The medical technology sector is characterised by innovation. This is true not just of how technologies are developed and manufactured – it extends equally to how products are distributed.
Having observed this sector for several years, I have seen a running battle between manufacturers and distributors for control of inpatient and outpatient distribution channels. The power of some distributors is growing – so how should manufacturers respond?
Certain medtech distributors have been building their bargaining power through mergers, acquisitions, and internationalisation. Some are gradually taking over roles usually played by manufacturers, such as marketing, customer support, product education – even launching their own brands. The resulting increase in their flexibility and negotiation power has caused uncertainty as to who is really in charge of serving the customers and patients.
In response, growing numbers of medtech manufacturers are now thinking of expanding their direct sales activities, which often means a radical change in their business model.However, I have identified many ways to significantly improve the traditional distributor management approach without taking the enormous risks associated with changing how manufacturers operate.
Terms & conditions: Steer order, payment and after-sales service behaviour through well-defined standard terms and conditions. This is often an effective starting point to implement a broader distributor management improvement program. This can be done swiftly and offers the prospect of some ‘quick wins’.
Distributor discount structures: Develop and use consistent national discount schemes in line with the role and performance of each sales partner. It is important to determine whether the distributor is just a ‘box mover’ – providing logistics only – or if it is a real sales partner contributing to sales, marketing, and service. Too often I see manufacturers struggling with overly complex or inconsistent discount systems that lack steering and differentiation between different types of distributors.
International price structures: Consolidate and steer your contract and pricing activities among large international distributor groups. It is important to coordinate the price and discount structure set-up across countries to optimise the business from a global (not just a local) perspective.
Channel management: Select the most suitable distribution partners to intensify and consolidate relationships and improve the coordination between direct and indirect sales. This initiative requires a more long-term and strategic view of where the manufacturer’s business is heading. The goal is to ensure that the manufacturer is pursuing its business strategy with the right partners and with an appropriate number of distributors.
Whatever approach manufacturers wish to take my advice would be to ensure that their actions are driven by a clear business rationale. Communication with distributors and internally are crucial, and a clear follow-up and monitoring plan should ensure implementation.
The bottom line is that improving your distribution structure does not always require a fundamental change to how you operate. Applying some of the concepts above can already help to ‘move the needle’ in the right direction.
If you are interested in learning more, you might like to meet me and my colleagues from Simon-Kucher at our 8th European Medical Technology Strategy Forum on the 3rd of March 2016 in London. We hope to see you there. To find out more, please click here.