KEY DECISION MAKER:

CRITICAL DECISIONHow to respond to APG’s demands concerning pricing ,branding and distribution terms .

William Kozy National sales director for Becton Dickson VACUTAINER systems (BDVS)

Hank Smith Vice President of marketing and sales BDVS

MAJOR ISSUESCUSTOMERS

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 trendCost 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

Centralised purchasing behaviour through buying centres.

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

Growing numbers of non-hospital sites.

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

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.

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.

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 MARKET SHARE

80%-tubes30%-needles

18%-Blood collection tubes50%-blood collection needles

2%-tubes15%-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.

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

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

MAJOR DISTRIBUTORSASP• 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