What You Can Learn from the Rise and Fall of Cosmetic CT

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Jonathan Berlin offered an interesting case study during this evening’s “Dos and Don’ts” session on strategic planning and marketing. “This will get us thinking about some of the things people have done wrong in the past,” he said. The case he discussed dates back to 2001, when two businesspeople decided to lease an EBCT scanner to perform whole body scans, cardiac and lung scans and virtual colonoscopy. He called the fledgling cosmetic imaging company “Life CT.”

Life CT was in business for three years, primarily offering full body CT. To capitalize on different markets, the company planned to use mobile EBCT scanners. “It’s very easy to make a business plan look good,” Berlin said. Life CT used the CT Benchmark Report from 2001, which indicated that outpatient CT had been on the rise every year since 2005.

Life CT decided to reach out to “every single person concerned about cancer and heart disease.” But in fact, Berlin noted, their real target market was people with over a thousand dollars in disposable income to plunk down for a whole-body screening. “We have to think about who our customers are,” he added. Life CT made money initially, as the other whole-body CT companies did; then they went bankrupt in two years.

“What can we learn from this example?” Berlin said. “Let’s talk about direct-to-consumer marketing, first of all.” In one NYT article from that era, an imaging center hyping cosmetic imaging claimed to be spending $20,000 a month on advertising while still turning a profit. “In today’s world, it’s not really common for us to do that.”

Berlin cited “first-mover advantage” as the factor contributing most to cosmetic imaging’s early success. “Any product can be commoditized,” he said. “Eventually the consumer takes a look at a product and says the only differential between product A and product B is price; the first-mover advantage enables you to delay that commoditization process as long as possible.”

Of course, one of radiology’s big challenges is to not become commoditized. “We have to combat it through product differentiation,” Berlin said. “Some people say that anything will eventually become commoditized. At the same level, though, anything can be decommoditized. What’s bottled water? It’s a commodity that has been decommoditized.”

No one in imaging wants to initiate a price war. But whole-body CT screening resulted in brutal price wars, driving prices so low that margins were too decreased for cosmetic CT centers to stay in business. “Price elasticity is affected by the extent to which customers can find a substitute product,” Berlin said. “Basic food and clothing are inelastic. Designer products, vacations and so on are elastic. Health care is surprisingly elastic.”

When peoples’ co-pays begin to rise, they use less health care – evidence of the elasticity of health services. “If you look at the economy right now, people are losing their jobs, and that means that radiology’s under pressure,” Berlin said. “Preventative services are under pressure. Some of the trends that affected this body CT company are going to impact us now.

“We have to start off by understanding the needs of our customers,” he went on. “We have to take a look at people other than patients and referring doctors. What does the scientific community have to say about our product? It seems like every other day something comes out about CT dose. How does that impact perception of us?” If radiologists don’t have answers to questions about dose, other people will, Berlin warned. “Of course the RBMs are doing it, because they want to dissuade people,” he said.

Berlin’s key takeaways from the story of Life CT:

--Don’t underestimate the competition; factor them into your analysis.
--Analyze your marketing data accurately. “It’s not the vendor’s job to give you good, applicable data,” he said. “It’s the vendors job to sell their product. We have to take a look at that data and apply it to our own market.”
--Flexibility is key to any business plan. Maintain a high level of working capital, especially when --operating in an uncertain reimbursement market.
--Identify your customers and their needs accurately.