KEY DECISION MAKER:

William Kozy National sales director for Becton

Dickson VACUTAINER systems
(BDVS)
Hank Smith Vice President of marketing and sales
BDVS

CRITICAL DECISION

How to respond to APG’s demands concerning pricing ,branding and

distribution terms .

MAJOR ISSUES

Pricing and terms for BDVS major products

Use of distributors
APG’s request for BDVS to manufacture private label products

CUSTOMERS

 Health care professionals

 Medical research institutions
 Medical industry
 General public

HEALTHCARE MEDICAL NON HOSPITAL

PROFESSIONALS RESEARCH HEALTH CARE
(hospitals) INSTITUTIONS CENTERS
(commercial labs)
PERCENTAGE 7000 hospitals 700 labs 25% of all 5% of blood test
OF MARKET 70% blood testing blood test
SHARE
Bench people-Best Cost conscious as Easy to use and less
BUYING quality and not price they competed expensive
APPROACH Materials managers- primarily on price
price sensitive
 Historically chief lab
technicians asked for
PURCHASE certain brands now
DECISION professional
MAKER purchasing agents and
buying centres are
making cost effective
purchases
MARKET TREND
1. Cost containment pressure in
health care markets.
2. Centralised purchasing behaviour
through buying centres.
3. Growing numbers of non-hospital
sites.
4. Change in payment system- DRG
5. Market has seen a decline in
hospital blood testing between
1983-85.
6. Clear technological trend is to
enable end user to do more of
diagnostic testing.
COMPETITOR ANALYSIS
BDVS
PRESENT 80%-tubes
Owner manager Physicians
 Reduction in employment- 100000
jobs have been lost in the range of
health care field.
 Cost-containment pressure resulted in
1% compounded annual decline in
hospital blood testing between 1983-
85.
 Growing competition increased need
to reduce cost
Affiliated to buying groups which negotiated
in centrally on price and delivery terms.
40% of blood testing would be done in
commercial labs and physicians offices.
Government changed the reimbursement of
all cost to a payment based approach based
on national and regional costs for each DRG.
 Patients hospital stay fell 5% to 6.7
days.
 Admissions of people over the age of
65 declined.
 Number of hospital beds would fall to
650000 in 1990.
 In- home treatment expected to grow.
 It has implications on distribution
network built around lab distributors
 More technical selling demands on
sales force
TERUMO SHERWOOD
Med CORP.
18%-Blood collection 2%-tubes
 MARKET SHARE 30%-needles tubes 15%-needles
50%-blood collection
needles
AVERAGE UNIT TUBES-Increased from 6 to Maintaining at 6.5 ------------
PRICE 8 cents cents
NEEDLES-7.5 cents NEEDLES-7.5cents
STRATEGY  Maintain a leading  Increased share ---------
market share and in all segments
become a lowest cost  Price
producer in all aggressiveness
segment-higher
volume allows them
to amortize the
capital investment
over larger base.
 Improvement in
product
quality(quality
aggression )
 Accelerated new
product development
CATERING TO Process reagents and --------- -----------
DEMANDING chemicals in its own plant
SPECIFICATIONS and pioneer in new tube
sterilization techniques

DISTRIBUTION

BDVS sold its products through 474 independent distributors who fell in 2 categories.

LABORATORY MEDICAL SURGICAL

PRODUCTS PRODUCTS
DISTRIBUTORS DISTRIBUTORS
TARGET Hospital and commercial Physicians hospitals and non-
labs. hospitals site.
MARGINS Reduced distributors gross Rarely dropped below
margins from 25 to 12% on acceptable levels.
blood collection products.
MAJOR SALES Blood collection items Other BD divisions

 Nationally there were 1000 distributors of hospitals/medical supplies but the 10

largest accounted for nearly 80%.

 BDVS had 6 largest distributors accounting for 65% of division sales,50 largest for
85% and 67 dealers out of 474 for 95% sales
MAJOR DISTRIBUTORS

ASP

 40% market share among distributors.

 Total sales of $3.45 billion.

 21 warehouse locations.

 Important part of logistical system in major hospitals.

 Less costly order entry and delivery.

 Higher commission to sales people for selling their own product -45% share and 70%
profit-hoped to manufacture 65%.

 Terumo (70%) and Sherwood products were also distributed by ASP.

 BD was one of the ASP’s top supplier and the accounted for 25% of product sold by
ASP.

 Kimball opened the door for Terumo at ASP-Terumo developed relationship on

focussing on individual ASP rep in individual branches.

CMS

 Has 20 warehouse locations

 Sold primarily to hospital labs

Fisher-scientific

 20 warehouse locations

 Sold primarily to medical schools research centres and industrial labs

ALTERNATIVES PROS CONS

1. Reject APG’s  Maintain brand  Loss of significant

private label, pricing identity/awareness market share and
and distributor  Maintain good revenues
affiliation distributor  Inflexible image to
 requirements. – thus relationship other purchasing
target the growing  Maintain control groups
physician market  Untapped market,  Lower prices
that includes surgery high growth \margins ,compete
centres ,emergency potential on price
centres, diagnostic  Potential for new  Currently only
centres and product 5%of entire
physician’s offices. introduction market
 Different type of
sales approach

2. Accelerate new  Market/product  High R & D cost

product innovator  Increased risk
development and  Maintain good associated with
quality standards distributor new products
while maintaining relationships
the current  Premium pricing
distribution model for higher quality

3. Partner (or merge)  Maintain  Low price

with APG. significant source /margins
of market share  Loss of control
and revenues  Strained
 Economies of distributor
scale through relationship
higher volume  Same concessions
 ‘flexible’ image demanded by
potential for other purchasing
inclusion of groups
additional products  They will loose
on large national
distributors as
they will stop
supporting
manufacturers
that agree to this
program

CONCLUSION

They should try to negotiate for a partnership – so that they can retain their own logo along
with APG’s on the product.
If they don’t get the contract on their terms they should target growing physician market that
includes surgery centres ,emergency centres, diagnostic centres and physician’s offices.