How Philips Acquired Good Health

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The Situation

In 1998, the revenue generated from Philips Medical Systems represented only 6% of Philips’ overall sales revenue.

Fast-forward 10 years. The sector, now called Philips Healthcare, represents approximately one-third of Philips’ total sales globally (EUR 8 billion out of EUR 25 billion).  Diving deeper into those numbers, Philips Healthcare’s growth becomes even more impressive.  As of today, Philips Healthcare in North America generates more total sales than both the Lighting and Consumer Lifestyle sectors in North America combined, by an estimated EUR 756 million.  Looking back a few years ago, the opposite of this was true.  As recently as 2007, specifically in North America, Lighting and Consumer Lifestyle generated EUR 627 million more than the Healthcare sector in total sales.  How did Philips’ healthcare businesses go from being just a sliver of the company pie, to nearly a third of it?

 

What Changed?

Philips did not make a single move that pushed its Healthcare business to significant growth – it made several.  Starting in 1998, Philips began conducting a string of acquisitions that developed the company into a stronger player in many high profile medical markets such as MRI, ultrasound, PACS, and more.  In 2002, under One Philips, the company made it clear that the healthcare market would become one of their top priorities in the coming years.  During this time, Philips set growth goals for the sector at 14% EBITA, which they hoped to accomplish by fiscal year ending in 2004.  Philips not only reached this goal, they surpassed it.  Also in 2004, Philips repositioned their company under the brand promise of “sense and simplicity.”  In order to “simplify” itself, Philips consolidated its businesses, bringing their total number of sectors from six to three, a move that sparked the creation of Philips Healthcare.  Finally, in 2008, the most notable shift of all took place.  At the corporate level, the company moved away from simplicity messaging and began to focus on “health and well-being.”  This new messaging would not replace the brand promise of “sense and simplicity,” but it would become a major focal point in the years following the message’s introduction.  The takeaway from putting all these pieces together… Philips’ increased focus on healthcare was not something that happened overnight.  It was a gradual transition.

 

The Result

At no point did we see a clearer representation of the brand awareness for Philips Healthcare grow than in 2008.  Between 2007 and 2008, a dramatic shift occurred in the direction of Philips’ sales.  In 2007, the total sales for the Healthcare sector were approximately EUR 6.6 billion.  While it is important to note that the company’s overall sales declined over this period due to the recession, the sales growth experienced by this sector one year later clearly proves that Philips had a refocused strategy at work.  By 2008, the sales numbers for Philips Healthcare jumped to EUR 7.6 billion.  What makes this spike so interesting is not the size of the growth, but the drop that accompanied it.  During this time, the company experienced a decline in the total sales for its Consumer Lifestyle sector.  These numbers reveal that as Consumer Lifestyle became less profitable in certain mature markets, the company chose to refocus around healthcare, despite the detriment it would bring to Consumer Lifestyle.  The healthcare industry was on the rise, and Philips knew well to strike while the iron was hot in order to solidify their position in that space for the future.

 

Your Conversation Starter

It is interesting to look back and see how far Philips Healthcare has come in roughly 10 years.  Back in the late 90s / early 2000s, the healthcare market was hardly a focal point for the company, although it was still a very profitable Philips business.  Now, the company seems to be throwing as much weight as possible behind its Healthcare sector – and those efforts have resulted in success that could only be described as exceptional.  Philips Healthcare is a hugely recognized brand in the medical space as consumers across the globe keep coming back to Philips for all their healthcare solutions.

The success and growth of Philips Healthcare has been especially impressive in the North American market. North America does, after all, represent one of the company’s largest markets across its the three umbrella sectors (Lighting, Consumer Lifestyle, and Healthcare).  Diving closer into Philips’ endeavors within this particular market, though, reveals quite an interesting trend for those with keen and curious eyes.  It would seem that as Philips Healthcare grew in North America, fiscal declines followed from one of its sister sectors – the Consumer Lifestyle business.  Philips has been globally renowned for its Consumer Lifestyle business for decades.  Yet, according to the 2010 sales figures, Philips’ Healthcare outsold Consumer Lifestyle by a factor of nearly 4:1 in North America (Healthcare = EUR 3.9 billion vs. Consumer Lifestyle = EUR 1.2 billion).  Back in 2006, those same numbers were in a near perfect 1:1 relationship with each other (Healthcare = EUR 3.2 billion vs. Consumer Electronics = EUR 2.9 billion).  Overall, between 2006 and 2010, Healthcare sales in North America increased by approximately EUR 700 million, while Consumer Lifestyle sales dropped by EUR 1.7 billion. If you think this shift is unique to North American market, think again.

We see the same tale being played out for these two sectors at the global level as well.  In 2010, the total global sales for Healthcare and Consumer Lifestyle were at a near 1:1 ratio (Healthcare = EUR 8.6 billion vs. Consumer Lifestyle = EUR 8.9 billion).  From this perspective alone, things may look good, but all is not as it appears to be.  Step back and a much clearer – albeit somewhat jarring – picture is revealed.  The dramatic shift described in the previous paragraph about the North American market looks to be occurring at global level as well.  If we return to those same 2006 figures referenced above – looking this time at the global numbers rather than a specific market – we see that Philips Healthcare generated roughly EUR 6.6 billion in total sales worldwide while Consumer Lifestyle achieved an approximate EUR 13 billion.  So, a mere four years prior to that near 1:1 relationship of 2010, Consumer Lifestyle was outselling Healthcare by almost 2:1 globally.  What changed? In that span of time, globally, Healthcare grew by almost EUR 2 billion as Consumer Lifestyle declined by EUR 4.1 billion.  It’s the same story one saw happening with the North American market – as Healthcare grows, Consumer Lifestyle seems to fall.

Based on these numbers, taken from both a local and a global perspective, there is no denying that a clear, dramatic shift is taking place. Royal Philips Electronics was founded in the lightbulb business, but quickly flourished when the company transitioned into consumer electronics.  To this day, Philips has generally been recognized as a consumer products company.  These trends detailed above, however, suggest a that this association could be nearing its end.  In both examples, the parallel trends are impossible to ignore.  As sales in Healthcare have steadily grown across all of their major and future markets between 2006 and 2010, Consumer Lifestyle has seen sharp declines across the board.  And the recent expansion into emerging markets (specifically where the growth potential for the Healthcare sector seems most fruitful) only supports the notion that these trends are likely to continue.  It is obvious that Philips has no intentions of slowing down their growth in the Healthcare sector when they have such steady momentum already.  But perhaps most telling of all, it seems they are willing lose ground in the Consumer Lifestyle sector in order to do it.

How did the Philips brand become so strongly associated with healthcare and successfully find a way resonate that aspect of their company with consumers?

Much like Philips’ brand promise, the answer is simple.  From a high level brand-messaging standpoint, Philips does not treat its sector any differently from one another.  In fact, since the company’s move to “sense and simplicity” one of Philips’ chief goals has been to create a balanced corporate brand.  With the company’s revenue split almost perfectly between its three sectors, it is easy for one to say they succeeded in this respect.  The Consumer Lifestyle sector was always strong performer for Philips.   The same goes for their Lighting Business.  Healthcare represents a slight anomaly in this equation, mainly due to the sheer swell of its growth over the past decade.

Philips was able to extensively strengthen its healthcare business by creating awareness about their brand through an acquisition-based strategy.  Philips was already a major player in the healthcare space, but they acquired certain specialized businesses over that ten-year period, which either helped skyrocket them to the top of the market or served to strengthen the company’s already existing positions in those particular spaces.  One notable example of this strategy’s effects on Philips Healthcare is in the company’s acquisition of VMI-Sistemas Medicos.  VMI was a top x-ray manufacturing facility in Brazil at the time of its acquisition.  The purchase consequently turned Philips into a top provider of X-ray equipment for that region overnight.  Another example is the company’s purchase of Marconi’s Medical Systems business unit back in 2001.  At the time, the acquisition subsequently made Philips the world’s second largest maker of medical diagnostics imaging equipment.

This acquisition-based strategy is obviously not one that every brand can replicate, but one cannot deny the wonders it has worked for the Philips Healthcare brand.  Of course, achieving this kind of brand awareness and success is not as easy as making acquisition after acquisition either.  A company must also have a strong message behind its brand that resonates with consumers.  This messaging should perform three functions: first, it should clarify one’s expertise in a certain field; second, it must communicate the company’s understanding of the challenges facing their clients; and third, it must express that their company offers the best solutions available for overcoming those challenges.  In Philips’ case, “sense and simplicity” did just that.  And the company’s continued emphasis on “health and well being,” only continues to solidify for their consumers that the Philips brand is fully committed to healthcare innovation for years to come.

 

Now Let’s Talk

What is your take on Philips’ marketing strategy? Is this just something we should come to expect from large companies like Philips? Is there a better way of adopting new brands and technology into one’s portfolio? Does this strategy echo their company’s overall message of “sense and simplicity?

Sound off in the comments below!

 

A Brief History Lesson

  • 1891 – Philips founded
  • 1895 – Philips purchases CHF Muller of Hamburg; manufactures the first commercial X-ray tube
  • 1918 – Philips unveils its first medical X-ray tube for sale
  • 1933 – Philips begins manufacturing medical X-ray equipment in the US and Europe
  • 1998 – Philips begins a string of acquisitions that will eventually make it such a major player in the medical space, starting with ATL Ultrasound; Philips Medical Systems represents 6% of the company’s overall revenue
  • 2000 – Philips acquires ADAC Laboratories, Agilent Technologies Healthcare Solutions Group,
  • 2001 – Philips acquires Marconi Medical Systems
  • 2005 – Philips acquires Stentor Inc. (IT and PACS)
  • 2006 – Philips acquires Witt Biomedical Corporation (the largest supplier of hemodynamic monitoring and clinical reporting systems used in cardiology catheterization laboratories) and Intermagnetics General Corporation (MRI),
  • 2007 – Philips acquires VMI-Sistemas Medicos (leading X-ray manufacturer in Brazil), XIMIS Inc., (RIS), and Emergin (alarm management and event notification software)
  • 2008 – The Healthcare sector accounts for nearly one-fourth of Philips’ overall revenue; Philips acquires VISICU, Inc. (IT), TOMCAT Systems, Ltd. (software solutions – cardiology), Meditronics (India), Alpha X-Ray Technologies (India), Shenzhen Goldway Industrial, Inc. (China – the second largest domestic patient monitoring company in China), and Dixtal (Brazil – patient monitoring)
  • 2009 – Philips Healthcare accounts for 33% of the company’s overall revenue
  • 2010 – Philips acquires Tecso Informatica (Brazil), Medel (Italy – aerosol therapy), Shanghai Apex Electronics Technology Co. (leading Chinese manufacturer of ultrasound transducers), Burton Medical Products Corporation (lighting solutions), and Wheb Sistemas (leading Brazilian provider of clinical information systems)
  • 2011 – Philips acquires medSage Technologies (patient interaction and management applciations), AllParts Medical (a third party medical equipment parts vendor), and makes a bid to acquire the mammography business of Sectra

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