Does Company Market Share Impact my Cost of Implants?

It’s complicated.

That’s a common answer when companies are tasked with explaining exactly what factors go into determining the price at which they’re willing to sell implants.

Considerations such as geography, purchasing volume, product type, market sector, and share-holder profits, all play an important role.

One piece of the puzzle that is often overlooked is the impact that a particular company’s market share has on the equation.

As a general rule the larger the share of the market, the more inflexible companies become on price.

This makes intuitive sense. Companies with robust market share have much more at risk if pricing continues to erode. Conversely, a company with a relatively small share of the market may be incentivized to play aggressively on price in an effort to gain sales/traction.

Here’s an example to illustrate the point:

Imagine Company X, which sells implants to support 400,000 total joint replacement procedures per year. If they were to reduce the average selling price per surgery by $1,000 across the board that would result in an immediate $400,000,000 net profit loss.

An undeniably huge swing of the pendulum.

While it’s unlikely a scenario would arise that necessitated universal price cuts, the principle remains valid. Experience suggests that changes in pricing ALWAYS leak out eventually, and when customers learn that someone else is getting a better deal, it’s natural to want to realize similar savings.

This explains why long established “Big Ortho” companies may be willing to walk away from current/potential business when price points jeopardize the bigger picture.

Contrast the above illustration with Company Y. This much smaller, yet growing, company is actively looking to increase their market share. They would very likely be willing to undercut Company X’s current price by that same $1,000 dollars, because any new sales generated as a result would be a big win. Additionally, unlike Company X, they are not risking the same amount of existing business if prices come down.

This example is not meant to suggest that one strategy is better than another. Both could be equally valid for the respective companies given the fact that each is at a different point in the business growth/maintenance cycle.

It does, however, raise an important question about which business model best aligns with the needs of you and your practice.

A question, only you can answer.