Rick Chappel, Director of Professional Services, Zilliant01.04.16
Over the past six years, the number of online medical supply retailers has increased by 3.5 percent annually. This growth is poised to increase further as the medical supplies industry is expected to grow 5.9 percent annually through 2019—well above the expected growth of the United States’ GDP of about 2.5 percent. For distributors of medical supplies and consumables, anticipated industry growth is certainly good news, however, manufacturers and buyers are not expected to release their hold on margin pressure anytime soon.
One should consider the following statement from IBIS World, “The median age of the population has risen over the past five years, increasing demand for healthcare and driving revenue growth for the medical supplies wholesaling industry. At the same time, pressure from manufacturers to bypass wholesalers altogether has limited the industry's growth potential.” This strained relationship between manufacturers and distributors makes setting smart profit and sales strategies difficult, and the inherent complexity in most distributors’ businesses makes execution of those strategies by front-line sales reps even more challenging.
Front-line commercial decisions should be guided by facts and data, like those from prescriptive analytics solutions, which can provide sales reps with actionable pricing and sales guidance to determine which customers they should call, what products they should pitch, and what prices they should quote to achieve the most profitable outcome. There are two common myths in this industry, however, that often prevent companies from taking the steps necessary to capitalize on industry growth and achieve higher revenue and profits.
Myth #1: Experienced Salespeople Won’t Use Guidance
It’s a common belief that sales reps with many years of experience are so set in their ways that any guidance provided will be ignored. Distributors have often tried internal initiatives to generate and provide sales and price guidance with very limited success or field adoption. Sales reps continually fall back on gut instinct to price thousands of line items. The subjective decisions that result hurt business as well as sales rep paychecks. The reason those internal attempts at analytics fail is simple—low quality. If guidance is not relevant, effective, and easy to use, sales reps will not adopt it.
Analytical models need to account for key factors like cost volatility, competition, product portfolios, regional differences, buying patterns, and customer price sensitivity. Without this level of sophistication, sales reps are burdened with decision complexity that they are not equipped to handle. But when experienced reps are presented with guidance that incorporates these relevant considerations, when they or their respected peers have had a voice in the design, and they understand what’s going into that guidance, they use it to great effect—putting incremental profit in both the company’s pocket and their own.
Myth #2: Customer Churn Is a Cost of Doing Business
At any given point in time, customer churn rates (i.e., customers that either defect entirely or reduce purchase volume) are between 20 and 30 percent. Too often, companies pass off churn as a cost of doing business, often leading to flat or declining revenue growth and making it difficult for sales reps to consistently make quota.
The fact is that given the medical consumable industry’s projected expansion, customers should be increasing their purchase volume, not contracting it. In an effort to keep and expand wallet-share with existing customers, predictive models can find customer purchase patterns in transaction data and uncover retention and cross-sell opportunities for each and every account. This type of analytics can tell a rep not only which products his or her existing customer may be buying less of, but also which products they’re probably buying from someone else. These actionable opportunities can be delivered to sales reps to help them understand what each and every customer should be buying from them—in a way that’s immediately actionable.
Steps to Growing Smarter
If each medical consumables sales rep does not know the best answer to each of two key commercial questions—What price can I get? What products does this customer need?—the distributor misses out on a wealth of revenue and profit available in its existing book of business.
When a sales rep is negotiating with a customer, prescriptive analytics can show him or her what a customer should be buying and/or paying versus what the customer is buying and/or paying. For example, only with advanced analytics can sales reps recognize that a medical clinic purchaser who is buying syringes and gloves should also consider ancillary lab equipment, and understand the optimal pricing for all. These differences represent opportunities for sales reps to sell more for more, and essentially serve as a blueprint for each customer’s ideal relationship with the distributor.
Ultimately, advanced analytics empower sales reps to make smarter decisions in the medical consumables industry—and many other industries, for that matter. Results include boosting revenue five to ten percent and achieving sustainable profit improvements of five to 15 percent annually. With smart strategies and the ability to execute effectively, medical consumables sales reps can lead the way to strategic growth.
Rick Chappel is a director of professional services at Zilliant, responsible for Zilliant’s Western Region and select customers across the country. For more than 20 years, he has helped customers, both internal and external, use technology to deliver enhanced business results. In his years at Zilliant, Chappel has worked with both manufacturers and distributors in industries ranging from electrical components to coatings to agricultural products and is always happy to share insights with customers on what steps make for the most successful, impactful predictive optimization projects.
One should consider the following statement from IBIS World, “The median age of the population has risen over the past five years, increasing demand for healthcare and driving revenue growth for the medical supplies wholesaling industry. At the same time, pressure from manufacturers to bypass wholesalers altogether has limited the industry's growth potential.” This strained relationship between manufacturers and distributors makes setting smart profit and sales strategies difficult, and the inherent complexity in most distributors’ businesses makes execution of those strategies by front-line sales reps even more challenging.
Front-line commercial decisions should be guided by facts and data, like those from prescriptive analytics solutions, which can provide sales reps with actionable pricing and sales guidance to determine which customers they should call, what products they should pitch, and what prices they should quote to achieve the most profitable outcome. There are two common myths in this industry, however, that often prevent companies from taking the steps necessary to capitalize on industry growth and achieve higher revenue and profits.
Myth #1: Experienced Salespeople Won’t Use Guidance
It’s a common belief that sales reps with many years of experience are so set in their ways that any guidance provided will be ignored. Distributors have often tried internal initiatives to generate and provide sales and price guidance with very limited success or field adoption. Sales reps continually fall back on gut instinct to price thousands of line items. The subjective decisions that result hurt business as well as sales rep paychecks. The reason those internal attempts at analytics fail is simple—low quality. If guidance is not relevant, effective, and easy to use, sales reps will not adopt it.
Analytical models need to account for key factors like cost volatility, competition, product portfolios, regional differences, buying patterns, and customer price sensitivity. Without this level of sophistication, sales reps are burdened with decision complexity that they are not equipped to handle. But when experienced reps are presented with guidance that incorporates these relevant considerations, when they or their respected peers have had a voice in the design, and they understand what’s going into that guidance, they use it to great effect—putting incremental profit in both the company’s pocket and their own.
Myth #2: Customer Churn Is a Cost of Doing Business
At any given point in time, customer churn rates (i.e., customers that either defect entirely or reduce purchase volume) are between 20 and 30 percent. Too often, companies pass off churn as a cost of doing business, often leading to flat or declining revenue growth and making it difficult for sales reps to consistently make quota.
The fact is that given the medical consumable industry’s projected expansion, customers should be increasing their purchase volume, not contracting it. In an effort to keep and expand wallet-share with existing customers, predictive models can find customer purchase patterns in transaction data and uncover retention and cross-sell opportunities for each and every account. This type of analytics can tell a rep not only which products his or her existing customer may be buying less of, but also which products they’re probably buying from someone else. These actionable opportunities can be delivered to sales reps to help them understand what each and every customer should be buying from them—in a way that’s immediately actionable.
Steps to Growing Smarter
If each medical consumables sales rep does not know the best answer to each of two key commercial questions—What price can I get? What products does this customer need?—the distributor misses out on a wealth of revenue and profit available in its existing book of business.
When a sales rep is negotiating with a customer, prescriptive analytics can show him or her what a customer should be buying and/or paying versus what the customer is buying and/or paying. For example, only with advanced analytics can sales reps recognize that a medical clinic purchaser who is buying syringes and gloves should also consider ancillary lab equipment, and understand the optimal pricing for all. These differences represent opportunities for sales reps to sell more for more, and essentially serve as a blueprint for each customer’s ideal relationship with the distributor.
Ultimately, advanced analytics empower sales reps to make smarter decisions in the medical consumables industry—and many other industries, for that matter. Results include boosting revenue five to ten percent and achieving sustainable profit improvements of five to 15 percent annually. With smart strategies and the ability to execute effectively, medical consumables sales reps can lead the way to strategic growth.
Rick Chappel is a director of professional services at Zilliant, responsible for Zilliant’s Western Region and select customers across the country. For more than 20 years, he has helped customers, both internal and external, use technology to deliver enhanced business results. In his years at Zilliant, Chappel has worked with both manufacturers and distributors in industries ranging from electrical components to coatings to agricultural products and is always happy to share insights with customers on what steps make for the most successful, impactful predictive optimization projects.