Copyright ©2000 Medical Device & Diagnostic Industry
Although market dynamics are changing
substantially, the specialty distributor members of IMDA still play a valuable
role for makers of innovative devices, says the group's communications director.
For both fledgling and established medical device
companies, developing and manufacturing an exciting new technology is only part
of the battle. However innovative the finished device, it still has to be sold.
To quote sales and marketing guru J. Howard Shelov, "Production minus sales
equals scrap."1
It's no secret that manufacturers of novel medical
technologies face a marketing challenge unlike that faced by companies that make
commodities. The latter call above all for efficient logistical services, so
that bulk products get to the customer on time, at the expected price, and in
the correct quantity. There's very little real selling involved.
New technologies, however, call for aggressive sales and
marketing—especially today, when many healthcare providers prefer to avoid
considering new technologies because they fear the costs involved. That's why
many manufacturers of innovative products outsource sales and marketing to
specialty distributors.
Although the fundamental mission of specialty distributors
remains what it has always been—to bring to market innovative
technologies—the industry is undergoing some changes. Device manufacturers
should be aware of what these changes are.
First, just as many healthcare manufacturers and providers
have consolidated their businesses through mergers or acquisitions, so too have
some specialty distributors. This has thrown into question a traditional
assumption about the specialty business—namely, that only local companies can
deliver market share. Second, in at least one case, several independent
specialty distributors have formed an alliance to capitalize on efficiencies
while retaining the local nature of each of their companies. And third,
e-commerce companies have discovered the specialty arena, raising the question
of whether high-tech medical devices and equipment can be sold via the Internet
or if they demand face-to-face interaction between buyers and sellers.
WHAT ARE SPECIALTY DISTRIBUTORS?
Specialty distributors merit their name for two reasons:
One, they specialize in new technologies, not commodities. And two, they tend to
focus on just a few medical specialties. For example, one company may call on
orthopedists, while a second company works with anesthesiologists and
respiratory therapists, and a third with cardiologists and general surgeons.
Although exceptions exist, most specialty distributors are
relatively small, with annual sales in the $3 million to $4 million range. The
majority employ a handful of reps and typically carry no more than 10 or 12
manufacturers' lines, often fewer. They are also overwhelmingly local, generally
servicing a handful of contiguous states or, sometimes, a large metropolitan
area.
Being local has long been one of the strong suits of
specialty distributors. Their local status enables the distributors' owners and
salespeople to cultivate long-standing relationships with key clinical decision
makers, and to be at their side whenever needed to provide services, solve
problems, or deliver emergency supplies. These personal relationships are their
strength, because they allow specialty distributors to penetrate their markets
quickly, exposing clinicians to new products within days.
As Duke Johns, president of Medical Specialties Inc. (New
Orleans) and president of IMDA, the Mission, KS—based association of specialty
distributors, puts it, "This is a people game." Sales of high-tech
medical products depend on trust, support, and education, and these are the
independent distributors' strengths, he adds. Another IMDA member, who sold his
specialty distribution company to a national roll-up created from several
formerly independent companies, contends that shareholder pressures often lead
"national companies to concentrate on present sales, not future
opportunities, which have tremendous start-up costs. That means they can't lay
the groundwork required to bring new technologies to market."
Naturally, national specialty distributors disagree.
"We still have to do the missionary work," says Mike Campbell, vice
president of Tucson, AZ—based PrimeSource Surgical, a company born from the
merger of several smaller specialty distributors. "If we drop our guard and
try to be like the general-line distributors, we'll get flattened like a
pancake. Our salespeople are in their scrubs, in-servicing products, on call 24
hours a day. If we get away from that, we won't be successful."
Somewhere in between the national and local approach,
manufacturers can find a third option—an alliance of specialty distributors
that have maintained their independence and local flavor while acting like a
national company in certain respects, such as in coordinating information
systems. One example of this is American Surgical Specialties Co. (ASSC;
Warrenville, IL), a group of eight distributors that sell devices for cardiac,
general surgery, peripheral-vascular, thoracic, minimally invasive, and
neurosurgical procedures. With the exception of a few pockets, ASSC covers the
entire United States. But according to its executives, manufacturers are under
no obligation to engage all eight ASSC member companies. In fact, not one
product line is distributed through all of them.
THE INTERNET CHALLENGE
As if manufacturers weren't busy en-ough evaluating the
range of distribution choices, yet another option has arisen: the dot-coms. On
the face of it, specialty medical products seem well suited for e-commerce.
Since hospitals tend to buy these devices on an irregular basis, they lie
outside the routine replenishment responsibilities of a large, general-line
distributor.
On the other hand, it's doubtful that truly innovative
technologies can be sold on-line. By their very nature, they call for hand
holding, fairly intensive in-servicing, and personal interaction between sales
rep and clinician. Addressing a group of IMDA members at the association's
annual management conference in January, an executive from one Internet-based
distributor affirmed that "the manufacturer won't disintermediate the
people who have eyeball-to-eyeball contact with the customer."
CONCLUSION
Today's manufacturers of innovative technologies are
presented with an array of sales and marketing options. Regardless of which
strategy they ultimately adopt, they would be well advised to keep in mind a few
basic truths:
No matter how impressive a technology is, it will not sell
itself. Manufacturers need to familiarize key clinical decision makers with the
features and benefits of their technology. This is a continual process.
Don't forget the "economic buyers," especially
the materials managers. They're the ones with primary responsibility to watch
the bottom line. Companies cross or ignore them at their own risk!
Regardless of whether salespeople are calling on a
clinician or an administrator, they should emphasize cost effectiveness.
Providers know that "without margin, there is no mission." Device
firms should assist their customers by demonstrating the bottom-line impact of
their technology in an easy-to-understand way.
Specialty distributors—be they national or local—fill a
unique niche in the supply chain. Although they are distributors in the sense
that they take title to products and sell them to hospitals, they actually view
themselves as sales and marketing organizations. In fact, many believe that
distribution is what they do after accomplishing their real job—bringing new
technologies to clinicians.
Manufacturers of commodity products are wise to contract
with large, general-line distributors. However, manufacturers of technologies
that are truly unique would do better to call on specialty distributors.
REFERENCES
1.JH Shelov, Lovers or Clients: Selling Succeeds (San
Diego: Howard Shelov & Assoc., 1988).
Mark Thill is communications director for IMDA
(Mission, KS), the specialty distributors association.
Copyright ©2000 Medical Device & Diagnostic Industry
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