Market Research for Medical Equipment Markets Steven J. Fuller InforMedix Marketing Research, Inc.

Why Should Equipment Manufacturers Use Market Research? The financial risks involved in developing, selling, and servicing medical equipment can be very high, and they can be reduced to a manageable level through the use of specialized market research. Consumer products companies use market research more intensively, but medical equipment manufacturers facing complex, dynamic markets have as just as much to gain, from market research specially designed for their product and customer groups. Aggressive, innovative companies look for opportunities to solidify their sales and profit plans by responding creatively to customer needs, in ways which distinguish them from their competitors. Upto-date information about new and existing customers provides a foundation needed for executing a winning strategy in complex medical markets. Market research has its greatest impact for an equipment manufacturer in any of these situations: when managers are not sure whether a new market is big enough to be attractive; when engineers, marketing managers, and/or salespersons disagree about the specifications for a new product; when a company is not sure how to approach a customer group with the right sales and marketing message; when managers need to know whether sales trends are the result of successful sales and marketing tactics, or overall market conditions; whenever the company needs to contact many customers in an efficient, structured way, to define user needs or find ways to improve customer satisfaction.

This report explains how medical equipment manufacturers can use market research. There are seven major types of research used by equipment manufacturers, and each is covered in some detail, with an explanation of the benefits to be gained, and the techniques which are usually used.

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The seven areas of market research described here are shown below, with their location in this report: Topic Page 1. Assessing Market Potential .................................. 3 2. Product Development ........................................... 4 3. Defining Sales and Marketing Techniques .......... 5 4. Sales Lead Generation .......................................... 7 5. Equipment Usage Studies..................................... 8 6. Measurement of Market Sizes and Shares ........... 9 7. Customer Satisfaction Studies.............................. 10 The observations and conclusions stated here are drawn from the experience of InforMedix Marketing Research Inc., which has provided market information for medical equipment manufacturers since 1991. Clients of InforMedix cover a broad range, from individual inventors and start-up enterprises, to the largest medical manufacturing companies in the world. Research investigations have been completed in product areas throughout the range of medical disciplines, including diagnostic imaging, surgery and anesthesia, laboratory diagnostics, IV and enteral therapy, orthopaedics, and patient monitoring. Customer segments have included traditional hospital markets, outpatient surgery centers, homecare markets, non-hospital labs and imaging clinics, ambulatory care centers, and health maintenance organizations.

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1. Assessing Market Potential

Goals New medical equipment, and major changes in equipment design, usually face an uncertain market. In the early stages of product development, manufacturers frequently question conventional wisdom regarding the likely sales potential of the new products. Although inventors and product champions must have a high level of enthusiasm and confidence for any product idea to move ahead, it is risky to assume that a large number of potential customers will share this enthusiasm and back it up with orders and dollars. At this stage, many product development teams look for some outside assessment of the potential sales they can expect, given the features and benefits they have in mind. For the first steps of market research, it is not important to have a final product design ready for customer evaluation. What is important is to be able to clearly describe what a new product or design change will bring to the intended user. Market research is used to assess future market potential by contacting likely users, and discussing with them such issues as how often they perform a particular procedure, what problems they encounter and how they solve them, and whether they think an alternative type of device or equipment would be beneficial. Methods Used Some of this information (such as procedure volumes) can be found in government databases; other inexpensive sources include syndicated market research reports covering the relevant segment of the industry, and securities firms' reports for investors. Many times, the market must be measured by a customized research project -- usually when the product area is very specialized, or the application is too novel to have attracted the attention of industry analysts. Custom market research usually involves phone or mail surveys directed to medical personnel who will be the customers. These surveys normally are able to report on the general level of demand, and likely frequency of use of products under development -- even without knowing detailed specifications, pricing estimates, or marketing methods. Survey samples do not need to be large (response counts of 20 to a few hundred are common), because a highly accurate quantification of sales volume is not required. In fact, after only a few dozen contacts, researchers often have a fair idea of the ultimate market demand for the concept they are evaluating. This type of market research should be conducted by individuals who are able to understand the technicalities of new medical equipment sufficiently to convey the concepts to the respondents. Ideally, they should also be able to listen carefully, taking detailed notes and pursuing new lines of discussion brought up by respondents. Results The result of a market assessment evaluation should be a set of information that is deep and broad enough to give the manufacturing company a high level of confidence in its decision about whether to move ahead. Results should also link product designs to the needs of a customer group which can be described and located, and which is large enough to form an attractive market.
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In some cases, of course, the results show that the anticipated market is not there: either the number of likely customers is too small, or the level of interest in the product is too weak to justify an expensive product development program. Although it may be hard for enthusiastic designers to appreciate, the benefit of the market research work is that it can save a manufacturer from the expensive error of developing products that have tiny or unreceptive markets. Even in these cases, market assessment surveys can often lead to further product development, because they may identify new customer groups and applications of a product, driving a shift in focus and opening an unforeseen market opportunity.

2. Product Development
Goals Finalizing the specifications for new products, and changing the characteristics of existing products, are areas where equipment manufacturers very often turn to formal market research. Because medical devices are often complex mechanically, or depend on computer programs to define the way a user interacts with the product, there are endless alternatives for the final product design. Also, this complexity offers many options for cost reduction -- a key goal of manufacturers with established products who face price pressures from belt-tightening customers, and from low-cost competitors. Market research is important in these cases, in order to know exactly what product design(s) will be most useful and acceptable to customers. Lab prototypes, and even beta-site test units, do not provide the exposure to a broad range of everyday users that is needed to fine-tune product designs for larger markets. Furthermore, most medical markets are diverse and segmented, with many types of users requiring their own variations or even different products. Market research can usually provide a much clearer picture of how a product will be used in each segment, and what design changes will distinguish it from competitive products and alternative techniques. Methods Used Most product development market research is done with the hands-on techniques of face-to-face interviewing or focus groups. Respondents are usually chosen from two general categories of users: (1) the average clinical person, typical of the customer who will have to be served in the long run, and (2) department supervisors or managers, who can speak from broader experience, with the benefit of exposure to many alternative products and methods. A common error in the design process is to evaluate new products only with a select group of "cutting edge" clinicians -- testing products only in the largest teaching hospitals or with respected "thought-leaders" of the industry. Products designed in this way run the risk of appealing to too narrow a market, because their specifications do not reflect the usage patterns typical of much larger medical markets, and their advanced features and benefits can raise the price beyond competitive levels. Market researchers who help with product development work need to spend the time required to learn at least the basics of the technologies involved, the clinical settings where the equipment is to be used, and the terminology used in talking about these products. Some research projects begin with an outside researcher visiting the development laboratories, discussing customer needs with sales representatives, and even observing medical procedures. At the same time, some distance from the development process is important, because the researcher needs to remain open to a range of
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suggestions and new ideas, even if the manufacturer has considered and abandoned similar concepts in the past. Interviews and group discussions on the topic of product development can take many forms; in the simplest cases, respondents are given a description of a product or prototype, and asked for their reaction to the proposal. Some interviews are successful in using only concept statements, drawings or models of new medical devices; if these can be faxed or mailed to the respondent, research interviews can be conducted by telephone. Sometimes new products can be transported from one city to another, with several respondents interviewed in each location. A good alternative is to choose the time and location of a medical convention for product research, since this allows a company to economically access respondents from many geographic locations, while avoiding the logistical problems and risk of moving expensive prototypes around the country. For large equipment, and devices requiring the facilities of a laboratory, market research is sometimes conducted in an actual clinical setting. In especially innovative investigations, respondents have been asked to design their own ideal product, or to paste together their concepts using cardboard, wood, and paper components. Software tests can be easy using a web survey, which can include graphics, links to explanations, and other elements. Results Product development research usually gives the manufacturer descriptions of the features and benefits needed by large and important segments of the market, and points out which subsets or related disciplines will need variations on the central theme. When important market segments can be identified, the results are presented for each subset -- defining product requirements which vary from one group to another. It is unusual for market research to produce detailed technical specifications, but when properly carried out, the research findings can be readily converted into specific design requirements.

3. Defining Sales and Marketing Techniques

Goals The growth of increasingly diverse markets outside the hospital for many aspects of medical care has caused equipment manufacturers to put a higher priority on clarifying exactly how to sell their products. Developing markets outside the U.S. are also driving manufacturers to use market research to help them with decisions on prospecting and sales techniques, product pricing, promotional methods, customer support, and product service. In general, market definition research is used when manufacturers sense that they are entering a market where decision-making takes place at a different level, or through different channels, than they are accustomed to. In these cases, they are looking for an outside, objective statement describing the proper contacts and sales messages, and the values that decision-makers place on various features and benefits. Methods Used Market research investigations on these topics usually begin with a few exploratory telephone calls, to identify the entire network of decision-makers involved with using and purchasing a particular product.
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The simple model of "purchasing manager, end user" rarely describes the real-life processes that go into selecting and buying (and continuing to buy) a medical product, and it is completely inadequate for expensive medical equipment. A comprehensive evaluation of the buying process may find that significant input is obtained from users, department managers, purchasing, various levels of administration and finance, the facility's biomed department or maintenance staff, a planning or marketing group, referring physicians, group purchasing organizations, health maintenance organizations, and even patients. Second, these decision-makers are interviewed, either in one-on-one situations, or in groups of people with similar roles but from different work settings. A series of focus groups with purchasing managers, another with supervisors of the affected departments, and another with end-users of the equipment involved, will typically be supplemented with one-on-one interviews with administrators and financial managers. Results Market research to support the sales and marketing process seeks information that allows a manufacturer to enjoy the highest possible sales volume, customer satisfaction, and pricing. The key questions to be answered are: For each person involved in the selection decision, what are the specific aspects of product and service that they value the most? What value do they place on these components of the product? How much would they pay, considering their resources and alternatives? Where do they get their information, and what process do they go through to decide among product alternatives? How can a sales representative best reach the decision-makers, and what messages should be communicated first? Besides direct sales, what types of promotion, discounts, guarantees, marketing programs, product bundling or tie-ins, clinical research support, education, or other initiatives are of interest to these decision-makers?

With this information, a manufacturer can usually design effective sales and marketing programs which are directed squarely at the needs of decision-makers and users of the product. In many cases, a marketing program can be created that not only enhances the sales of the product involved, but strategically distinguishes the product from the competition in ways that cannot be copied. Sales training groups are prime beneficiaries of this type of market research. In fact, some research projects are designed to actually prepare or re-write sales training materials, and to present the results.

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4. Sales Lead Generation

Goals One of the common challenges of medical equipment marketers is to be sure that they are aware of all the sales opportunities that exist in their market. Purchases by first-time buyers are the most elusive, because often there is no prior contact between a new customer and every prospective equipment vendor. (In emerging non-hospital markets, the customer company may not even have been in business prior to looking for a vendor of the equipment it needs.) Repeat customers can also be hard to locate, because equipment by its nature can have a very long replacement cycle, and purchases by individual customers can be few and far between. Unless the manufacturer has the luxury of being able to visit every prospect very often, or has a stream of disposables that provide a reason for frequent contact with their customers, sales lead generation is an important activity. Methods Used Telephone surveys are the most reliable way to contact all prospective facilities, because they do not depend on respondents to take the initiative in providing information. Telephone contacts are also useful because they can provide updated information on addresses, telephone numbers, and names of decision-makers. In addition, a well-written sales-lead survey can reveal small amounts of more conventional market research information, such as identification of equipment in use, and usage volume. Lead generation should not be confused with "blind, random-sample" market research methods, in the mind of the respondent or the researcher. Most respondents will not reveal their buying plans to an anonymous telephone caller, any more than a manufacturer would reveal confidential business plans to strangers. Telephone calls placed for lead generation should begin with a clear statement of the caller's intent -- and allow for respondents to decline to participate if they so choose. Most are willing, however, to discuss their equipment needs if they understand that salespersons may call them, and if they are told the identity of the sponsoring manufacturer. It is unethical, and damaging to the research industry, to misrepresent the aims of survey research, particularly if respondents are then made the targets of unwanted sales calls and mailings. Other techniques that have been used for sales lead generation include mailings with reply cards, and magazine "bingo-card" responses. Some companies monitor reports of new construction, registrations with medical regulatory agencies (such as Certificate of Need programs), new-business filings, and personnel transitions to see where a business may be starting or growing in a way that requires purchases of medical equipment. Results Properly conducted lead-generation programs can yield descriptions of the status and needs of a very large number of prospective buyers. This data can be presented as prioritized prospect lists, comprehensive account profiles, "share-of-mind" reports, mailing labels, and in many other forms. Some companies use these programs to support a sales call reporting system, which receives input from sales representatives and from independent surveys. A well-designed lead-generation program can be repeated periodically to update records and identify emerging market opportunities.
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5. Equipment Usage Studies

Goals Creation of upgrade paths, and redesign of established medical products, often benefit from a rigorous review of how devices are being used in the clinical setting. Marketing managers often have the experience of visiting a customer site and finding that their customers have found new ways to streamline their use of a device, or have added attachments of their own design to expand the utility beyond what was originally planned. In other cases, medical equipment may have been designed with one set of customer priorities in mind, but over time the requirements have shifted subtly in a new direction. Popularization of new types of medical tests, the growth of a specialized patient base, new emphasis on efficiency or safety, manpower reductions, and evolution of procedures from traditional settings to alternate sites are all examples of market transitions that can cause shifts in usage of a product by a customer group. When these changes are observed in one or two customer sites, the question usually arises as to how widespread the change may be, and whether product redesign (or new product development) should be a high priority. As every marketing manager knows, if the manufacturer of a product does not upgrade and replace its own products, eventually someone else will. Keeping track of relevant shifts in customer needs is the goal of equipment usage studies. Methods Used Telephone or mail surveys are usually a good way to monitor the status of the installed base of medical equipment. Sometimes this can be accomplished adequately through regular calls by a central customer service group, or by a sophisticated sales call reporting system. Information can sometimes be reported by the instrument itself, if it has been designed to record data such as procedure or test type, time in use, patient characteristics, and so on. In many cases, however, a customized market research investigation must be designed to discover and report how customers are using their equipment. The basic questions asked in these surveys -- frequency of use, types of procedures, peak usage requirements, etc. -- can be supplemented with any number of revealing questions directed to a customer base. In fact, the same type of information gathered from competitive sites can be even more enlightening. Consider the value of having regular answers to these questions: Which of your (several) systems is used most often, and why? What tests and procedures are you doing more (or less) than you did last year? Are there any situations where you would like to use the system, but cannot because of its technical limitations? What is the cost of operating the system, from the viewpoint of the financial department? What is the average reimbursement rate for procedures conducted? How often do you see a service person for problems? For preventative maintenance? When did you last see a salesperson? From which company?
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Fairly large surveys are usually involved for product usage issues, because the goal is to be able to perceive trends that are not obvious from a few site visits or from discussion with a few salespersons. Equipment manufacturers with a small installed base can survey every facility, and contact more than one respondent per location. Others take the process to its logical extreme: contacting all of their own sites and all of the competitive sites as well. Results This type of market research data can be tabulated and summarized to show not only overall market trends, but differences between sites with different models of equipment, between users of various competitive devices, and between many demographic subsets of the market. A sufficiently large survey can quantify usage differences between, for instance, teaching hospitals in the Northeast using a manufacturer's top-of-the-line product, and innovative for-profit non-hospital sites with a competitive device in the Southwest. Facility types and sizes, geographic and sales regions, urban/rural locations, procedure volumes, model and age of equipment, and respondent title are all common criteria for subdividing usage survey data. It is usually possible to calculate confidence intervals and other measures of precision which will show the significance of measured differences between market subsets. At the very least, these statistics can show how large the survey sample would need to be to provide a desired level of confidence in the results.

6. Measurement of Market Sizes and Shares

Goals Market size and share measurements provide the most commonly used and most easily understood market data available; among medical equipment manufacturers, they have probably accounted for the largest portion of investment in market research. Accurate market sizes are valuable for many purposes beyond providing colorful and encouraging graphs at annual sales meetings -- they are a key measure of the overall health of the manufacturing company. Medical equipment companies use market share and size reports . . . to monitor the success of their own new products to discover where competitive products are making inroads to find market subsets where individual products are particularly successful to view notable but limited success or failure in a larger perspective to determine the likely total available market for a group of products Methods Used Telephone surveys are usually used for market share studies, because this method allows the researcher to control the number and distribution of respondents -- an opportunity that is generally lost when a mail survey is used. Rough estimates of market sizes and shares are often published in industry reports; these may be immediately available "off the shelf" at a low cost. Authors of these reports frequently survey an industry's product managers and salespersons, and draw generalizations about the market from their comments.
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Customized studies which seek to report market sizes and shares for several product lines, and for individual market segments, require relatively large survey samples, because more data points generally provide higher levels of accuracy. Design of these investigations can be elaborate, and analysis of the data can be one of the most challenging statistical problems market researchers face. The reason for these complexities is basically that no market is entirely homogeneous; that is, a survey of one market segment will yield different answers from those given in another subset, and avoiding the bias caused by unbalanced sampling can be quite difficult. Proper planning for a market share investigation requires deciding in advance what parts of the market will likely be different from others; for medical products, for example, it is common to subdivide the hospital market into bed-size groups. Non-hospital markets can be segmented by procedure volume, number of physicians, specialty, etc., as long it is known in advance how many sites exist in the country for each subset. Then the survey is directed toward a pre-determined fraction of each market, and continues until a pre-planned number of responses have been gathered from each subset. Results Projecting the results to form useful and credible market share tables requires that the researchers investigate each subset individually, accounting for non-responses, "unknown" answers, facilities which have gone out of business, and so on. Ultimately, the final results should provide estimates of market sizes and shares that can be supported with statistical analysis, and have at least a reasonable correspondence to internal sales figures and "general knowledge" about the market involved. The best market share investigations continue from year to year, and provide ongoing measures of total market opportunity, the relative position of each competitor, and trends through time. Market shares can be measured in units, dollars, procedure volume, fraction of facilities, number of users, current sales, total placements, and any number of other useful perspectives. In addition, shares are often calculated to show these figures for the total market, and for many subsets, based on location, size, volume, or other segmentation criteria.

7. Customer Satisfaction Studies

Goals Use of customer satisfaction research has grown during the past several years, as companies place higher priorities on the quality of their interaction with customers. As their base of installed systems expands, many equipment manufacturers find it difficult to stay in close and frequent contact with every site, and often call upon an independent market investigation to provide an objective picture of their customers' satisfaction. These investigations provide valuable information about areas where customers think that service could be improved; they also identify areas of success that the manufacturer may not be emphasizing as much as it might. When customer satisfaction surveys reveal the name of the sponsoring manufacturer, they show customers that their vendor is concerned enough to make the investment in asking how they are doing. Methods Used

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It is very common to use mail or telephone surveys to assess customer satisfaction. The mail technique is more successful for this type of survey than for others, because the mailing list (customer database) is readily available. Non-response to a mail survey should be remedied with a supplemental telephone contact, since those who do not respond may be those who are least satisfied, and the greatest potential source of useful information. Telephone surveys offer some advantages, in that they usually provide customer satisfaction information faster, and allow the interviewer to be sure that the proper respondent is surveyed. On the other hand, it is likely that if a customer has specific and important criticisms, they will find it easier to express this information in the relative anonymity of a mail survey. Customer satisfaction studies are often linked to market image studies, because both concentrate on the customers' subjective view of a manufacturing company. Large image studies are used to contact both a company's existing customers, and competitive accounts, so that opinions can be compared between the two subsets of the market. In these investigations, manufacturers learn not only how they are perceived by their own sites, but how their competition is serving other facilities. Some of the most useful data can come from facilities using equipment from more than one manufacturer -- where a respondent can make direct comparisons of the service and support provided by alternative vendors. Results Measures of customer satisfaction can be created from numerical rating questions ("On a scale of one to ten, how would you rate Company A on..."). These are particularly valuable if the study is repeated in the same form after some corrective action has been taken. As in the measurement of market shares, statistical validity of changes and differences in the data can be calculated. In addition, customer satisfaction investigations can reveal a great deal more information that is not quantitative, if interviewers make it a priority to note or record significant comments by respondents. Some of the best survey summaries contain verbatim comments which can directly influence a company's sales, service, and customer support activities.

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