How To ‘Beat The Bundle’ In Medical Supply Sales
BLOG SERIES
[Installment #1 of 3]
HOW TO ‘BEAT THE BUNDLE’ IN MEDICAL SUPPLY SALES
By LOWELL CHURCH
Partner
[April 18,2022] – There is perhaps nothing more vexing than trying to strike that oh-so-fine balance of value and cost in a highly competitive market – whether you’re the seller or the buyer. The combination of supply-and-demand, sleight-of-hand and stacking the deck nine ways to Sunday is all around us in our everyday lives.
Why is the guy in the row behind me talking about his $200 roundtrip airfare when I got dinged for $367? And he’s a row closer to the plane’s exit!
How many times have I seen that TV spot showing separate business travelers – a man and a woman – checking into a hotel at the same time? His room cost 99 bucks and hers ran $129 for the same standard room. Poor guy didn’t do anything out of line except secure the best deal but he’s still getting the “side-eye”.
Cell phone packages, mattresses and insurance rates …? Don’t even get me started!
Demystifying pricing structures in today’s world is virtually impossible. You may as well try to solve a Rubik’s Cube one-handed with blinders on. Many years ago, long before today’s algorithms, “big data” and computer “click-tracking” -- a popular CNN consumer advocate did a segment about a widely used software in the airline and hotel industries that could take the same airline seat or hotel room and create scenarios to price it 64 different ways!
Which brings me to my topic – the medical supply sales business can be equally perplexing because you often find yourself in a price war far more complex than “He’s selling this item for X dollars. I’ll sell you the same item for a dollar less.” This is due to “bundling” and “beating the bundle” is not for the faint of heart.
I want to help.
Over the course of the next three blogs, we’ll focus on strategies to effectively compete in medical supply sales and, in particular, against those companies that use bundling to control the market. First, I’ll present the larger picture in an attempt to give you a broader understanding of the players and the position they take relative to the use of bundling as a sales strategy.
Bundling as a Strategy
As mentioned above, there are countless ways to price products and services. Bundling is often used as a key strategy to control and own the market. Bundling depends on a number of factors such as positioning in the market, target audience, and quality.
A bundled discount occurs when a seller conditions a discount or rebate on the buyer’s purchase of two or more different products from that particular seller. Bundling is a common practice in business overall but this blog series will focus only on the impact of bundling as it relates to medical devices. We’ll address the myriad ways to structure bundled sales agreements.
To gain a comprehensive understanding of bundling, you must view it from a variety of perspectives -- manufacturer, distributor, Group Purchasing Organization [GPO], provider, and payer [insurance, Medicare, Medicaid, private pay].
We’ll cover the reasons why bundling strategies are used, how they are structured and the impact on each of the above-mentioned entities. In general, bundling is used to set and control pricing in the market and to increase overall sales volume. In healthcare, there is an additional element that must be factored into the impact of the bundling model -- the quality of the product and its effectiveness in the healing process.
Bundling, by its basic nature, often causes restraint of trade which could potentially violate antitrust laws. Bundled contracts can also result in the purchase and use of less-than-ideal products which basically shortchanges the provider and the patient as risks can increase and costs can ultimately go much higher. This runs contrary to common sense, the Hippocratic Oath and those of us who entered this industry with a passion for improving patient outcomes.
So, what exactly is bundling …?
As I mentioned, a bundled discount occurs when a seller conditions a discount or rebate on the buyer’s purchase of two or more different products from that seller. Bundled discounts come in many varieties. For example, the seller might offer a 10% discount to a buyer who takes Product A from the seller, provided the buyer purchases Product B, as well. The seller might offer the discount on each purchase of one unit of A, provided that it is accompanied by one unit of B.
Alternatively, the seller might condition the discount or rebate on purchases of both A and B, but without specifying the proportion, leaving the customer to determine its level of need for each of the two products. A seller might do this by stipulating a “market share” percentage rather than a requirement of all purchases.
For example, the seller might provide a 10% discount to buyers who agree to take at least 70% of their needs of both A and B from that particular seller, but without specifying the percentage breakdown for each product. Or it might do the same thing but with three, four or even a dozen products rather than two.
The terms can vary widely, but the most obvious variables are:
Number of goods in the bundle
Proportion of the goods in the bundle, and whether the proportion is specified in any sense or left completely up to the customer
Percentage share of its needs that the customer must purchase from the seller in order to obtain the discount, and …
Level of discounting based on compliance to the bundle agreement
Yes, it can make you feel as if you’re back in Calculus 101 on the first day of school!
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IN INSTALLMENT 2 of our How to ‘Beat the Bundle’ in Medical Supply Sales series, we’ll do a deeper dive into the perspectives of the manufacturer, distributor, Group Purchasing Organization, provider and payer.
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ABOUT LOWELL CHURCH
Lowell is a Partner and consultant with Excelerant Consulting. He is a highly creative and adaptive executive with extensive senior-level experience in Integrated Delivery Networks [IDN] and an informed perspective from the provider side of healthcare [versus the supplier side]. He has a comprehensive understanding of supply chain from raw goods sourcing to manufacturing, distribution, Group Purchasing Organizations [GPO], provider operations, and the end use of products in patient care delivery. Lowell also understands the complexities and intricacies involved when working with GPOs, IDNs, and distribution. Well-known and highly respected in the healthcare industry, Lowell is known for driving cost-savings, growing new programs, and developing creative solutions to complex problems.
lchurch@excelerantconsulting.com
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ABOUT EXCELERANT CONSULTING
Excelerant Consulting is the go-to organization for medtech companies that need to position products and services successfully for value-analysis committees, contract acquisition, and sales modeling/execution to commercialize the launch of medical devices or services with Group Purchasing Organizations [GPO], Integrated Delivery Networks [IDN], or Regional Purchasing Coalitions [RPC]. Our clients rely on us to enhance their product positioning, navigate corporate contracting opportunities, and provide sales support to accelerate sales growth.
For more info, contact Excelerant Consulting at info@excelerantconsulting.com.