12.01.14
Warren Buffett, multibillionaire and investment oracle who often is called “the sage of Omaha” once said, “It takes 20 years to build a reputation and five minutes to ruin it.” Companies in the medical device field certainly can relate to this observation.
In an age of viral videos and rapid-fire social media, corporate misadventures—real or imagined—receive swift air play and quickly can crater a company’s marketplace reputation. While all firms have a stake in preserving strong reputations, risks are elevated for medical device firms.
Various triggers and events can dent a device firm’s reputation. Some examples:
Managing reputational risk goes beyond having a public relations strategy, although this is a key component. Medical device manufacturers must monitor the external environment for events that could damage perceptions of the company and sway internal and external stakeholders. Upper management must task someone or some department with the duty to monitor developments that could hurt the company’s reputation. This could include something as basic as arranging for a Google Alert whenever the company’s name appears in the media.
Life-science firms must preserve their reputation among various stakeholders, such as:
Such ads can impact the perception of:
Difficulties in quantifying and monetizing reputation do not mean that it lacks value. When it comes to projecting one’s brand as a manufacturer of high-quality healthcare products—whether those are medical devices or pharmaceuticals—preserving and building on a solid reputation is a critical part of any life science firm’s business plan.
Managing reputational risk includes putting yourself in the shoes of various stakeholders and asking yourself the tough question: “What scenario would pose the largest threat to the company’s viability?”
In an age of viral videos and rapid-fire social media, corporate misadventures—real or imagined—receive swift air play and quickly can crater a company’s marketplace reputation. While all firms have a stake in preserving strong reputations, risks are elevated for medical device firms.
Various triggers and events can dent a device firm’s reputation. Some examples:
- A company recalls a product, rattling consumer and physician confidence in the device;
- The U.S. Food and Drug Administration (FDA) issues a warning letter that criticizes a company’s manufacturing processes;
- A prominent personal injury law firm files a class-action lawsuit, alleging a company’s devices harm patients. TV ads soliciting clients blanket the news media; and/or
- A corporate whistleblower alleges underhanded financial dealings at the company and goes public.
Managing reputational risk goes beyond having a public relations strategy, although this is a key component. Medical device manufacturers must monitor the external environment for events that could damage perceptions of the company and sway internal and external stakeholders. Upper management must task someone or some department with the duty to monitor developments that could hurt the company’s reputation. This could include something as basic as arranging for a Google Alert whenever the company’s name appears in the media.
Life-science firms must preserve their reputation among various stakeholders, such as:
- Physicians. Doctors are key market constituencies for most life-science companies. A strong reputation boosts the odds that doctors will prescribe or demand your products. A weak reputation opens the door to competitors. A strong brand perception among physicians drives sales, which, in turn, improves revenue, profitability and market share;
- Hospitals. Increasing in the managed care era, purchasing agents often are the ones who place orders for equipment and supplies. If they perceive that a company’s reputation is rock solid from a quality standpoint, they are more likely to order the company’s products and honor physician requests to buy a specific company’s devices; and/or
- Patients. Patients rarely make the purchasing decisions (over-the-counter drugs and devices excluded), but they can influentially request a particular drug or device. Witness the multitude of direct-to-consumer ads with the tag line, “Ask your doctor about (insert brand name here).” Why suggest this unless companies realize that patients exert a strong market “push” for certain drugs and devices? A good reputation strengthens this push. A weak one dilutes it.
Such ads can impact the perception of:
- Shareholders/investors. A strong reputation for safe and high-quality products enhance the odds of attracting venture capital, institutional or individual investors;
- Regulators. The FDA regulates life-science companies. Perceptions that regulators hold about the quality and safety of a manufacturer’s products can influence the degree to which companies invite closer scrutiny and sanctions;
- Suppliers. Many companies producing medical devices rely on outsourcing and vital supplier networks to manufacture products. Companies with platinum reputations in the marketplace can leverage better terms on price, quality and delivery. By contrast, device firms with floundering reputations lack leverage and pay more for materials of less quality or on take-it-or-leave-it delivery terms. Thus, a company’s reputation matters when managing relationships with vital suppliers; and/or
- Competitors. Regardless of whether a medical device company produces single-use disposables or intricate life-support electronic equipment, it wants to maintain a solid reputation among competitors. Rivals are less likely to enter a market against the company with a rock-solid reputation versus a company perceived as reeling from financial or product woes.
Difficulties in quantifying and monetizing reputation do not mean that it lacks value. When it comes to projecting one’s brand as a manufacturer of high-quality healthcare products—whether those are medical devices or pharmaceuticals—preserving and building on a solid reputation is a critical part of any life science firm’s business plan.
Managing reputational risk includes putting yourself in the shoes of various stakeholders and asking yourself the tough question: “What scenario would pose the largest threat to the company’s viability?”