Originally Published MX September/October 2001
Growing numbers of medtech companies are finding outside sales firms to be a cost-effective and flexible alternative to in-house sales forces.
Geoff Geiger
A message that has been widely touted throughout the business world in recent years is that companies should focus on their core competencies and outsource as many other functions as possible. This "lean-and-mean" business model has been promoted as one that can rapidly respond to market conditions in times of great change, and also help firms avoid the difficulties associated with layoffs, firings, and other problems that can occur during downturns.
As more companies have adopted this approach—or at least incorporated aspects of it in how they conduct business—a growing array of outsource firms have appeared on the scene, in disciplines that cover the full gamut of business services. Among them are contract sales organizations (CSOs), which handle everything from all of a company's sales needs to individual, specialized components of a firm's sales programs.
In the medical technology arena, the growth of contract sales firms started in the pharmaceutical industry with the use of part-timers. During the past 10 years, CSOs have developed into a full-fledged industry with companies that employ thousands of full-time sales professionals. Three of the larger CSOs—PDI (Upper Saddle River, NJ), Innovex (Parsippany, NJ), and Ventiv Health Sales (Somerset, NJ)—currently have U.S. sales forces of 4000, 3000, and 2600, respectively.
"Analysts predict that the CSO industry will grow between 30–50% per year for the next few years," says Terrence O. Tormey, president of contract sales firm Nelson Professional Sales (Lawrenceville, NJ). "Use of CSOs in the medical technology field has expanded considerably from its early beginnings as a supplement to pharmaceutical sales with part-timers, and a growing number of medical device companies are finding CSOs to be a smart choice."
To Hire or Not To Hire
The reasons for the growth of CSOs and their entrance into new markets such as medical devices are numerous, and vary depending on the needs of the particular company. Lloyd Fishman, vice president and general manager for medical devices and diagnostics at PDI, a CSO with a division that specializes in meeting the sales needs of medical device manufacturers, lists six main reasons that medtech companies hire CSOs.
"First, we help both large and small companies launch new products so as not to distract their current sales organizations from meeting their sales objectives for that particular year," says Fishman. "Second, we provide focus for particular brands through a full-time, customized approach. Third, smaller companies, especially those without the resources to support an infrastructure, use contract sales teams until they reach critical mass. Fourth, larger companies that often are very good in acute-care markets use contract sales for harder-to-reach, nonacute markets, sometimes through a shared-sales approach. Fifth, the use of a postsale support team provides nurses and medical technicians with training to increase the speed of conversion to using the new product effectively. Finally, in these times of managing headcount and operational expenses, CSOs are an effective way to mitigate a manufacturer's risk."
Tormey attributes the increased use of CSOs by medtech companies to the fact that they provide an attractive option to copromotion and outlicensing. "Copromotion is when a company rides along with another company on a sales call," he says. "The problem is that one product usually gets promoted more than the other, and it tends to be the product of the company that hired the salesperson. Very few of these deals end in both parties being satisfied with the results."
Many smaller companies with an exciting or innovative product choose to outlicense the product to a larger firm, in part because they don't have the sales infrastructure to support marketing the new device effectively. "Hiring a CSO allows such a company to maintain control of the product, along with maintaining the greater potential for profits such control provides," says Tormey.
Medtech companies hire CSOs for other reasons, such as the need to cover vacant sales territory, the ability to provide sales support in niche areas that may not be in the company's main line of products, and to provide extra sales support during a product's peak sales period.
"Sales are likely to peak when the new product is still the only one of its kind in the marketplace," says Tormey. "This is a short window that is getting shorter all the time, because of competitors' abilities to bring competing products to the marketplace more and more quickly as manufacturing techniques improve. To get the most mileage out of the peak period, and to attract users and build brand loyalty during the early stages after a product launch, CSOs can add extra oomph to the sales effort during this critical period."
Steve Cottrell, vice president for business development and marketing with Ventiv Health Sales, a CSO that includes a specialization in the medical technology market, says that medtech companies have used CSOs mainly to sell laboratory equipment and supplies, along with certain specialty tests used by the office-based physician. "More and more medtech companies are looking to outsource their sales teams to do the dedicated selling efforts at costs that may be more than manufacturers' representatives, but less than implementing the team themselves. CSOs also offer the advantage of providing a focused selling effort, and not being just one more product in the mass of different products the manufacturers reps have in their bag," says Cottrell.
Finding the Right Fit
Conventional wisdom would dictate that companies should use CSOs for their commodities while keeping the higher-technology products for their own sales forces. "We are finding this is not the case at all," says Fishman. "The need for CSOs transcends all types of products in different markets," he continues, emphasizing that the key to success is developing the correct sales profile for the particular product, and finding the right people to meet the client's expectations.
"At PDI, we have a division dedicated strictly to the medical technology industry, with sales representatives, managers, and business leaders who have prior industry background," Fishman reports. "We can therefore provide people with experience in, for example, single-use products, capital equipment, or in vitro diagnostics."
Cottrell's viewpoint is that the capabilities of the field team are of primary importance in finding a fit with the particular product. "The services do not change. It is the competencies associated with the different selling efforts that change," he says. "For example, it takes a much different sales capability to sell a diagnostic test for a rare fetal disease as opposed to a disposable item used to examine a patient. We need to match the right sales person to the job to ensure success."
It is when this fit is not a match that one can run into difficulties with CSOs. "If the client is looking for someone with strong closing skills and instead receives a person who is more into de- tailing the product, expectations will often not be met and the result will not be positive," says Fishman. "Another potential disappointment is when the client sees the arrangement purely as a cost-saving exercise. We try to work with the client to help them see the cost-benefit ratio."
Wide-Ranging Options
Among the more persuasive reasons that medtech companies are turning to CSOs for sales services is their built-in flexibility when compared with in-house staffs. "At the end of the contract period, clients can renew, expand, or cancel the arrangement if they wish," says Fishman. "They can also take the sales team into their own headcount. In this way, they get the benefits of a focused approach without the risks if it doesn't work out."
It is not uncommon for a company to bring its CSO in-house through what is called a rollover. "Rollovers can be built into the contract," says Tom Fuldner, senior director of communications at Innovex. "This way, the client can bring on a tested, fully trained sales force if and when it becomes cost-effective to bring the sales team in-house."
Tormey emphasizes how CSOs assist manufacturers in managing margins. "We can assist companies in shifting fixed costs to variable costs," he says. "The entire process of recruiting, training, and deploying a sales force becomes a variable expense that can be turned on and off as needs change."
One of the great challenges for companies today is managing change. In times when marketplace conditions and product life cycles shift ever more rapidly, different levels of sales attention are required on different products, on short notice. Working with an outsourced firm increases the client's ability to respond to these rapid changes. This may be most pronounced in the human-resource areas of hiring and firing. The medtech company turns over these functions to the CSO, avoiding in the process such painful procedures as mass layoffs or firings, and the litigation and bad feeling that can ensue.
The E-Sales Factor
During the height of the dot-com boom, some prognosticators were of the viewpoint that selling over the Internet would replace CSOs—or at least significantly decrease the need for them in the marketplace. Thus far, this has not proved to be the case.
Estimates are that, as of March 2001, only 10–15% of hospitals and 3–4% of physicians were using the Internet as a major method of buying medical supplies and devices.1 In contrast, some 75% of Web users have searched the Internet for medical information.
"The whole area of e-sales is still being defined," says Fishman. "Hospital products, whether they are being purchased via face-to-face selling or through group purchasing organizations, are still heavily dependent on human interaction."
Tormey strongly believes that e-sales can enhance sales and increase customer loyalty. "We see e-sales as just one more way to get a client's product message to the customer, whether that customer is the physician, nurse, or purchasing agent at a healthcare facility," he says.
"Of the many e-business models today, my guess is that only a few will be successful. In the first wave of Web sites, for example, we saw the 'if you build it, they will come' e-business model," Tormey continues. "The problem was that they often didn't come. People don't remember URLs, and they often don't bookmark them either."
A second approach has been to give a physician or other medtech buyer a computer dedicated to e-detailing. "This approach seemed promising at first, but it has reached a plateau in the marketplace," he comments, adding that it required physicians to log on at specified times and to work their schedules around the demands of the computer in sometimes inconvenient ways.
"Our e-sales model, called e-Persuasion, is based on a CD-ROM that contains a URL to take the potential buyer to the Web site," says Tormey. "In this approach, potential buyers also have some incentives for using the e-Persuasion CDs, including the chance to win prizes that have been approved by the American Medical Association."
One of the more valuable areas for e-sales may well be in its role of educating recent purchasers of medical devices. "Solid information on Web sites can have a significant role in increasing the use of the product after the sale," says Cottrell. "In addition, the Internet can shorten selling cycles, lower the cost of transactions, and improve communication with customers. Clearly, e-selling is here to stay in the medtech arena—as in virtually all aspects of business today. The question remains as to how large a role it will play in replacing functions still handled through human services such as CSOs."
A Growing Market, an Evolving Discipline
Like e-sales, CSOs are in the process of defining themselves and learning what they do best and how to best meet the needs of their customers. Yet they have already shown significant value as tools for companies ranging from small start-ups that lack a sales infrastructure all the way to mature multinationals that need special sales emphasis on a particular geographic terrain or product niche.
"CSOs can recruit a sales force quickly, train it quickly, and deploy it in the field quickly," says Fuldner of Innovex. "Plus, the better ones can match the expertise of the salesperson closely to the medtech company's needs.
Sales teams can vary greatly in size, with the larger teams usually being assigned to pharmaceutical sales. "We've fielded sales teams as small as 15 and as large as 500," says Fuldner. "And our motivation to make every team a strong one is very high," he adds, quoting the Hollywood adage that you are only as good as your last movie. "In contract sales, you are only as good as your last sales team."
REFERENCE 1. DEL Johnson, "Medical Device and Supply Companies Evaluate Their Emerging E-Commerce Strategies," Health Industry Today 64, no. 3 (2001): 2–4.
Geoff Geiger is principal of Geiger Communications (Alameda, CA), a public relations firm serving a variety of industries, including healthcare, medical services, telecommunications, computer software, and engineering. Copyright ©2001 MX
