Medtronic Pricing Spineometer: 5 of 5 Vertebrae
Medtronic, a global medical technology company, had a positive Q1 2024. Revenue rose 4.5% to $7.7 billion and earnings before interest and taxes rose 13% to $1.3 billion over the same period last year.
A review of Medtronic’s August 22nd earnings call and financial report provided insight regarding the importance of pricing on performance.
The management of Medtronic have invested in pricing capability and clearly intend to maintain this investment.
Karen Parkhill, CFO of Medtronic stated: “We do believe that this pricing muscle that we’ve built is going to be lasting and we fully intend to continue to track, monitor, talk about pricing, so that even as we move into a lower inflationary environment, we’re focused on continuing this pricing muscle that we’ve built.”
Geoff Martha, CEO of Medtronic, continued with “the pricing muscle that we’ve been building. … We intend that to be enduring.”
And the pricing muscle is focused on, as Karen Parkhill, CFO stated, “ensuring that we price for the value that we deliver.”
These are bold claims. Executives in other companies and industries should look to Medtronic when it comes to considering pricing a strategic capability rather than an overhead cost.
Pricing at Medtronic is a large and complex function to manage.
- Given its size, we would expect to see 60 to 300 professionals engaged in pricing at Medtronic.
- Because Medtronic has significant operations across the globe and divides the globe into at least 12 different regions, most with multiple countries, Medtronic would need multiple dozens of pricing professionals just to support the commercial teams across the globe.
- Because Medtronic has significantly different lines of business in cardiovascular, neuroscience, medical surgical, diabetes, and other, each with significantly different technologies and business models, Medtronic would need roughly another dozen to support product management in these sectors.
- Because Medtronic is active in the fields of robotics and artificial intelligence in relation to healthcare, a fast changing and dynamic field, Medtronic would need a staff to explore new business models and define new price structures, such as SaaS pricing and DaaS pricing.
- And, because Medtronic must manage different macroeconomic environments, competitive threats, and evolving political and legislative constraints, pricing would need to be engaged at the strategic level.
Research into the investment by Medtronic in pricing yielded positive results. The number of professionals engaged in pricing was well within industry benchmark expectations. Their ranks included analysts, leaders, managers, consultants, several directors, and a vice president. Their engagements included data analysis, data scientist, price administration, pricing systems, contract management, revenue management, business intelligence, healthcare economics, and strategy. Geographically, pricing was dispersed across the globe. Some interfaced mostly with commercial teams while others with product or divisional teams.
Given the importance and capability of pricing at Medtronic as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of September ‘23.
Medtronic Pricing Spineometer: 5 out of 5 Vertebrae.
MDT (Medtronic International Inc.) rose from 81.6 the day prior to their earnings call to 82.1 one week later. FY 2023 revenue of $31 billion with a 18% operating margin and P/E ratio near 30.
For FY 2023, a 1% improvement in price would yield 5.7% improvement in operating profits holding all else constant at Medtronic.
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