February 19, 2003
Value-Based Pricing
Should Be The Goal Of Every Supply Chain Manager
___________________________________________
Robert T. Yokl - President -
The HCP Group, Ltd.
“ Pricing Integrity Begins By Understanding
The Value That Products, Services and Technologies Provide To Your
Customers.”
In the healthcare market today I believe we are all looking for pricing
that is
consistent,
structured
and
defensible.
The reality of the marketplace however is quite different. Based on our
studies, hospitals and hospital systems are paying
different
prices for the same commodities – pacemakers, orthopedic implants, oxygen
sensors or Band-Aids, etc. – irregardless of the
size
of the organization and even with the price leveling influence that GPOs
exert on manufacturers and distributors. This is the
reality
in healthcare today and I don’t know of any strategy or tactic that has
been devised in the
near or long term
that will change this equation – with the exception of VALUE-BASED
PRICING!
Value-Based Pricing Can Restore Pricing Integrity For Your Organization
There is no way that you can know what prices are being paid for the
products, services and technologies you are buying no matter what pricing
service or GPO you belong to, because prices are being
changed hourly
throughout the country, just like airline ticket prices. Yet, you still
can have
consistent, structured and defensible
pricing if you base your buying decisions on the VALUE than the product,
service or technology
brings
to your customers. This is because we have found that hospitals and
systems that have the lowest total cost (and that’s what you should be
shooting for – not lowest price) under-stand their customer’s exact
functional requirements, then find the BEST VALUE product, service or
technology to meet those functions
reliably
and
consistently.
Let me give you an illustration of what I’m taking about…
A few years ago I performed a value study on isolation gowns for a 500-bed
hospital client of ours who, to my surprise, was
only
paying .99 cents for plastic isolation gowns that looked like something
you would find in a restaurant being worn by a short order cook, when all
of our other clients were paying $2.50 to $3.50 to meet the
same
functional requirements. My thinking at that the time was there must be
some
mistake
in the price or that my client
couldn’t really understand
their customer’s
true
needs. The fact of the matter was that my client based their buying
decision for these isolation gowns on VALUE-BASED PRICING or meeting their
customers exact requirement at the lowest possible total cost, because
they really understood what their customers’ needs and wants were without
compromising quality.
This same VALUE-BASED PRICING philosophy has been the foundation for this
500-bed hospital’s value management program, which has enabled them to
have the
lowest cost non-salary metrics
for supplies (12.16%) and purchases services (21.51%) of any client of
ours with the same operating characteristics. However, they didn’t get to
this position of
prominence
overnight, it took them five years of applying the tenets of Strategic
Value Analysis™ to obtain and maintain this
lofty
status.
This should be your goal too!
Integrity
, Defensibility
And Trust
Is What We Are All REALLY Seeking
When we talk about having the BEST PRICES, what we are really talking
about is the integrity and defensibility of our prices, against a
challenge
for any reason by our executive management or department heads. Now that
you know the dirty little secret that you can
never know
if you have the “best prices” at any given time, the best way to have
consistent, structured and defensible prices is by employing VALUE-BASED
PRICING principles and practices that can be easily understood and bought
into by your executive management and department heads. This is also a
unifying philosophy that will bring you the pricing
integrity
and the
trust
of your executive management and department heads that we are all REALLY
seeking when we talk about having the “best prices”.
