How Sonova AG’s Customer-Centric Approach is Reshaping Hearing Aid Industry
Executive Summary
Sonova holds a leading position in the hearing loss healthcare solutions market. This analysis employs a customer-centric approach to evaluate and examine the rapidly changing market and business environment. After identifying several new market segments, the assessment presents a range of value propositions tailored to various hearing loss consumer groups’ unique needs, supporting Sonova's long-term business growth. These value propositions encompass offerings for price-sensitive customers, new opportunities in the OTC channel due to regulatory shifts, and the development of tailored solutions for emerging markets.
Phonak invisible LyricTM hearing aid solution
Credit: Sonova AG
I. Background
Headquartered in Stäfa, Switzerland, Sonova is a prominent provider of cutting-edge hearing aids, cochlear implants, wireless communication devices, digital solutions, and expert audiological services. As the "House of Brands," Sonova operates as an umbrella organization that encompasses manufacturing brands such as Phonak, Unitron, Hansaton, and Advanced Bionics, as well as retail and service brands like AudioNova. Through all its business ventures and by supporting the Hear the World Foundation, Sonova strives to achieve its vision of a world where everyone can experience the joy of hearing and lead a life free of limitations. After acquisition of Sennheiser consumer division(Forbes, 2023), Sonova has clearly laid out its business landscape, including mainly consumer hearing, hearing healthcare and hearing implant (SONOVA AG, 2023). In this assignment we are focusing on the business strategies and marketing initiatives of Sonova in hearing healthcare area as this is major revenue contributor for Sonova and the market has evolved rapid in the post-COVID era.
Market penetration of people with hearing loss
Credit: WHO (2012), Industry statistics, Sonova estimates
II. The Business Challenges
Sonova stays at a top place in the hearing healthcare markets in the last 5 years. For example, its Phonak and Unitron are offering a wide ranges of hearing aid devices global markets. Phonak’s state-of-the-art hearing solutions such as Audéo Lumity (Phonak, 2023) and Lyric (Phonak, 2023) are top choices for hearing loss people. Although these products are providing outstanding sound quality and customization with help of audiology professionals, they normally cost in the range of $2,000 - $10,000 (Chrissy Holm, 2023), which hinder the acquisition rate for Sonova on hearing loss users. On one hand, for decades, Sonova has been a dominant player in the hearing health market, offering comprehensive solutions including devices, diagnostics, and support services. On the other hand, the business now faces significant challenges in the form of emerging competitors from adjacent sectors, evolving regulations, and rapid technological advancements. These threats have compelled Sonova to prioritize innovation to maintain its leadership position in the hearing loss healthcare market.
III. Hearing Healthcare - an Industry Landscape
The aging global population, particularly those over 65, is more susceptible to age-related hearing loss, driving demand for hearing healthcare solutions. Heightened awareness of hearing loss consequences has reduced stigma, encouraging more people to seek help and use hearing devices. This creates a growing market for the hearing healthcare industry, and Sonova must adapt to evolving customer needs, capitalizing on the demand for innovative and accessible hearing solutions.
Furthermore, a substantial disruption in the hearing healthcare industry, with potentially far-reaching consequences, emerged in August 2022 when the FDA finalized regulations permitting the sale of certain hearing aids over the counter (OTC) without a prescription. This decision effectively established a new category of hearing aids designed for adults experiencing mild to moderate hearing impairments. Consequently, hearing devices are now available at retail and pharmacy outlets at significantly reduced-price points, with some costing less than $1,000 and even as low as $300 in certain cases. This development is expected to reshape the market landscape and could have a profound impact on traditional hearing aid providers as consumers embrace more affordable and accessible alternatives (Seeing Alpha, 2023).
Teleaudiology and remote support services have expanded since 2020, presenting Sonova with an opportunity to reach patients in rural or remote areas, contributing to market penetration and growth. However, the high inflation rate in 2023 may lead to customers trading down to lower-priced devices or delaying purchases, posing risks to Sonova's growth.
While hearing aids may not be considered a typical consumer discretionary purchase, they do possess discretionary aspects. High-end devices can be quite costly, with prices exceeding $10,000, allowing customers the option to opt for lower-featured devices (priced under $1,000) or even postpone purchases during financially challenging times. This trend is expected to become more prominent in 2023, as the high inflation rate may lead to increased trading-down and an unfavorable mix shift influenced by the macroeconomic environment. Such factors pose risks to Sonova's growth within the hearing healthcare market.
Reimbursement policies for hearing healthcare significantly differ across countries and insurers. In the US, Medicare doesn't cover hearing aids, but some Medicare Advantage plans or private insurance policies provide limited coverage. Medicaid offers hearing aid coverage in some states, varying in extent. In contrast, many European countries partially or fully reimburse hearing aids through national healthcare systems and social insurance programs, depending on hearing loss severity and individual eligibility. Reimbursement policies in China are limited and depend on specific insurance coverage and eligibility for assistance programs. Reimbursement policies greatly impact market penetration, with regions offering generous reimbursements demonstrating higher penetration rates. Low- or no-reimbursement countries, primarily low- and middle-income nations, exhibit lower market penetration rates in the hearing healthcare industry. Emerging markets, such as China, India, and Brazil, present substantial growth opportunities for Sonova due to increasing demand for hearing healthcare solutions. However, challenges like a shortage of trained professionals, inadequate educational facilities, and insufficient data may hinder Sonova's attempts to increase market penetration rates in these regions.
Pricing of Hearing Aid in the US.
Credit: Port Jefferson Hearing
IV. Revisiting the Market Segements
With all considerations discussed in the recent changes of hearing healthcare markets, it seems like that Sonova must reevaluate its market segment to realign its value proposition for the customers. Currently, the market segmentation of Sonova is mainly based on the degree of hearing loss, providing heating aid instruments and cochlear implants. Sonova does investigate consumer usage scenarios based on demographics and provides multiple product categories offers to meet varied consumer needs.
I suggest Sonova shall investigate other ways of market segmentations such as price sensitivity, distribution channels, and regions (Kenresearch, 2023). Segmenting the market based on price sensitivity can help companies target different consumer groups with varying budgets. Some customers may be willing to pay a premium for high-end devices with advanced features, while others may be more price-conscious and look for affordable hearing aids that meet their basic needs. The hearing aid market can also be segmented based on distribution channels, Sonova shall adapt to the new regulation and differentiate its offerings in traditional hearing healthcare solution retailers and OTC channels.
The Americas hold the largest revenue share in the hearing aid market, primarily due to the higher purchasing power of individuals, which facilitates the adoption of hearing aid devices. Europe claims the second-largest market share, followed by the Asia-Pacific and Middle East and Africa regions. The Asia-Pacific and Middle East and Africa markets are anticipated to experience growth soon, presenting potential opportunities for businesses like Sonova. Therefore, for Sonova, it must investigate the specific customer needs in different region segment and provide customized value propositions.
V. Understanding the Customers
Numerous market research surveys have been done at Sonova. At consumer personas level, Sonova understand communication in noise is one of the most challenging listening situations for people with hearing loss and one of the most important factors for heating aid satisfaction. Therefore, Sonova has developed and launched Phonak SmartSpeechTM Technology (SONOVA AG, 2022). Undoubtedly, Sonova emphasizes product experience for hearing loss users, stemming from its long-standing commitment to technological innovation. The company should explore customer needs across varying price sensitivity segments and tailor product offerings, marketing activities, and educational efforts to cater to diverse customer bases.
For price-sensitive customers with limited knowledge of hearing loss and available hearing aid options, affordability is key. These customers might opt for lower-priced devices with fewer features and rely on over-the-counter hearing aids or postpone their purchase due to financial constraints. Public awareness campaigns and government initiatives can help improve understanding and accessibility for this group.
Mid-range customers, who generally have a better grasp of hearing loss and the importance of professional help, seek a balance between quality and affordability. They're willing to invest in devices with more features while remaining cost-conscious. Healthcare professionals, online research, and word-of-mouth recommendations often influence their choices.
With the FDA's regulatory changes, Sonova should consider the distinct needs of traditional retailer and OTC customers in the US market. OTC customers, typically individuals with mild to moderate hearing loss, prioritize affordability and accessibility. They appreciate the convenience of purchasing hearing aids without a prescription and may lean towards self-fitting options and easy-to-follow guidelines. While not expecting advanced features found in premium hearing aids, these customers still seek devices with essential functions like volume control, noise reduction, and feedback management. They also value access to educational resources, troubleshooting guidance, and customer service when needed. Sonova must adapt to these varying customer profiles to effectively cater to their needs and preferences while maintaining its commitment to product experience and innovation.
In emerging markets, which are crucial for Sonova's next business development phase, addressing the limited customer awareness is essential. Customers in these markets may have limited knowledge of hearing loss and available hearing aid options, often relying on local healthcare professionals, word of mouth, or government-led initiatives for information. Sonova can help bridge this knowledge gap by providing educational resources and collaborating with local healthcare providers. Price sensitivity is a critical factor in emerging markets, with customers often prioritizing affordable hearing aid solutions. Sonova should consider offering cost-effective options tailored to these markets, ensuring a balance between quality and affordability. The hearing healthcare infrastructure in emerging markets may be less developed, resulting in limited access to professional help or specialized care. To address this challenge, Sonova can partner with local healthcare providers, utilize teleaudiology services, and offer remote support to improve accessibility. Social stigma and cultural attitudes surrounding hearing loss can influence customers' willingness to seek help and adopt hearing aid solutions in emerging markets. Sonova should be sensitive to these factors and develop strategies to raise awareness, reduce stigma, and encourage acceptance of hearing aids.
VI. Sonova's Value Proposition 2.0
For price-sensitive and mid-range customers in the hearing aids market, Sonova should focus on delivering affordable options that balance quality and cost. This includes offering entry-level and mid-tier devices with essential features at competitive prices, demonstrating good value for customers even at lower price points. Flexible financing options or payment plans can make hearing aids more accessible to customers with varying budgets. Sonova should also offer customizable fitting options and personalized settings in affordable devices, ensuring that price-sensitive and mid-range customers benefit from a tailored hearing experience. Attracting these customers with special promotions, discounts, or bundled offers, including accessories, extended warranties, or after-sales services at reduced costs, can be beneficial.
For OTC customers, Sonova should provide cost-effective OTC hearing aids that cater to budget-conscious customers, balancing quality and affordability while maintaining essential features for addressing mild to moderate hearing loss. Specifically, Sonova should offer OTC hearing healthcare solutions with self-fitting capabilities, making it easy for customers to adjust and customize devices to their unique hearing needs without professional assistance or through telehealth approaches. In terms of customer support, Sonova should focus on providing services in troubleshooting guidance and basic maintenance assistance, ensuring OTC customers feel valued and well-served, even if they have not purchased higher-end hearing aids.
For emerging market customers, Sonova should address affordability while collaborating with local healthcare providers, utilizing teleaudiology services, and offering remote support to improve accessibility to professional help and hearing aid solutions in regions with less developed hearing healthcare infrastructure. The company also needs to establish partnerships with local healthcare providers, clinics, and NGOs to expand distribution, provide localized support, and raise awareness about hearing health and available solutions in emerging markets. Finally, Sonova should invest in training and education programs for local hearing care professionals to address the shortage of trained personnel and improve the overall quality of hearing healthcare in these markets.
VII. Final Thoughts
The hearing healthcare market has undergone significant evolution in recent years. Sonova has transformed from a hearing aid manufacturer to a comprehensive hearing loss solutions provider, positioning itself as a market leader. With market consolidation and increasing competition, Sonova should reevaluate the business environment and explore emerging market segments. By employing customer-centric strategies, the company must capitalize on its product innovation achievements and adapt them to new market segments and customer needs, ensuring long-term sustainable business growth.
Reference
SONOVA AG. (2023). Company Profile Sonova International. sonova.com/en/company
Kenresearch. (2023). Global Hearing Aid Market Research Report. kenresearch.com/blog/2019/08/global-hearing-aid-market/
Phonak. (2023). Hearing Aids with Improved Speech Understanding - Audéo Lumity. phonak.com/en-int/hearing-devices/hearing-aids/audeo-lumity
SONOVA AG. (2022). Lumity with Phonak SmartSpeech TM Technology Phonak Insight.
Phonak. (2023). Invisible Hearing Aids - Lyric from Phonak. phonak.com/en-int/hearing-devices/hearing-aids/lyric
Chrissy Holm. (2023). Phonak Hearing Aids Review. ncoa.org/adviser/hearing-aids/phonak-hearing-aids-review/
SONOVA AG. (2023). Hearing care market and supply chain. report.sonova.com/2019/en/hearing-care-market/
Forbes. (2023). Sonova Lays Out Its Plans For Recent Acquisition Of Sennheiser Consumer Division. forbes.com/sites/marksparrow/2022/03/09/sonova-lays-out-its-plans-for-recent-acquisition-of-sennheiser-consumer-division/?sh=6b6dd6ae3de5
Seeing Alpha. (2023). Sonova Seeing Strong Execution Collide With Macro Uncertainties. seekingalpha.com/article/4561192-sonova-seeing-strong-execution-collide-with-macro-uncertainties