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European Medical Device Companies Embrace New Sales Strategies

Posted in Medical Device Business by Camilla Andersson on January 14, 2013

Customer segmentation, larger portfolios for sales reps and contract sales organisations are becoming more common as medical device companies aim to reduce costs.

ZS Associates recently conducted a roundtable with its senior medical products consulting staff in Europe. Participants included Tobi Laczkowski, Brian Chapman, Roz Lawson, and Matt Scheitlin. This article summarises the key trends and insights that were discussed.

Return of the generalist
Over the past few years, we’ve seen the pendulum for European field sales roles swing toward specialisation and then back toward generalisation. During the specialisation phase, companies added sales, service and referral roles in multiple dimensions, such as customer type, product line and activity set. These additions narrowed each role’s focus, but reduced efficiency by stretching territory sizes, doubling account coverage and increasing coordination requirements.

Today, medical products companies try to reduce the cost of sales and focus on customers by consolidating roles. This reduced number of product specialists now concentrates on truly new products or procedures.

If you ask customers, particularly clinical customers, you’ll hear they want expertise in the product, procedure or therapy area and a single point of contact at the company. The need for deep clinical knowledge is not as high, and can often be supplemented via clinical specialists. In response, reps carry larger portfolios than historical benchmarks.

In this model, reps do not work alone, but instead manage available networks to add resources as needed. Typically, an upgrade in the reps’ skills and core competencies is necessary to help them maintain the right balance of commercial and clinical expertise and focus on the business acumen required to successfully coordinate with the broader support structure. Sometimes this also comes with rebranding the role with names such as “Account Manager” or “Key Account Manager.”

Making added value visible
Role redefinition empowers sales team members to add more value. The way this happens is through risk-sharing, such as converting one-time transactions into services and/or outcome-based payments. Risk-sharing may take the form of rentals instead of purchases. This model has existed in diagnostics for many years and is currently spreading elsewhere. We now see customers who pay for the outcomes of treatments, instead of paying for specific treatments. This approach is attractive because it matches provider costs with treatment outcomes.

To consider these models, many companies must adopt a new mindset that may not come naturally for historically procedure-based markets.

The industry can adapt what is often considered the “service burden” to become an appropriate differentiator. To make that happen, activities must be mapped out and assigned to the correct resources. Collectively, these activities include the training, postsales support, ongoing monitoring, optimisation and other elements that become part of the brand’s value offerings.

The bag gets bigger, and with more ways to carry it
Companies are adopting different ways to shift lower-value work away from highly skilled salespeople. These include new support functions for reps, such as customer service help lines, on-demand deliveries, quoting and tendering functions and floating junior reps.

 Figure 1: This shows how trends in the medical device sales industry have changed over the last few years.

We have also seen the rise of contract sales organisations (CSOs), which are typically installed to cover customer groups or activities not otherwise adequately covered in a flexible and more efficient way. CSOs can be ramped up or down much faster than an internal sales force, especially in many countries with labour restrictions. Even if the activities cost the same amount, the ability to dial up or down is advantageous.

Implementing a more efficient commercial model of this type may mean using new channels such as telesales and the Internet. Sometimes the biggest challenge is changing customers’ mindsets so that they don’t expect to buy a product from a smiling face at the door.

Recent examples include defining customer segments to receive fewer (or no) personal sales calls, defining technical engineering support levels that vary based on customer segment or options purchased and eliminating product consignment and other “hidden costs” among specific customer segments.

Secrets to success
To implement these ideas, customer segmentation is key. There are two aspects of customer segmentation: First, who are our customers, and how do they make their decisions; and second, how valuable are they? It’s important to choose a segment where we have a strong value proposition and determine how to best serve that segment.

Customer segmentation is undergoing a shift as companies decide which customers will maintain transactional relationships based on price and which will become future partners. This represents a shift toward behavioural- and motivational-based segmentation. Our clients ask: “What kind of relationship does the customer desire, and how can we meet these expectations with appropriate investment levels?” For some customers, this means providing customised services in addition to products. For others, it may mean creative cost-saving initiatives.

A minimal interaction model with a combination of telephone and electronic data interchange solutions best serves lower-value or transactional customers. There are many examples of this in the market today, especially in geographically hard-to-serve areas. Successful examples of low cost-to-serve models often evolve out of necessity in places where it is physically required.

Companies must also understand where customers could settle for “good enough,” then design a service model around this expectation. Sometimes this approach requires departing from long-standing paradigms and challenging implicit assumptions. The outcome, however, often results in a redefinition of critical customer requirements and allows for a fresh approach toward sales and service.

Tobi Laczkowski is
Associate Principal
ZS Associates International Inc.
Dufourstrasse 43, 3rd Floor
CH-8008 Zürich
tel: +41 44 254 6413

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