the right equipment."

The shift to outcomes provides another important avenue of attack. "There's been a lot of emphasis on managing the inputs to patient care, and a focus on the billed cost of testing," notes Scott Garrett, chairman and CEO of Dade International (and who will serve as CEO of Dade-Behring). "It's easy just to say 'Do less testing,' but the fact is, diagnostics has a key role to play in reducing health care costs and improving patient outcomes. We are starting to see the lab managers and pathologists who are our customers take on this broader perspective."

Selling solutions, not products

The key, then, is to work with the customer to identify and then provide the appropriate level of testing, located somewhere between zero and the large-panel tests that were standard not too long ago. Such a market places a premium on customizability, such as analyzers with de-selectable tests, allowing the lab or hospital to pay for only what it needs. It also places a premium on customer service as a point of differentiation. "We're selling solutions, not products," says Diametrics' Mary Audette. This encompasses everything from the thoroughness of training programs to continually updating product compatibility with hospital system interfaces.

A tsunami of technological developments

Issues like compatibility will only grow in importance; indeed, the changes brought about by managed care may well pale in comparison to the tsunami of technological developments that are now on the horizon. "What was a device and product industry in the past is now becoming an information industry, with the lab playing the central role in managing actionable information and delivering it to physicians," notes Scott Garrett of Dade. The maturation of the health care information systems sector will dovetail with hardware advances in areas such as wireless communication and chip-based genomics. The result will be diagnostics built around a continually updated virtual patient record.

The sales and marketing environment will thus combine the cost-consciousness of today's health care with the shortened product life cycles with which the personal computer software industry now grapples. Consider, for example, that only a few years ago software companies like Microsoft could wait 18 to 24 months between shipping boxed and shrink-wrapped product upgrades. Today, upgrades are distributed on the World Wide Web several times a year. Software manufacturers now figure they have a three-month window during which to ring up most of their sales.

Winning the hearts and wallets of customers

To be sure, that scenario is rather extreme and unlikely to take hold when the quality requirements of a hospital setting preclude beta releases. At the same time there are valuable lessons to be learned for the coming years. Market share capture will come to be the measure of success. Compatibility across platforms will be essential. Most importantly, ease-of-use and overall utility will be key to winning the hearts and wallets of customers. And as with software, no marketplace victory will be permanent. Each new offering will only raise the bar of consumer expectation, unleashing a race to product development that starts the cycle all over again. It is a highly competitive situation that spells opportunity - for those who can keep the pace. As Scott Garrett observes, "While diagnostics has been a tough market for the last several years, it's also a very good market. Whenever clinical test results are faster, earlier, more precise, more revealing, and/or less costly, health care is improved in the process."

Michael T. Kelly, a former vice president at St. Jude Medical, St. Paul, Minn., now heads the worldwide medical device practice at Russell Reynolds Associates, an executive recruiting firm.

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