93-The Exceptional Growth of a Price Leader Product

New Price Leader competitors entering a market usually do so under a comfortable price umbrella set by the industry’s Standard Leader competitors. If left unchecked, these competitors can pose significant pricing challenges to the industry leaders. Here is an example of how they start and develop. Nothing to see here… Until there is.

Posted 4/2/09

In our terminology, a Price Leader product is a low-end competitor in the market place. It competes against both other Price Leader products and against Standard Leader products, which are the industry leading products.

There are two types of Price Leader products. They differ from one another in the benefits they offer the user and the buyer of the product. The user and the buyer may be the same person but the activities of each create different needs. The first type of Price Leader, a Stripper product, offers both the user and the buyer of the product fewer benefits than does the Standard Leader product. The second type of Price Leader product, the Predator product, offers the user the same benefits as the Standard Leader product but offers the buyer fewer benefits. Stripper products, as a group, usually have less than 15% of the total market’s unit sales. Predator products would also usually have a minority market share, though they may be on their way to becoming very powerful Standard Leader products as their buyer benefits increase.

Recently, the Deloitte’s Center for Health Solutions reported that 750M Americans traveled abroad for medical care in 2007. The same group predicts that, by 2010, nearly 6MM Americans will travel outside the U.S. seeking medical treatment. This is called “medical tourism.” It is a Predator product. Its Function benefits for the user are the same as those of the Standard Leader product, health care in the United States. The U.S. Standard Leader product is holding a high price umbrella over this new Price Point. This Predator’s buyer benefits, however, are considerably less than those of the Standard Leader product. The customer must travel in order to obtain the service, so its Convenience is lower. Also, because the services are provided in a foreign land, there are fewer Reliability benefits with the product than with the Standard Leader product.

The advantage that all Price Leader products have is their low price. In this example we can see that the low price is powerful indeed to produce such a growth rate in medical tourism.

Over time, the buyer disadvantages of medical tourism will decline due to the fact that many people will have tried it. These people will convince their peers that it is a safe and worthwhile product, reducing Reliability disadvantages.

Eventually, this Price Leader healthcare product will put pressure on both the pricing and the current business model for the Standard Leader’s equivalent services.

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Update 2022:

As the quality and reputation for Reliability of offshore medical treatment has grown, so has its acceptance in the US market. Medical tourism enjoys high growth rates today in 2022. Major US Standard Leaders have recognized the threat of these Price Leader products and have moved to introduce their own versions of these products. See HERE and HERE for more explanation.

Since 2009, medical tourism has certainly grown, though not at anywhere near the rate forecast in 2009. Still, the industry is promising high growth rates in 2022 as Americans’ quality concerns gradually ebb.  In 2019, an estimated 1.9 million Americans traveled abroad for medical treatment. Market growth is variously estimated at 16 to 32% per year.  The key driver, of course, is cost savings. For example, an angioplasty in the US costs an average of $55,000. This cost compares to an average cost of $3000 in Malaysia. Average cost savings across all medical tourism procedures range from 55 to 70% of the US cost.

Inhibiting this growth, is a US patient’s concern about the quality of care compared to the quality of care in the US. This concern is gradually declining as major US medical centers establish offshore facilities and foreign medical centers provide increasing numbers of US trained and certified medical professionals. Several US medical centers, including Harvard, Boston University, Johns Hopkins and the Cleveland Clinic, have established hospitals and clinics outside of the United States, hoping to capitalize on local and foreign medical tourism.   Many overseas hospitals are staffed in part by physicians and other health professionals who were trained in US hospitals. One hospital in India has 200 US trained board-certified surgeons.

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Update 5/26

Medical tourism continues to grow quickly under the umbrella set by US medical costs. As the market has grown, foreign medical centers have added new services, invested in putting US consumers at ease and created packaging that makes the purchase of medical services easy. The savings for a US medical tourist is usually in excess of 50% of the US cost. We will examine recent trends in foreign country investments in medical tourism using the Customer Buying Hierarchy and project the future.

Medical tourism is growing at more than 15% per year. Two thirds of US medical tourism seek dental procedures, such as implants, crowns and full mouth restorations. However, most of the countries offering medical services to US visitors have begun expanding aggressively into non-dental services. The leading countries in attracting US medical tourism, in order of importance, are Mexico, Costa Rica, Thailand, Turkey and India. These countries offer an expanding range of benefits to medical visitors.

Function.  The last several years have seen medical tourism destinations offer a broader set of treatments. These treatments include bariatric, orthopedic, fertility and cardiac care services. These medical services are often combined with visits to integrated spa and wellness facilities in the country. Frequently, offshore facilities offer turnkey “flight plus hotel plus surgery” packages.

Reliability. The major impediment to a consumer considering foreign medical care is trust in the medical providers. Several countries have addressed these concerns:

– The most common Reliability tactic is the pursuit and promotion of international accreditation, especially using the Joint Commission International organization, which serves as a proxy for US style regulation.

– As noted earlier, US medical centers themselves have helped develop consumer confidence in offshore medical care as they have established hospitals and clinics in foreign countries, hoping to capitalize on medical tourism.

– Many foreign clinics have established partnerships with US brokers and medical platforms that curate the clinics, publish reviews and provide dispute resolution channels. Clinics may also provide outcome statistics and potential second opinion pathways.

– To address consumer concerns about unexpected charges, many clinics provide fixed price bundles and transparent pricing.

Convenience.  Foreign medical centers have made it increasingly Convenient to purchase medical treatments:

– They offer US-facing digital front doors with English language websites, US toll-free numbers, online chat capability, and even video consults to allow Americans to “try before they buy.”

– The clinics usually offer English-language contracts and English-speaking staff.

– The all-in comprehensive medical service packages make the purchase decision easier for the American consumer.

These Function, Reliability and Convenience benefits are costly to create, maintain and develop further. The price umbrella set by the US healthcare market enables these foreign medical centers to make these expensive investments and cover ongoing costs while still maintaining attractive profits. These developments do not pose an immediate threat to the US healthcare system. However, as customer benefits continue to develop and improve, the market is likely to continue its fast growth. Eventually, it may well pose a problem for the US market. Price Leader companies can gain 10 to 15% of the total market as long as they have a significant price umbrella under which to invest.

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