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Marketing a new product from your lab.

There are good reasons these days for the budding Thomas Edisons in hospital laboratories to show what they can do. With the advent of prospective payment, a technologist's handy little in-house device or discovery can bring in substantial revenue to an economically pressed hospital.

Marketing is new territory for laboratorians. Prospective payment makes it worthwhile exploring because hospitals can now enjoy the full fruits of their sales efforts. Under the old system of retrospective reimbursement, a hospital's nonpatient-generated revenues, gifts, and grants were deducted from the total Medicare reimbursement. Thus, there was no economic incentive to develop products.

Prospective payment ushers in the incentive, but even with this incentive, laboratory ideas may remain undeveloped because a technologist with a potentially marketable idea usually lacks ready access to those in the corporate hospital structure who can help him or her develop and benefit from that idea. In addition, many hospitals are concerned exclusively with providing patient services and have no interest in this type of marketing activity. The employee must then consider marketing the idea independently, without using the institution's time or facilities. This is difficult to accomplish and has kept all but a few ideas from coming to fruition.

Our own interest in marketing was simulated by isolation of an organism that may find use in other laboratories for microbiology quality control. The development led us to explore issues raised in this article.

Although larger hospitals may have an edge in terms of possessing in-house marketing experts, any hospital can formulate a successful marketing campaign if it believes in a product and its inventors. The first step is to let employees know that the institution is interested in their ideas. This can be accomplished through a simple memo that outlines the steps involved in developing an idea and refers employees to any staff members with marketing expertise.

Marketing personnel should be available to counsel employees on all facets of marketing a product of service. Too often, this service is provided only to key supervisors--and then only at the request of a department head.

Once a conduit is established for employees, they must expend some effort to satisfy the hospital's marketing criteria. This usually amounts to answering a fairly complete series of questions. Many would-be inventors are turned off by the work involved in actually thinking their ideas through such a labyrinth. It's important to keep an open mind. Remember that the questions have been prepared by highly skilled professionals, and that they could help create strong support for the product. The marketing survey looks something like this:

1. What is the product? It can be an item or device, or it may be a unique service or talent--consulting or lecturing, perhaps. It should satisfy a need not currently met by any other lab product or service. But even a me-too item--essentially similar to something already available in the marketplace--can have potential if it represents a major improvement or offers a more economical alternative.

2. Who are the product's customers? With any laboratory product, it's a good idea to consider the public sector, academia, industry, and hospitals and other clinical facilities, just to cover all the bases.

Marketing research firms function solely to answer this question; the marketing arm of the hospital can arrange for a study.

Comments from close friends and colleagues are not an accurate indicator of a product's salability. They tend to tell you what they think you want to hear, rather than what you need to know. Nor is your own intuition likely to be reliable. It's natural to inflate the usefulness of your brainchild and assume that everyone will line up to purchase it. The actual demand uncovered by independent, unbiased feedback can come as a big surprise.

3. What is the market size? Is it stable or changing? Is it seasonal? Determining how many of these potential customers will buy the product generally requires outside expert assistance.

This is where the marketing arm of the hospital or private industry can really help. Information of this nature is invaluable. It can give you a rough idea of the revenue-generating potential of a product--or how much can be earned under ideal conditions. Some ideas have good merit, but the market is so small, and developmental costs are so high, that they remain undeveloped. Unfortunately, many tests for the detection and treatment of "oprhan diseases" fall into this category.

A laboratory supplier estimates that there are nearly 7,000 hospital laboratories in the U.S., and 1,000 clinic or reference labs are above the 100,000 mark in annual test volume. The size of the laboratory market seems to remain fairly stable from one year to the next, and the need for laboratory products doesn't seem to be affected by seasonal changes.

4. Who is the competition? Take a good look at the marketplace. If your product is truly one of a kind, you may have to allocate extra time and capital to establish a market for it. Once you do this, however, the market is all yours--at least until someone else improves on the product.

With a me-too product, market penetration has already occurred, and every customer purchasing the original is a prospect for yours. But, unless you are selling a better of cheaper version, the entrenched supplier probably has a solid lock on the market--there's no reason for customers to switch to an unknown. This is called entering a mature market, and you can really lose money if you're not careful.

5. What will it cost you? If you negotiate with a large firm, then the company will bear the cost--and risk--of manufacturing and distributing the product. If you plan to market on your own, you must factor in a wide range of costs, from technologist time and materials to the cost of maintaining quality control, shipping the product, sto ckpiling an adequate inventory, and protecting your idea. Don't forget to budget for product promotion: Advertising may be your single biggest expense.

6. Should the product be patented? A patent holder can sue over unauthorized product distribution or use. Manufacturers want the protection a patent affords, and many will assume the cost of securing it. If a product has a patent, its value to prospective companies is much higher than without one. Today, a patent can cost a minimum of $4,000.

A patent attorney is the best person to help you decide where your product or idea stands. If it cannot be patented, you may still gain some protection. The patent attorney can draft a disclosure agreement that will safeguard your interests for several years. This is a document that an interested company must sign if it wishes to see or discuss your invention. It is delicately balanced to protect both your interests and those of the company. Once hammered out, a good agreement can be used over and over in presenting different ideas to different companies. A sample disclosure agreement is shown in the box on page 00.

Understand that this example of a disclosure agreement is not a substitute for legal counsel. A different agreement may be drafted by a patent attorney to emphasize aspects of a transaction that are of particular interest to you or to the company with which you are dealing. Statements are sometimes included to protect you from liability should the company misuse the invention. I have included this sample only to illustrate the intricacies of such pacts, and to stress the necessity of hiring a patent attorney.

Many companies generally refuse to review new ideas without this type of a formal arrangement. To review an idea on a handshake places the company in a position of possible liability, especially if it is already developing a similar product on its own or has acquired the idea independently.

In this event--even with a disclosure agreement--your recourse is somewhat limited. You can take legal action to require a showing that product development was under way before your initial contact with the firm. They have to produce the developmental information in a bound notebook with dated en tries. Reputable manufacturers will take great pains to avoid this type of misunderstanding.

On the other hand, a company may review your data, evaluate the product, and decide it is not interested. All of your materials are returned to you, and the confidentiality agreement prohibits the company from using your idea for whatever period of time is specified. This gives you ample opportunity to market it elsewhere.

It's a good idea to submit disclosure agreements simultaneously to several other companies so that you can negotiate to your best advantage. It is also important to make contact with appropriate, responsible personnel--for example, a marketing manager. This contract an often be initiated via the firm's sales representatives.

7. How should the product be priced? Here you must asess the competition's prices and determine what the market will bear. You don't want to give your product away, but you can't price it out of the market, either. Setting a price for a brand new, one-of-a-kind product is tricky, because there's no basis for comparison. The price of a lab service in our area is cost times three. This generally aligns us with the competition's prices.

8. How much revenue do you expect? You must do your remarketing homework and project revenues for the first, second, and third years as realistically as possible. This enables you to budget expenses and set targets above breakeven.

9. How will you advertise and promote? Given the wide range of established selling techniques, you should be able to find an approach that satisfies both your promotional needs and economic limitations. For example, you could run an ad in a laboratory journal or launch a mass mailing to hospital labs. To make sure that your proposed campaign is both ethical and effective, consult the American Hospital Association's guidelines for advertising.

10. Does your produce require FDA approval? Chances are that it does if it's medically related. Even a quality control microbe can be considered a "medical device" if it is used to perform quality control on reagents used in diagnosis. Approval and premarket paperwork can take time, so it's best to apply for it at the earliest opportunity. If you have any questions, don't hesitate to contact the FDA. Staff members there are extremely helpful and will send whatever information you might need.

11. How will the hospital compensate you? Does the hospital share profits with its employees? Profit-sharing can mean many things, from a merit raise or bonus to granting royalties or an outright percentage of product sales. The hospital could also authorize a paid leave of absence--for example, one day a month--to allow you to pursue other professional endeavors.

Another possibility is to direct the profits into an independent laboratory fund and give the inventor a major voice in deciding how the monies will be allocated. I should point out that removing direct financial incentives can reduce the inventor's motivation to share his or her ideas. Needless to say, it's wise to develop an agreement with the hospital regarding compensation, to avoid possible future misunderstandings.

It's an exciting area, but I would suggest you employ caution and expert legal and marketing advice before giving it a try. Above all, don't take your ideas for granted.

Remember, somebody way bakc when invented agar plates. The rest is history.
COPYRIGHT 1984 Nelson Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1984 Gale, Cengage Learning. All rights reserved.

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Author:Kuhn , Phyllis J.
Publication:Medical Laboratory Observer
Date:Jun 1, 1984
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