Swap out strategies against direct-selling analyzer companies
Yes, the distribution world was rocked last year when a large company pulled out of distribution sales. But, we've got a plan for how you — the professional distributor representative — can win over practices.
Show your customers how to save big money with excellent options. Develop your own bundling strategy for diagnostic analyzers (a suite of analyzers for chemistry, hematology, electrolytes, etc.) and reference labs.
How it works:
You see, practices often don't realize that most direct-selling analyzer bundles can be loaded with hidden costs. Often, practices are locked into agreements where the equipment and consumable costs can easily increase every few months, and they don't even realize it. Suddenly practices find themselves stuck with high monthly/quarterly fees!
Let's see how this can happen with a bundle situation and how you can save the day:
How practices can get stuck
- A practice signs a 5- or 6-year lease because the payments seem very affordable. However, in most cases with a direct selling company, the warranty expires in one year, not after the full lease term. When the warranty expires, the practice has the option to continue with an Extended Maintenance Agreement (EMA) of approximately $3,000 or more EACH REMAINING YEAR of the lease. On a 5-year lease, that $3,000 annual maintenance agreement is for 4 years — a total of $12,000. Ouch. Many practice owners aren't aware of the “quarterly EMA bill” on their invoices. Bookkeepers and Practice Managers have grown accustomed to that bill showing up every three months like clockwork, and they just pay it. Read on for tips to use this to your advantage.
"Rebates" aren't all they're cracked up to be. Another way direct selling companies make the lease attractive to a veterinarian is to say, "Your equipment is actually free with our rebate program, as long as you run XXX number of tests each month!" BUT, what they don't say is, those rebates are only on certain in-house tests (usually panels only)… and quite often, direct-selling companies apply usage numbers from the clinic's busiest months of the year (i.e., summer). It's very unlikely that practices can sustain that usage all year, and they'll OWE money instead of getting rebates. We have a solution to battle this.
Maintenance contracts are required in most cases. If a practice is able to write a check for the equipment instead of leasing it, there's still a quarterly payment for SERVICE/MAINTENANCE. Again, this requirement can be $3,000 a year or so, with rates going up at the direct seller's whim. And speaking of price increases…
They're NOT passing on their savings to customers. By going direct, the direct-selling companies instantly increase their profits by 15% because they eliminated the distribution sales commission. But practices didn't see a discount. Instead, some direct-selling companies increased their prices to cover the new direct-sales costs. Those companies can raise their prices whenever they like and unfortunately, their practices are locked in.
How You Can Save the Day
Discuss operational costs, EMAs and costs per test with practices, and you'll get their attention.
As we mentioned, direct-selling companies often require expensive EMAs that may add up to $12,000 or more for a full lab suite, within the first five years of an agreement. The good news is — most of the equipment you're selling through your catalog will come with a five-year warranty at no extra cost.
Now, you can expect some resistance when you throw out the $3,000-a-year maintenance number. Doctors may challenge it and say you're exaggerating. Here's what you do. Ask the doctor, "Would you agree to have a meeting so I can show you some new — and much more affordable — diagnostic technologies and options?" In most cases, the practice will say yes. Then, during your meeting, you'll call in the office manager, pull out the statement and review the fees for each analyzer or bundle. Point out: "This is your annual fee that you are billed for quarterly." You'll spark an interest and open the door to a discussion.
Point out that practice owners often fall into the trap of paying for their EMAs with rebate points. If they have to spend those points, they should use them to pay for consumables that generate a client charge, which in some cases, can be up to 4 times the value of those points. For example, if $2,500 in points can buy $10,000 worth of revenue from a client, why would you spend that $2,500 of rebate points on EMAs?
Let's look at the rising test costs associated with direct-selling companies. There's no bargain from buying direct! In the following example and 5-step approach, you can show your customers why this is true.
Pull up your sales orders from last July (2014) and look at the cost of a common diagnostic test performed on analyzers. Let's use a popular, prepackaged diagnostic chemistry panel for this example.
Now look at what the direct-selling companies are charging for those same panels today. We've seen some prices increase by 9%.
Next, add that 9% to the 15% profit we mentioned before — the profit direct-selling companies pocketed by eliminating distributor commissions. That's a 24% profit NOT being passed on to the practice owner. Wow. That should be a major eye-opener.
Show this math to your customers, starting with the amount they paid for those chemistry panels from you in July, 2014, and comparing it to the direct-selling company's price on their most recent invoice. Your customers will see the staggering impact over a month, quarter and year.
Once you've made your case, offer alternatives to your customers with these beneficial points:
- The competition's analyzers are priced a lot lower than their current equipment, and offer spectacular accuracy, ease-of-use and other comparable benefits.
- The competition offers a full 5-year warranty on equipment; NOT a 1-year warranty that turns into an expensive EMA. This can save thousands of dollars each year!
- When you bundle your new analyzers with an outside reference lab, you'll see a much lower cost. Plus, rebates on lab tests can offset the monthly lease cost.
Where can you try this bundle approach?
Most practices are excellent candidates for this approach, unless they just signed a new 5-year agreement with a direct-selling company. To strengthen your program, reach out to a reference lab NOT tied to a direct-selling company, and see if they'd be willing to participate in a rebate program in exchange for a long-term service agreement.
In our next post, we'll provide strategies to win over practices that have digital imaging equipment from a direct-selling company. In the meantime, check out our basics on veterinary chemistry analyzers.
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