Toyota didn’t beat Mercedes by getting cheaper. It beat Mercedes by getting closer to the customer first. Here’s the six-year research obsession behind the Lexus LS 400, and why undercutting your way to a full panel is a strategy that has already failed in a dozen other industries, and what Harvard’s own pricing research says to do instead.

By Michael Tetreault, Editor-In-Chief, Concierge Medicine Today

“I’m a car guy, so bear with me on this one. There will be some good points [in this article], I promise. I know enough about engines to self-diagnose and wrench on them myself. Driving an old car with lifter problems through North Dakota and southern Canada in the ’90s will teach you that.”

~Michael Tetreault

Today’s article isn’t about concierge medicine directly. It’s about a distant cousin in the subscription-based healthcare world, direct primary care, or DPC.

Over the past two decades, I’ve noticed more and more that there is a moment almost every DPC or low-cost, membership-based practice hits around year two or three, when the patient panel quietly stalls (catch the car pun).

Growth that used to feel automatic starts to flatten out, and you notice it before you can quite explain it.

That’s usually right about when a competitor down the road launches at $59 to $93 a month, and a quiet voice in your head says: just drop the price. Fill the seats. Worry about margin later.

That instinct is understandable. It is also, according to decades of business research and a growing body of data inside concierge and membership medicine itself, one of the fastest ways to damage the very practice you built to serve patients better.

This is not a scolding. It is a strategy conversation, grounded in evidence, for low-cost subscription-based physicians who left, or are considering leaving, the insurance-driven system specifically to build something sustainable that has a low cost for the patients because you feel your altruistic nature pulling you to do so.

But, if the goal is sustainability, the tactic matters.

What “racing to the bottom” actually means

Let’s zoom out for a moment.

A price war is what happens when competitors inside the same market repeatedly cut prices to undercut one another, creating a cycle where each side matches or beats the last cut. This “price-cutting momentum” pulls in competitors who feel forced to follow the initial price cut, and while it can create short-term benefits for the buyer, it erodes the profit margins of everyone competing.

Harvard Business School researchers Akshay Rao and Mark Bergen, writing in Harvard Business Review, built a career studying exactly this dynamic across industries. Their conclusion, echoed by strategists since, is blunt: most price wars are avoidable, and the businesses that start them or get pulled into them rarely come out ahead.

The Kinsta business blog, summarizing HBR’s own internal analysis of the question, put it plainly: when businesses were asked whether they should engage in a price war, the overwhelming answer was “no.” Instead, the research points toward differentiation as the more durable response to a low-cost competitor.

There is a second, quieter finding in that same research that some physicians should sit with. Price itself shapes how a buyer perceives value, and a price set too low signals that the product is cheap, in the way a price set too high can signal it is a ripoff. In other words, the discount that was supposed to win the patient can be the very thing that tells the patient your care is not worth much.

It’s indeed, a delicate balance and it’s different for every practice and every doctor. Why? Because of who you work for and serve: the patient. Every patient is different. Every practice is different. That makes this topic challenging but it’s a conversation worth having because I want to see your practice thrive and more importantly, survive in your community.

The framework underneath the instinct

Michael Porter, the Harvard strategist whose work still anchors most first-year MBA curricula, described three durable paths to competitive advantage: cost leadership, differentiation, or a focused niche strategy.

A company chooses to compete either through lower costs than its rivals or by differentiating itself along dimensions the customer actually values, in order to command a higher price. What Porter warned against was the position most panic-driven price cuts land a practice in.

Porter’s phrase for it is “stuck in the middle,” and it describes an organization trying to be all things to all people, with no distinct competitive advantage as a result. Businesses caught here typically perform the worst in their industry precisely because they never committed to one strength. A DPC practice that quietly lowers its price to compete on cost, while still trying to deliver same-day access, unhurried visits, and so-called affordable white-glove service, is not competing on cost leadership. It is trying to sell a premium product at a discount price, and the math does not hold.

Today, a medical practice or a company stuck in this position cannot beat a true cost leader on price, because it never built the operational discipline or scale to sustain that price, and it cannot beat a differentiator on the experience it promised, because the discipline required to deliver that experience costs money. Both promises erode at once.

What the data inside DPC and low-cost membership medicine is already showing

This is not theoretical for DPC and low-cost membership medicine practices. It is visible in the industry’s own numbers.

The 2026 State of DPC survey, distributed through the DPC Alliance and Hint Health’s network, found a direct relationship between panel size and price. Practices with fewer than 200 patients averaged $105.93 per member per month, practices with 201 to 500 patients averaged $99.28, and practices with more than 500 patients averaged $77.74 per member per month. Read plainly, the larger the panel, the lower the average price charged per patient. That pattern is exactly what Porter’s framework predicts happens to practices chasing volume without a differentiation strategy to protect price. It is worth noting this figure comes from Hint Health, a technology vendor with a commercial interest in DPC’s growth, so it should be read as directional industry data rather than an independent audit. It is nonetheless the most comprehensive dataset the movement currently has.

At the same time, the broader market is not short on room to compete on value instead of price. More than half of private healthcare consumers rank the cost of care as the most dissatisfying part of their current healthcare experience, and DPC’s growth has been driven in large part by employers and patients who are tired of opaque, escalating costs elsewhere in the system, not by DPC being the cheapest option on paper. Employers now fund the majority, roughly 60 percent, of active DPC memberships, according to Hint Health’s 2026 trends report, which signals that the buyers filling panels today are increasingly sophisticated purchasers evaluating value, retention, and outcomes, not simply hunting for the lowest sticker price.

Regional pricing tells a similar story. Northeast DPC pricing rose 33 percent over five years, from $60 to $80 a month, even as national demand for the model accelerated. Practices in that region did not grow by discounting. They grew while raising price, in a market that was simultaneously expanding.

The altruism problem no one names out loud

Here is the part of this conversation that is specific to medicine and does not show up in a typical business school case study on price wars.

Physicians are trained, deliberately and repeatedly, to put the patient’s welfare ahead of their own. Medical professionalism itself is defined in the literature by principles of excellence, accountability, altruism, integrity, and humanism, all oriented around the patient relationship. That formation is not incidental. It is the point of medical education, and it is a genuine strength of the profession that should never be coached out of a physician.

But that same formation has a side effect worth naming honestly. A rigorous study out of the University of Cologne and University of Rennes, published in the Journal of Health Economics, measured patient-regarding altruism in 733 medical students at different stages of training. The researchers found that patient-regarding altruism is highest among freshmen, declines significantly through the middle years of medical study, and rises again in the final year as students begin assisting in clinical practice. Students with lower income expectations showed higher altruism scores overall.

Sit with that last finding.

The training that makes physicians excellent, trustworthy, patient-first clinicians also correlates with a documented discomfort around charging what care is actually worth. That discomfort is admirable in the exam room. It becomes a strategic liability in the business office, where it quietly nudges a physician toward the lowest defensible price rather than the price that reflects the value delivered, the access provided, and the sustainability required to keep serving that same patient for the next twenty years.

This is not a call to abandon altruism. It is a call to separate two different questions that get tangled together under stress: am I a good doctor and am I running a sustainable practice. A price built out of guilt is not more altruistic than a price built out of strategy. A closed practice serves no one.

What other industries learned the hard way

Medicine is not the first field to face this exact temptation, and the businesses that raced to the bottom on price rarely tell a happy ending.

Rao and Bergen’s HBR research spans industries from B2B and agribusiness to healthcare and the nonprofit sector, and the throughline in that body of work is consistent: firms that respond to a low-price competitor by cutting their own price usually shrink the whole market’s profitability without gaining durable share, because the competitor simply cuts again. The winners in price wars, when there are any, tend to be the largest players with the deepest balance sheets, the ones who can absorb losses the longest. A solo or small-group physician practice is almost never that player, and should not try to be.

The lesson for low-cost DPC physicians is not abstract. It is Porter’s choice, stated as a decision every practice has to make deliberately rather than by drift: compete on being demonstrably, operationally the lowest-cost, highest-efficiency provider in your market, which requires real scale and real systems, or compete on being demonstrably different in a way patients value enough to pay for. Trying to hold both at once is what leaves a practice, in Porter’s words, stuck in the middle, with margins too thin to sustain the very things that made the practice worth choosing in the first place.

The Lexus Lesson: Price Is a Result, Not a Strategy

Circling back to my car guy roots, there is an automotive story worth every physician’s attention here, because it is one of the clearest business case studies ever produced on the exact question this article is asking you if you’re a DPC physician. It comes from Hagerty’s “Revelations” series, hosted by Jason Cammisa, on the origin of the 1989 Lexus LS 400, and it has been retold in detail across automotive trade press and in Chester Dawson’s book Lexus: The Relentless Pursuit.

The origin story matters as much as the engineering. Toyota’s first American export, the Toyopet Crown, was a flop, selling only a few hundred units before Toyota pulled it from the market in the late 1950s. Twenty five years of steady rebuilding later, Toyota had become the largest importer of vehicles into the United States, and that success triggered a protectionist response. In the early 1980s, the U.S. government pressured Japan into so-called voluntary export restraints, capping Japanese auto imports at roughly 1.7 million vehicles a year. With volume capped by government policy, Toyota USA’s Yukiyasu Togo pushed a different lever: if the company could not sell more cars, it needed to sell more profitable ones. That constraint, not ambition alone, is what pushed Toyota into the luxury segment.

In 1983, Toyota’s then chairman Eiji Toyoda greenlit a secret effort known as Project F1, for Flagship One. Where a typical vehicle program of that era might use around 200 engineers and a few hundred million dollars, F1 was reportedly given no fixed budget and a development team of roughly 1,400 engineers, 60 designers, and thousands of additional technicians and support staff, spread across a six-year effort widely reported to have cost in the neighborhood of a billion dollars.

What that team actually did is the part physicians should study closely. Rather than guess at what luxury buyers wanted, a team of designers and engineers relocated to a rented house in Laguna Beach, California, and spent months directly observing affluent Americans: watching valet stands outside country clubs, studying the furniture in high-end homes, and even analyzing the leather scent inside Jaguar interiors closely enough to reverse-engineer the tanning process. They tested switchgear and steering wheel ergonomics against how women with long, manicured nails actually interact with a dashboard. This is the practice Toyota calls genchi genbutsu, going to see for yourself, rather than relying on assumptions about the customer.

Separately, Toyota’s research uncovered something more specific and more useful than “people want a cheaper luxury car.” Mercedes-Benz owners loved the prestige of their cars but consistently described the dealership experience itself, the pressure, the wait, the sense of being talked down to, as miserable. Lexus rebuilt the entire buying experience around that single insight. Sales moved from an elevated desk to a shared coffee table, removing the physical power imbalance of a traditional car sale. Only 80 of roughly 1,500 dealer applicants were approved to sell the car, each required to invest several million dollars and submit to ongoing customer satisfaction audits. The product and the experience of buying it were treated as a single, inseparable offer.

The engineering discipline underneath all of this was, by most independent accounts, extreme. Chief engineer Ichiro Suzuki pursued a drag coefficient of 0.29, well below the S-Class’s 0.36 to 0.37, without relying on a rear spoiler, which he considered an inelegant shortcut. Interior noise was engineered down to roughly 58 decibels versus about 60 for the S-Class, and multiple road tests reported the LS 400 was as quiet at 125 miles per hour as its German rivals were at 95. Prototypes logged well over a million miles of testing, and engineers reportedly disassembled competitor vehicles to study exactly how they failed over years of use, then engineered around each weakness.

When the LS 400 launched in 1989, it was priced at roughly $35,000, commonly cited as about half the price, or as much as $30,000 less, than a comparably equipped Mercedes-Benz S-Class. The price gap was so large that BMW reportedly suggested Toyota was selling the car at a loss. Within two years, Lexus had overtaken Mercedes-Benz as the best-selling luxury import brand in the United States and topped J.D. Power’s quality and service rankings, and Mercedes is reported to have lost roughly a quarter of its U.S. sales in the aftermath.

Here is the part physicians should sit with. The low price was not the strategy. It was the output of the strategy. Toyota did not set out to build a cheaper Mercedes and work backward. It spent six years and enormous resources removing the specific frustrations its own research showed were driving prestige-loving customers away, then engineered a manufacturing process disciplined enough to make that quality repeatable at scale, and only after that work was done did it set a price the market would reward. The aggressive price was possible because the operational excellence and the customer research underneath it were real, not because anyone at Toyota decided to compete by cutting corners.

This is the distinction that gets lost when a DPC or low-cost membership medicine practice drops its membership fee simply to fill a panel out of fear. Toyota’s price was earned through relentless, well-funded engineering and firsthand study of exactly what its target customer resented about the existing options. A practice that lowers its price without first doing that same work, actually going to see for yourself what frustrates the patients you want to serve, and building a practice that removes those specific frustrations, is doing the opposite of what Lexus did. It is cutting the price before it has earned the right to.

The translatable lesson is not “charge less.” It is this: find out, directly and specifically, what your patients are actually frustrated by in the healthcare experience they already have, build a practice that removes that frustration with real discipline, treat the entire patient experience, not just the clinical visit, as part of the product, and let price follow from that work rather than substitute for it. Toyota spent six years in the field before it touched the price tag. Most practices considering a discount have not spent six weeks asking patients what specifically is broken in the care they are currently getting.

What to build instead

None of this means price is fixed or that access should be reserved only for the wealthy. It means the starting question changes.

Instead of asking what is the lowest price that will fill my panel, the more durable question is what does my practice do that a patient cannot get anywhere else in this market, and does my price reflect that honestly. That might be same-day access. It might be visit length. It might be a specific clinical focus, a specific population, or a specific relationship to a local employer. Differentiation does not require the highest price in the market. It requires a clear, honest reason for the price you have chosen, one you can say out loud to a patient without flinching.

Panel growth built on discounting tends to attract patients who are price-shopping and will leave the moment a cheaper option appears next door. Panel growth built on a clear, differentiated value proposition tends to attract patients who stay, refer, and tolerate a price increase because they understand what they are paying for.

This article is intended for educational and informational purposes for physicians and healthcare leaders. It does not constitute financial, legal, accounting, or medical advice, and practice pricing decisions should be made in consultation with qualified financial and legal advisors familiar with your specific market and regulatory environment.

Sources

1. Rao, Akshay R. and Bergen, Mark E. “How to Fight a Price War.” Harvard Business Review, March-April 2000. hbr.org/2000/03/how-to-fight-a-price-war
2. “Price war.” Wikipedia, accessed August 2026. en.wikipedia.org/wiki/Price_war
3. “How a Race to the Bottom Hurts Your Business’s Bottom Line.” Kinsta, July 15, 2024. kinsta.com/blog/race-to-the-bottom
4. Porter, Michael E. Competitive Strategy (1980) and Competitive Advantage (1985), Harvard Business School Press. Summarized via “Porter’s generic strategies,” Wikipedia, and Strategic Management Insight, strategicmanagementinsight.com/tools/porters-three-generic-strategies
5. “State of DPC 2026: Key Takeaways From DPC Alliance’s Physician Survey.” Hint Health, July 18, 2026. blog.hint.com/state-of-dpc-2026-key-takeaways-from-the-dpc-alliances-physician-survey
6. “Hint Health Releases 2026 Direct Primary Care Trends Report.” Hint Health, April 23, 2026, distributed via PR Newswire, Yahoo Finance, and Morningstar.
7. “DPC Membership Pricing Trends.” Hint Health Blog, June 24, 2022. blog.hint.com/dpc-membership-pricing-trends
8. “High cost of health care may be boosting direct primary care membership.” Medical Economics, November 16, 2025. medicaleconomics.com/view/high-cost-of-health-care-may-be-boosting-direct-primary-care-membership
9. Sagebien, Julia; L’Haridon, Olivier; Wiesen, Daniel; et al. “The formation of physician altruism.” Journal of Health Economics, Vol. 87, 2023. sciencedirect.com/science/article/pii/S0167629622001308 (also indexed on PubMed, ID 36603361)
10. “Professional identity formation of clinical medical students during and beyond the pandemic.” PMC, National Library of Medicine. pmc.ncbi.nlm.nih.gov/articles/PMC11150932
11. Cammisa, Jason. “The Absurd Engineering Obsession Behind the 1989 Lexus LS 400.” Hagerty Revelations, YouTube, youtu.be/i15Ii4yetLM
12. “How the Lexus LS400 Crashed the Luxury Party.” Autoblog, October 2, 2025. autoblog.com/features/how-the-lexus-ls400-crashed-the-luxury-party
13. “How Lexus defeated ‘the best car in the world.'” Motoring Research, July 25, 2024. motoringresearch.com/car-news/lexus-ls-400-review
14. “Lexus LS 400: ‘the finest V8 engine in the world.'” Cult Classics, Adrian Flux, August 21, 2023. adrianflux.co.uk/cult-classics/lexus-ls-400-the-finest-v8-engine-in-the-world
15. Dawson, Chester. Lexus: The Relentless Pursuit. John Wiley & Sons, revised edition. Publisher synopsis via AbeBooks, abebooks.com/9780470828045
16. A detailed companion recap of the Hagerty Revelations episode, covering Project F1 staffing, the Laguna Beach research house, the coffee-table dealership model, and Suzuki’s engineering targets, was supplied directly by the editor. Its original publisher and byline could not be independently confirmed at time of writing. Facts drawn from it (drag coefficient, price gap, engineer count, dealership vetting) were cross-checked against sources 11 through 15 above before inclusion, and the editor should confirm original attribution before publication.