The realities of pricing pressures are changing the core dynamics of the dental implant industry. Stagnant innovation has created an increased number of local and regional value players involved in creating similar products and offering them at a lower cost. Straumann has addressed this fact in their 2014 annual report and stated that the value segment now accounts for more than a third of the global implant market. This reflects a shift in consumers’ mentality—they are now increasingly looking for products that simply provide the best prices in this commoditized market.
With brand loyalty not being what it used to be, companies that do not adjust to the new landscape and embrace a new business model with a greater reliance on complementary partner capabilities are likely to become increasingly marginalized in the market. Companies are therefore undergoing a lot of mergers and acquisitions to offer a higher level of service, support, and innovation. As we’ve discussed before, Zimmer and Biomet’s pending deal is one response to the intense price pressure and increasingly difficult product differentiation. This deal will enable Zimmer to provide a greater array of products in various combinations. Danaher’s acquisition of Nobel Biocare is another example that will give the company access to a greater variety of complementary products as well as more resources that can help boost sales in more geographical regions. On the other hand, Straumann has built a portfolio of value companies to target unexploited growth markets by purchasing Latin America’s leading dental implant company, Neodent, this April, as well as investing in MegaGen in 2014 to drive expansion in the value implant segment in the Asia Pacific region.
Scale seems to be the key to growth in the current market landscape because it allows companies to offer a more convenient experience to consumers without sacrificing brand equity. Recent consolidation in the dental industry, however, raises the question of whether having the critical mass is the only way to retain a formidable position in the market. Whether this holds true or not, there will likely be more M&A’s where the focus will be on lowering costs through achieving economies of scale until the dental industry can come up with truly differentiated products and services.