You’re working for a new company that expects to gain international market approvals for a new product in the near future. You’ve decided that the most appropriate way to access these markets is through a network of medical device distributors in each prioritised country. John McMaster, head of Kilmorna Consulting, offers an overview of the selection process and tips for getting the right deal
Do your due diligence. Try to learn about the medical device distributors available in a territory and identify their strengths. Some may specialise in certain market segments, others may concentrate on capital equipment, some may be large, others small – there are a variety of factors to consider. You may want to go with the biggest distributor because it may, in theory, have more resources. But it may also be representing up to 30 other companies, so how do you get ‘airtime’ for your product from its sales teams? Or you might choose to work with a smaller distributor that’s really hungry and enthusiastic. But it may not have the resources to do justice to your product.
If you’ve worked with a company before and it’s the only one you know in that country, then you may choose it because of familiarity. That could be the right decision – but it may not be.
Revenue generation is great, but cash flow shouldn’t be underestimated. Ideally you will arrange to be paid before shipment. However, most medical device distributors will expect credit terms because, in some countries, their customers may not pay them for anything up to two years. Payment terms are an area for negotiation but, remember, until the money is in your bank account, you are just a charity. Try to check how good a payer your potential distributor is.
You can do a lot of market research, both quantitative and qualitative on medical device distributors. It’s about taking it beyond identifying a list of potential partners in each country by the segments they work in. You can judge on that alone, or find out if there are personnel within or outside or your company who know the distributors in certain regions. Then you can build up more information and make a better judgement on who would be the best partner.
Choosing the wrong distributor could set your company back significantly in terms of time, sales and profit – so it’s important to get it right. There are many other aspects to consider but always keep at the front of your mind what you want to achieve and how best you can do this.
This requires both knowledge and senior management time. If you have internal personnel experienced in all aspects of business, including working in international markets, then you are in a good position to do this. If not, then you should look at how you can fill these gaps.
One option is to cover your network from your head office, meeting with your medical device distributors two or three times a year at congresses. This is a cost-efficient option but not necessarily the most effective in gaining sales and profit. Another option is to hire experienced people based in the region who already know and have worked with most of the distributors, and understand how the market there works. Such personnel would be a valuable asset if they have the appropriate level of expertise but being more senior, they will cost more.
Alternatively, it may seem like an initially cost-effective idea to employ someone at sales-rep level from another company or distributor. However, this could be fraught with risk. They may not have the senior management experience that’s required to select, manage and work with distributors. So it depends how well funded you are and what you want to achieve.
The cheapest option, for personnel or distributor, may not be the best choice. Yes, you’re looking at the bottom line and have a financial budget. But you should be also be concentrating on the bottom line in two to five years’ time, not just today.
Think of your distributor as a partner not just as a customer. Ask yourself, ‘What can I do to help my distributor sell more?’ rather than ‘How can I sell more to my distributor?’
If you’ve been communicating well, giving appropriate support and treating your distributor as a partner, yet sales have not been up to expectations, what next?
You’ll need to identify the reasons for not making the sales you have budgeted for. Your medical device distributor will also be aware that you’re not happy with this lack of progress. You might want to ask: Why isn’t it working? Is it something you’re doing (or not doing), or is it distributor-linked? Have the market dynamics changed? If so, has your product been left behind? Does it really have the potential you expected? Have new, differentiated competitors been launched? There are also differences across countries – some products are successful in one country but not another. For example, reimbursement (or lack of) often has a significant influence on achieving your anticipated revenue and profit objectives.
If you conclude that a new distributor could improve the situation – how do you make that change and how quickly? Often there will be a contract in place. You will need to consider how you can get out of it and how easily can this be achieved.
A long-term relationship with your medical device distributor offers lots of intangible benefits, but it shouldn’t be one that just drifts along. In summary, this crucial relationship should have regular objectives, which should be pushed aggressively to maximise revenue and profit.
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