Originally Published MX September/October 2001
The Internet can be an effective channel for locating, qualifying, and selling distributors on a company's products.
Darren McMaster
Outside of start-up costs, product development, and regulatory requirements, one of the biggest obstacles facing medical technology companies is developing a quality distribution network. Most medtech companies that do not have the capital to create an internal sales force, and choose not to license their technology, will turn to independent medical distributors. For years, the process of developing a qualified independent distribution network has been long and laborious.
After deciding to take a product to market rather than licensing the technology, executives of medtech companies must decide on the method by which they will distribute their company's new product. Outside of building a direct sales force, the only remaining option is to find an existing one. Yet pitfalls abound between the decision to put together a distribution network and the actual creation of that network.
For medtech executives, the first major obstacle to creating an effective distribution network is locating distributors within their company's specific market segment. The ability to locate and contact distributors in a timely manner is critical to the success of any medical technology company. The process of building a list of potential distributors will include contacts with distributors both large and small. Locating both national and regional distributors is the first step, but many medtech executives—especially those of new companies—aren't aware of all their options.
With the growth of the Internet, technology is beginning to change the ways that distribution is initiated. This article examines distribution-initiation methods, discusses their pitfalls, and explains how Internet-based distribution services are solving such problems and changing the distribution model for medtech companies.
Current Methodology
For executives of medical technology companies, the current methodology for locating distributors includes attending industry meetings, contacting distribution associations, networking, and going through other firms in their company's market space. Most medtech executives will use one or all of these strategies to establish a distribution network. While each of these methods works to some degree, they still require time and money, and do not provide a complete picture of the distribution landscape.
Industry meetings, conferences, and conventions—or any place that will allow companies to exhibit their new products—are traditional places for medtech firms to begin drawing attention not only from doctors, hospitals, and nurses, but also from distributors. Some medtech companies actually place signs that read "Distributors Wanted" in their booths.
Another means that medtech executives have for seeking out distribution leads is through contacting the various distribution associations. Groups such as the Health Industry Distributors Association (Alexandria, VA) and the Independent Medical Distributors Association (Mission, KS) will help medtech companies locate distributors within their membership and promote the company's products among their association.
Executives of new medtech companies often spend much of their time locating distributors through word of mouth. Such an executive might find a qualified distributor that knows several other distributors within specific territories or specialties. While this method is widely used, it can present challenges for a new medtech company. For executives of new medtech companies especially, individually qualifying each referred distributor is essential to building their company's network.
The last strategy commonly used by medtech executives to locate distributors is by acquiring distribution lists from other companies within the same specialty market. As information becomes easier to acquire, however, existing medtech companies are becoming more conscientious about protecting their distribution lists from competitors. This approach is therefore often glossed over in favor of the three strategies discussed above, although it can be very effective in locating distributors.
Qualifying Distributors
After building a list of potential distributors, the next obstacle that medtech executives must face is qualifying those distributors. This is usually one of the most essential yet time-consuming tasks involved in creating a successful distribution network. Medtech executives must be able to earmark those groups that are most qualified to distribute their company's products.
There are a number of good qualifiers to look for when finding a medical product distributor. Medtech executives should start by looking at the level of experience that a distributor has in their company's specialty and geographic region. Locating distributors with a long and successful track record in these areas should be among a company leader's main goals. The number of years that a distributor has sold in a given specialty or territory will directly affect how successful the distributor is in representing the company's product.
Medtech executives should also pay attention to the number of sales representatives that potential distributors have, and the territories those reps cover. It is important to understand the spatial distribution of the sales reps in relation to the territories covered. Does a given distribution company have one sales rep in New York City, or does it have 10? Does it claim to cover the state of Texas with a single sales rep out of Dallas, or does it have multiple reps in San Antonio, Houston, Austin, and El Paso? It is critical to locate a distributor that has the appropriate number of representatives in a given territory based on the population of that territory.
According to Ron Hicks, chief operating officer of Maternus Partners Ltd. (San Antonio, TX), a manufacturer of labor and delivery products, the number of products a distributor sells is another important qualifier. "When looking for distributors, we narrow the list down to those that focus on our field, then look at how many products they currently carry," he says. "Knowing whether the distributor sells 3 or 10 other product lines gives us an idea of how much time will be spent selling our product line."
Medtech executives must also look at the distribution company's sales systems and office-support staff. A good distributor will have numerous sales management systems in place to track sales, communicate with reps, and continually educate the sales force. In addition to the sales systems, there should be a well-trained office staff to support the sales reps. A distributor equipped with sales management systems and a well-trained support staff will be highly beneficial to the success of the product.
Medtech executives should also be seeking out productive distributors carrying products that are complementary to their company's line. As discussed earlier, this method can be challenging, but beneficial in the long run. Looking for distributors that carry competing product lines is another qualifying tactic, as such distributors might be willing to convert to another company's product. While this can be successfully managed, there is a potential risk in this method of acquiring distributors due to the fact that most distributors have a minimum six-month noncompete clause with their current product line.
If time permits, calling on hospitals in a given geographic location and seeking out distributors that are courteous, friendly, service minded, and have established relationships with those hospitals is another method that medtech executives can use to qualify a good distributor.
Selling the Distributor
After locating and qualifying the distributor, the next major obstacle that medtech executives face is selling the distributor on their company and product. There is a misconception among some executives of new medtech companies that distributors are willing to sell a medical device simply because it exists. While most new medical technologies do manage to find distribution channels, locating quality distribution takes hard work.
In light of today's M&A environment, many distributors want more information about the company itself than about its products. As Dick Klein, president of Klein Surgical (San Antonio, TX), a medical product distributor, explains, "I look for companies that have good funding and are financially stable." Distributors want some sort of assurance that if they make a time investment in a company, they will be rewarded for years to come.
In the medtech business, first impressions are critical. Many medtech companies spend huge quantities of money developing a new technology only to destroy it in their presentation of the product. It is therefore vital for executives of medtech companies to spend the time and money necessary to put together a corporate identity that is consistent with their company's technology. This means spending money on quality marketing materials, a company logo, a Web site, and booth and support materials that are consistent with a professional medtech company. The presentation of the company will be directly related to the presentation of the product. Good distributors look for companies that convey a professional, state-of-the-art image.
"We look for some sort of unique concept or product," says David R. Campbell, president of Vital/Med Systems (Castle Rock, CO). "We tend to stay away from capital equipment and products with long sales cycles."
Medtech executives must be able to sell their company's product and corporate image to distributors prior to ever selling it on the market. If the manufacturer has a hard time selling its product, so, typically, will the distributor. Most quality distributors will take into consideration several aspects of a company's product prior to signing a distribution agreement.
The first aspect that distributors will look at is the product itself and the technology behind it. What is unique about the product? Is the use or function of this new technology superior to what is currently on the market? Is there a need for it? Will it save time or money? Every good product must have a story behind it in order for the distributor to sell it.
Next, distributors will look at the sales cycle associated with the product. How much time will be involved in introducing this technology? How long will it take to sell this product from introduction to delivery? Is there a high learning curve associated with the product? Typically, faster sales cycles and shorter learning curves are more readily welcomed by distributors.
Distributors will also ask such questions as the following. Does this product fit into my current call pattern and is it complementary to my current product lines? Is this a product that can be sold through my current relationships and sales channels? Finding distributors that are currently dealing in their company's specialty market will provide medtech executives with much faster market penetration than going through distributors that have to develop relationships in a new niche.
A distributor will always want to know the commission structure associated with the product. A distributor must conclude that the time associated with selling a product is a good investment. As with any product, opportunity costs.
Distributors are typically wary of products with a large barrier to entry, especially products that require large purchases up front or companies that demand capital investments in order to carry the product line. "It is sometimes like the stock market in that there are no guarantees on your investment," says Klein.
Finally, the last question that a distribution company will consider is whether it can sell the product. Prior to any agreement, the distributor must be convinced that it can successfully sell the new medical technology.
After locating, qualifying, and selling the distributor on their company's product, medtech executives are ready to sell. Pending the contracts, and the training and equipping of the newly adopted sales force, many medtech companies should at this point be ready to generate sales and, most importantly, revenue.
Improving Solutions
The current methodology for locating distributors presents several obstacles to medtech companies, including time, expense, and a lack of the organized information needed to make good decisions. While each of the current techniques will work to some degree, taken collectively they do not provide an efficient method for locating and qualifying distributors. The current process does not provide a complete picture of the distribution landscape because of the fragmented sources of information.
In an industry dominated by technological innovation, a new technology has been the driving force in changing the methods by which distribution is created. The current system is being replaced with a new and faster system powered by the Internet.
The Internet provides medtech companies with a medium that knows no boundaries with regard to city, state, or country. While many in industry view the Internet as an investment gone bad, there are others who see it as the healthcare business tool of the future. When used appropriately, the Internet offers medtech companies the ability to build distribution networks with speed and ease.
"It's like panning for gold," says David Bowman, president of Applied Magnetic Resonance (Calabasas, CA). "You can find the nuggets the old-fashioned way, or you can use the Internet to find them faster. The Internet has reduced the time commitment tremendously. It has helped us to focus our search for distributors."
The Internet will benefit new and existing medtech companies by providing them with access to a database of seemingly unlimited knowledge. It will provide them with the ability to locate distributors based on predefined criteria. No longer will manufacturers spend months putting together a distribution network; they will have access to the entire network through their computers.
Executives of new medtech companies especially will no longer have to spend valuable resources seeking qualified distributors as they do now. Instead, they will use the Internet to create a set of distribution parameters that will automatically locate and contact the distributors matching those parameters. The distributor will then decide if it is interested in a given company and respond directly to that company.
The new on-line systems will offer medtech executives the ability to locate, contact, and contract new distributors with speed and accuracy, thus reducing their dependence on the old methods of attending trade shows, networking, contacting associations, and acquiring outdated distributor lists.
Through new on-line services, executives of medtech companies are finding that the time-consuming and cost-prohibitive task of locating and qualifying medical distributors is no longer a problem. Now manufacturers have the ability to build domestic and international distribution networks in days instead of months. Access to information has given medtech executives the ability to strategically plan for new product launches and bring new products to market faster than has ever been possible.
"The Internet has improved our speed to market and ability to reach the consumer," says Hicks of Maternus. "As a company focused on new technologies, we appreciate that the Internet has allowed us to locate the more-innovative and leading-edge rep groups that have an established comfort level with technology."
Manufacturers are finding that putting together distribution contacts through on-line databases and services is speeding up their time to market. New companies are discovering that the ability to locate and communicate with potential distributors both domestically and internationally has greatly improved and will continue to improve for years to come.
Conclusion
Distribution continues to be a conundrum for most new medical technology companies. Current techniques for creating qualified distribution networks are slow and costly, yet in the long run, vital to the success of any medtech company—new or established. Every company enters the market seeking the most qualified distributors available. While some find them, others do not. Despite the flaws in the existing system, strides are being made toward improving the methods for creating distribution networks. As in the world of medical devices, it is new technology that will allow medtech manufacturers to make these strides. And it is specifically Internet-based technology that will provide the medtech industry with a more efficient method for building qualified distribution networks.
Darren McMaster is president of Imagine Medical (San Antonio, TX), host of Rep911.com, an on-line service that links medical product manufacturers with medical distributors.
Copyright ©2001 MX
