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 PROFESSIONALS

(hospitals)

MEDICAL RESEARCH

INSTITUTIONS(commercial labs)

NON HOSPITAL HEALTH CARE

CENTERS

PERCENTAGE OF MARKET

SHARE

7000 hospitals70% blood testing

700 labs 25% of all blood test

5% of blood test

BUYING APPROACH

Bench people-Best quality and not price Materials managers-

price sensitive

Cost conscious as they competed

primarily on price

Easy to use and less expensive

PURCHASE DECISION

MAKER

Historically chief lab technicians asked for certain brands now

professional purchasing agents and

buying centres are making cost effective

purchases

Owner manager Physicians

MARKET TREND

1. Cost containment pressure in health care markets.

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

2. Centralised purchasing behaviour through buying centres.

Affiliated to buying groups which negotiated in centrally on price and delivery terms.

3. Growing numbers of non-hospital sites.

40% of blood testing would be done in commercial labs and physicians offices.

4. Change in payment system- DRG Government changed the reimbursement of all cost to a payment based approach based on national and regional costs for each DRG.

5. Market has seen a decline in hospital blood testing between 1983-85.

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.6. Clear technological trend is to

enable end user to do more of diagnostic testing.

It has implications on distribution network built around lab distributors

More technical selling demands on sales force

COMPETITOR ANALYSIS

BDVS TERUMO SHERWOOD Med CORP.

PRESENT 80%-tubes 18%-Blood collection 2%-tubes

MARKET SHARE 30%-needles tubes50%-blood collection needles

15%-needles

AVERAGE UNIT PRICE

TUBES-Increased from 6 to 8 cents NEEDLES-7.5 cents

Maintaining at 6.5 centsNEEDLES-7.5cents

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STRATEGY Maintain a leading market share and become a lowest cost producer in all segment-higher volume allows them to amortize the capital investment over larger base.

Improvement in product quality(quality aggression )

Accelerated new product development

Increased share in all segments

Price aggressiveness

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CATERING TO DEMANDINGSPECIFICATIONS

Process reagents and chemicals in its own plant and pioneer in new tube sterilization techniques

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DISTRIBUTION

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

LABORATORY PRODUCTS DISTRIBUTORS

MEDICAL SURGICAL PRODUCTS DISTRIBUTORS

TARGET Hospital and commercial labs.

Physicians hospitals and non-hospitals site.

MARGINS Reduced distributors gross margins from 25 to 12% on blood collection products.

Rarely dropped below acceptable levels.

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 private label, pricing and distributor affiliation requirements. – thus

Maintain brand identity/awareness

Maintain good distributor

Loss of significant market share and revenues

Inflexible image to other purchasing

target the growing physician market that includes surgery centres ,emergency centres, diagnostic centres and physician’s offices.

relationship Maintain control Untapped market,

high growth potential

Potential for new product introduction

groups Lower prices \

margins ,compete on price

Currently only 5%of entire market

Different type of sales approach

2. Accelerate new product development and quality standards while maintaining the current distribution model

Market/product innovator

Maintain good distributor relationships

Premium pricing for higher quality

High R & D cost Increased risk

associated with new products

3. Partner (or merge) with APG.

Maintain significant source of market share and revenues

Economies of scale through higher volume

‘flexible’ image potential for inclusion of additional products

Low price /margins

Loss of control Strained

distributor relationship

Same concessions demanded by other purchasing groups

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.