risky business 101: 5 steps to success with risk sharing

BEN WOLIN Co-Founder & CEO

RISKY BUSINESS

101: 5 Steps to Success with

Risk Sharing

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…especially in business.We need to EMBRACE risk to drive our businesses.

RISK IS EVERYWHERE…

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Take Risky Business—risk taking got Tom Cruise’s character into Princeton!

In the real business world, the right risks WILL move your P&L.

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IT’S A RISK SHARING WORLD

Risk is uncomfortable, especially in an unpredictable economy.

But today’s business world enables new ways to collaborate and take risks.

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The cost of a risk – and its reward –is distributed among all participants.

In healthcare, risk sharing is becoming the norm among payors, providers, pharma and consumers...

RISK SHARING IS PAYING FOR PERFORMANCE

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Centers for Medicare and Medicaid Services penalizes hospitals with poor readmission rates.

No fee-for-service model. Hospitals only get paid if patients stay healthy.

This year, 87% of hospitals lost revenue and some were penalized by up to $35M.

RISK SHARING IS EVERYWHERE

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Some insurance companies seek a “money-back guarantee.”

Insurers will not reimburse certain Pfizer, Bayer and Novartis cancer and osteoporosis products unless patient health improves after the first treatment.

That’s right, the drug is free if it doesn’t work.

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The Accountable Care Organization is the ultimate risk taker.

Providers enter shared-risk payment arrangements including financial and performance accountability .

Providers are rewarded when care drives a positive outcome.

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DTC healthcare is changing the risk paradigm. Look at the fertility space.

Shady Grove Fertility

A “shared-risk" program offers a refund if a couple doesn’t conceive after IVF.

Glow First

Couples pay $50/month for 10 months, and those who don’t conceive share the money for additional treatments

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EDH and Notre Dame are proving digital tools can positively impact newborn birth weight and reduce NICU admissions.

We want payors to risk share by delivering these tools to members when they become pregnant.

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THE RISK/REWARD EQUATION IS CHANGING

Marketers traditionally pay for audience access to drive sales by messaging to the right person.

Marketers can now demand not just the right audience, but actually drive sales from their vendors.

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Airline and hotels can pay the old way….

…or find partners where they only pay when seats or rooms are actually sold.

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RISK/REWARD IN TRAVEL

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RISK/REWARD IN RETAIL

Amazon has 900,000+ affiliate members and derives 40% of sales from third-party direct sellers.

Affiliates drive traffic to Amazon, and if it results in a sale, Amazon pays them—the ultimate pay for performance.

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RISK/REWARD IN FINANCE

BankRate has one of the best online finance business models.

It is the consumer gold standard site for checking home mortgage interest rates.

In 2005, BankRate told customers they’d be paid not just on audience, but on outcomes – leads and conversions.

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TO REVIEW…

The healthcare risk paradigm is changing.

In some other verticals, the risk equation for marketers and their vendors has also changed.

Let’s look at healthcare marketing…

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PAY FOR PERFORMANCE

New models enable risk share for consumer and physician pharma marketing.

Pharma marketers can pay on performance, not just audience or fee for service.

This lifts prescriptions and brand revenue.

Marketers must give away more upside for others to take risk in delivering results…

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RISK SHARE MODEL IN PRACTICE

A Cardiovascular Pharma VP wants to increase new prescriptions and adherence beyond the anticipated no-marketing baseline

Risk share model approach:

Hire a partner to market to doctors and consumers

Agree to upfront terms on sharing risk and reward

Pay a percentage of sales generated from the script lift

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How can YOU participate in this bold new way of executing your marketing plans?

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STEP 1: MEASURE

Or you’ll never know what’s working and what isn’t—and you can’t pay for performance.

Companies like Crossix and IMS can to measure impact and prove actual script lift.

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I bet on you like you bet on me”

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STEP 2: DEFINE SUCCESS UPFRONT

How many new scripts need to be created? What’s the revenue impact? Who will measure? What’s the methodology?

Agree to terms upfront or don’t proceed.

Measurement methodology must be in place at the start of any program.

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STEP 3: SHARE DATA

There is no risk sharing without trust and transparency.

If not, your partners will be ambivalent about being evaluated.

Constantly optimize against the target outcome—without a shared approach this won’t work.

Look at the data every day with your partners—don’t wait.

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STEP 4: LEVEL THE PLAYING FIELD

Risk sharing doesn’t work if there are individual success criteria and methodologies for each partner.

Without a common denominator, the marketer will not know how to attribute impact…and risk sharing becomes impossible.

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STEP 5: SHARE THE UPSIDE

Create a deal structure that rewards the risk taker.

Today’s compensation models don’t correlate with the most important outcome—P&L impact.

Pay on performance requires agencies to take a big risk – they need a big reward.

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1. MEASURE

2. DEFINE SUCCESS UPFRONT

3. SHARE DATA

4. LEVEL THE PLAYING FIELD

5. SHARE THE UPSIDE

How to take advantage of risk sharing:

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ONE SIZE DOESN’T FIT ALL

There are a few more things to know – specifically when risk share doesn’t work.

Risk sharing is an important approach, but one size does not fit all.

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RULE 1: DON’T USE IF TOO MANY VENDORS

It will be difficult to know who is really driving the impact.

That makes it impossible to accurately share the reward and ask others to take risk.

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RULE 2: DON’T USE IF MARKET IN FLUX

Participants need to rely on a few constants.

When the market is rapidly changing it becomes difficult to predict an accurate range of outcomes.

The risk paradigm is difficult to manage as the risk takers could be rewarded too little or too much.

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RULE 3: YOU MUST SHARE THE UPSIDE

Don’t use a risk share models if you want all the upside.

If you are fully confident in executing, giving away the upside might not make sense.

Risk share might not make sense for a one-player category drug launch.

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YOU ARE UP NEXT

You are now equipped to enter the brave new world of risk sharing.

Others are doing it shifting toward an outcomes-based model.

You’re up next. Rx marketing is the next frontier.

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WITHOUT RISK, THERE IS NO REWARD

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BEN WOLIN Co-Founder & CEO

RISKY BUSINESS:

It’s Time To Change Your Marketing Paradigm