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Tackling the subjective limits of value proposition.
Price proposition appears to be a rarely used concept in product positioning, absorbed under the long-established concept of value proposition. For product positioning in payer and hospital channels, the suggestion here is that value proposition is potentially a less effective strategic message and price proposition potentially more effective. Put differently, successfully establishing a brand’s value proposition with customers can be an uphill battle while making the case for price proposition—and an entirely separate case for clinical benefits—could be easier to establish.
From multiple market research studies involving brand value propositions, interviews with payer and hospital decision-makers point to their subjective component as an inherent barrier.
A brand can incorporate hard evidence on matters of quality—guideline support, improved outcomes, reduced events, dosing advantage, faster onset, superior safety profile—but customers still must draw a conclusion integrating quality with cost.
Significantly, there is considerable variation in conclusions decision-makers draw from the evidence presented. It is not unusual, for example, for one product to have outcomes data or an indication that competitors lack and some portion of the market to assume class effect for competitors. Similarly, it is not unusual for a product to have a superior clinical story based on trial data, but for a slice of the market to want real-world evidence before making any meaningful formulary decision.
Unless there is something compelling about a brand’s clinical attributes—sufficient to render an affirmative formulary decision—the suggestion here is that brand strategy may be better served by building its positioning using price proposition rather than value proposition and building its clinical story separately.
Price proposition can be defined as the total value from all financial components of a product that translate to customer budget impact. In addition to price, these financial components may include discounts, (access, share, volume), outcomes risk, episode of care offer, price protection, consignment terms, and discontinuation terms.
That laundry list will vary based on the business channel. Some components apply across the board, some will be specific to payers, some to hospitals, and some to providers under buy and bill.
One key point about a brand’s price proposition is that customers should be able to plug applicable pricing into a financial model and easily project budget impact.
Elevating the role of a price proposition means that where quality factors had been married to a product’s value proposition, they can now be autonomous. Rather than being forced into the highly variable cognitive calculus where customers are asked to weigh the benefits of quality against cost in evaluating a value proposition, quality factors can now command their own spotlight and make their own case for differentiation. At the same time, customers can project their direct costs, which is top business priority.
In this way, value ascribed to clinical benefit is freed from being co-mingled with financial value and the wide variation in conclusions drawn from diverse decision-makers across different markets. A rough analogy is the activist investor who frees up an undervalued asset of a corporate enterprise because its value had been saddled to the slower growth business that defined the enterprise.
Two strategic implications flow from this very preliminary discussion. First, price proposition closely aligns with the value-based priorities that shape many key developments driving managed care today. Second, price proposition fits mid-range in the continuum between price sensitive commodification on one side of the market and clinically significant contributions on the other side. Most products fit somewhere in the middle.
The suggestion here is that a strong price proposition coupled with a separate, strong clinical story may be more successful in producing an optimal decision by customers, rather than forcing cost and clinical factors into an interpretive frame where one person’s important clinical benefit is another person’s too high a cost.
Ira Studin, PhD, President, Stellar Managed Care Consulting. He can be reached at email@example.com.