Adding Value: Specialty Distribution Expands Options
Medical Device & Diagnostic Industry MagazineMDDI Article IndexOriginally Published May 2000FIRST PERSONAlthough 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.
May 1, 2000
Medical Device & Diagnostic Industry Magazine
MDDI Article Index
Originally Published May 2000
FIRST PERSON
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.
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