Better, Faster, Cheaper


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By: Jennifer Sullivan, VP, Group Account Director, Mercury Media Boston

Imagine this. Your business is thriving. Revenue is up, the pipeline is full, and customer satisfaction is the highest it has ever been. Your media plan is solid; you’re gathering great data and are maintaining one of the highest conversion percentages in the company’s history. One day you get an email. Your biggest retailer in your biggest market is instituting a new policy. No longer will that account stock product in your category to provide service and selection to the current and potential customer base. The account is whittling down to one product for your category and it will be based on the lowest price.

It’s not some kind of business Twilight Zone. Versions of it have happened over the years with many Big Box retailers, but recently a severe situation is playing out between Medicare and the Durable Medical Equipment (DME) businesses like power chairs, diabetes supplies, oxygen delivery, catheters, etc.,  which relies heavily on direct response TV. Here’s the very short version: A process called “Competitive Bidding” was implemented on January 1, 2011 by Medicare in nine DMAs (Charlotte, Cincinnati, Cleveland, Dallas, Kansas City, Miami, Orlando, Pittsburgh & Riverside) in an effort for the government to control costs and cut down on fraud. The second round of bids is expected to take place within the next year or so, potentially expanding the program in upwards of 70 cities.

Before we get into the issue, a little background is in order. Competitive bidding is a buying method in which competing contractors, suppliers or vendors are invited to bid to provide services or supplies.  The goal is to bid down inflated prices so consumers buy at the lowest prices.  Contracts are awarded to those vendors or suppliers offering the lowest bids, theoretically discouraging favoritism by the government agency. Medicare has been trying to implement the procedure for years, but has only recently formalized it. The theory behind it is that companies that provide DME to Medicare customers will have to pass muster, which is primarily driven by cost, for an exclusive contract with the government. Medicare simplifies paperwork; consumers have simpler choices.

The reality is very different. So far, the nine markets that have converted to the new policy have effectively shut out some very reputable companies. Not only can those companies not sell product to Medicare patients in those DMAs they are also restrained from servicing patients that already own their products. Again the theory and reality are different. The theory of the program is that low quality companies are frozen out but in reality reputable companies are frozen out. The theory is that consumers are better served but the reality is they can’t get service unless they buy new equipment.

For years, DRTV is one of the main, if not the dominant, media and communication strategy for these companies. For the companies that have a large enough footprint to advertise nationally but have to avoid selling products in the markets they have been frozen out of, that’s a good thing. DRTV is so much more cost efficient than general rates and targetable. In buying nationally, although you will air in markets you may no longer be able to do business, it will be painful not to work the leads from the nine competitive bid markets but it is still so much more cost efficient to buy nationally. For a company that doesn’t have a large national footprint but wants to advertise in Philadelphia, but not Pittsburgh, that’s easy to do as well. But DRTV needs to stay in the mix for these DME companies for several reasons. It is an excellent empirical data generator, it provides the creative and timing flexibility to fully highlight product value, it provides a service to consumers but most importantly, it generates sales. Got questions? Call this number. Medical consumers like this model, and it has proven time and time again.

The lessons for businesses potentially affected by Medicare are obvious. Those companies need to remain flexible in terms of media, marketing and government relations. Mercury Media can help guide you through the media and marketing. But the competitive bidding development also has some direct to consumer lessons for other businesses. Here’s three:

1. Don’t be a bottom feeder. If your company is cutting corners on media, marketing, customer service or product quality, it will never stand up in a competitive bidding situation, whether it is driven by a government agency or a large retailer. It will also never stand the test of DRTV where consumers see the product and its value with immediate consequence. Be the absolute best company you can be.

2. Make sure your pricing and value proposition is tight. Don’t wait until a competitive bidding challenge forces you to examine pricing, overhead, media mix, back-end operations and media cost. Do it now so you are prepared.

3. Stay focused. Some companies have taken this Medicare cut as a sign to expand into other products, and many of them have failed due to insufficient market research or operational bandwidth. If you’re going to expand do your due diligence first. If not, make sure your main offering is advertised and backed with quality service.

Take the Medicare developments as an opportunity to improve media, marketing, product and service. This new process has room for debate. But the challenge to your company is undeniably healthy. You’ve got to be better, faster and cheaper to get to that starting line let alone stay in the game.

Jen joined Mercury Media in 2007 and brought with her years of advertising, marketing, client service and broadcast media experience for both brand and direct response clients. Prior to joining Mercury, Jen worked  at both large agencies, small boutique creative and branding shops as well as in radio for Clear Channel, Katz Media, and Greater Media. As a 16+ year marketing and advertising expert, she has worked on Traditional, Hybrid and Direct Response campaigns and knows the ins and outs of local and national planning, buying, and promotions. Her key accounts include Hoveround, Nuance, Carvel, and BeenVerified.com.

Contact her at jsullivan@mercurymedia.com

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