Commoditisation in private healthcare – how we’re missing the value equation

Value = Benefits over Price

These are the opening sentences of Duane Sparks great little book Selling your price: How to escape the race to the bargain basement.

Your competitors are killing you on price. Your margins are shrinking to the vanishing point as customers challenge you to meet or beat the lowest price available. Your company’s profits are taking a hit… even if your sales volume is up, you’re gaining more clients, and you’re working harder.

He continues…

You feel trapped in a race to the bargain basement, with no way out. That’s depressing enough to begin with. But it gets worse. Since ultimately there can only be one price leader in any industry, you’re going to lose this race – unless your entire business strategy is built upon being the lowest-cost provider. Which it isn’t. Meanwhile, your margins continue to shrink.

Sparks paints a dreary, but realistic, picture. We’ve been working in the private health care marketing industry since 2001 and we’ve been spectator to this viscous race towards commoditisation in private health care, in staggered starts, on two continents.

The fact is, dropping your price has always been the easy way out: If you can’t get your prospect’s attention, drop your price. If you can’t interest them in your proposition, drop your price. If you can’t get them to take action after your sales presentation, drop your price. If you want them to buy again and remain loyal to you, drop your price. Clearly, price is the most important thing when people are making buying decisions, right?

Here are a few questions for you:

• Did you buy the cheapest home?
• Do you drive the cheapest car?
• Do you wear the cheapest clothes?
• Do you stay in the cheapest hotels?

Oh, you don’t? How strange. If price were really the most important factor in a buying decision, then why aren’t we all buying the cheapest things? Because price isn’t the most important factor, value is.

The fact is, most operators in the private health care marketing space suffer from a profound lack of imagination when it comes to defining value. So instead, they let their price define them. We’ve seen this tragedy play out over and over and over again.

The enemy isn’t your bargain basement competitor. The enemy is commoditisation. But because you chose the wrong target, you’ve performed a principal role in what we perceive to be a marketing tragedy. We could write a book with this tragedy at the centre, and it could be called: The commoditisation of private health care.

Commoditisation is the process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers. It is the movement of a market from differentiated to undifferentiated price competition and from monopolistic to perfect competition. (Wikipedia)

Every single time you buckle and cave into the pressures to match or beat a competitor’s price, you are teaching your customers to focus on price and to ask for more discounts next time. And before you start placing external blame, you haven’t been forced to do anything, you have been right there leading the pack, perpetuating the cycle.

It’s a doomed race. The only solution is to opt out. But how do you do it?

The answer doesn’t lie in what you sell, in lies in how you sell. To quote again from Sparks’ book

What’s needed is a systematic approach to selling that reliably puts price in the correct perspective in the customer’s mind – as part of an overal value equation.

And that value equation, we humbly submit, is Value = Benefits over Price.