Medical Device Link.

Originally Published MX March/April 2004

TOPSPIN

A sleeker sales force can do it if customers are targeted rationally.

Carlo Medici, Tobi Laczkowski, and Kelly Tousi

Conventional wisdom prescribes spending money to make money. Bracco Diagnostics Inc. (Princeton, NJ), a diagnostic pharmaceuticals manufacturer, tells a different story—that top-line growth can occur even when costs are reduced, by focusing resources on delighting the right customers.

Bracco supplies x-ray and magnetic resonance imaging contrast agents to medical imaging facilities in the United States. In late 2001, the company undertook an effort to grow sales and profits in a challenging market environment. Growth had slowed in the previous few years for a variety of reasons. A stagnant market for contrast agents, prices depressed by competition, and the heavy hand of group purchasing organizations (GPOs) in the market contributed to the problem, but the Bracco organization faced significant internal challenges as well.

Carlo Medici (top) is president and CEO of Bracco Diagnostics Inc. (Princeton, NJ). Kelly Tousi (middle) is a manager with and Tobi Laczkowski (bottom) a consultant with ZS Associates (Evanston, IL).

Several of these centered on the sales operation. During a 1990s growth heyday, Bracco depended on a direct sales force to sell the full line of its contrast imaging agents to physicians, nurses, and administrators in hospitals and freestanding imaging centers. But the heavy cost structure established in high-growth times had not been pared back as growth slowed. The direct sales force had become accustomed to letting market growth drive much of their sales. And the idea that any customer is a good customer pervaded the organization.

Carlo Medici joined Bracco Diagnostics as president and CEO in January 2001. Given a mandate to address the company's struggles, he set a challenging goal: to grow sales and profits in a flat market, without introducing new products and while lowering personnel costs.

To support this vision, the CEO first overhauled the company leadership. He installed a management team experienced at implementing change and committed to bringing change to Bracco. In addition, he identified leaders already within the organization who were committed to the vision and could apply their skills to help Bracco succeed in energizing its top line.

Establishing a New Strategy

The corporate vision had three key elements: customer segmentation, customer satisfaction, and value beyond price. With the help of ZS Associates (Evanston, IL), a sales and marketing management consulting firm, Bracco executives pursued several key initiatives designed to establish a go-to-market strategy that would support the three-pronged vision.

Discovery. The first step was to determine the universe of accounts that Bracco sales representatives could pursue, along with the potential value of those accounts. Bracco purchased a list of all potential U.S. customers for contrast agents and demographic data that could be used to profile each account. These data were combined with available information identifying the market size of these accounts and Bracco's own sales data to create a comprehensive customer-level database.

Account value—the sales potential an account holds for Bracco—for each potential customer was characterized on the basis of several factors, the most important of which was the account's total market purchases for each product group, as well as for imaging agents in total. In addition to current market potential, the long-term value of the account was factored in. Bracco recognized that capturing a customer today can have residual value for years to come.

Bracco and ZS then assessed the effort required to service different types of accounts. The team calculated workload using earlier sales-force studies analyzing the sales calls needed to maintain and grow business with large, medium, and small accounts. The known GPO affiliation of an account was then used to refine the workload requirements for that account.

Once the value and expected workload for each account was determined, Bracco made an important discovery—the expected value to the company of some accounts was less than the cost to serve them. In other words, money was being lost on every sales call to these accounts. Clearly, Bracco management had to consider alternative marketing channels for such customers.

Customer Segmentation. The next step in transforming the selling strategy was to segment the potential customer market. Bracco did this using two criteria: customer value and share of wallet.

Bracco's goal in value segmentation was to create a framework of account groups to which the company would provide differentiated services. The management team organized accounts in quartiles, each representing 25% of the market value. Share of wallet provided a second dimension, separating prospects from customers. The resulting matrix of four value segments divided into two share-of-wallet segments yielded eight distinct customer groups. Accounts without sufficient value to warrant coverage by the direct sales force were shifted into a ninth segment, to be covered by an alternative marketing channel.

The Value Proposition. When the segmentation process was complete, Bracco began to design a unique value proposition and to determine the appropriate marketing approach for each customer segment. To develop the value proposition, the company had to understand what was important to customers in each segment. It undertook to implement a "customer delight" strategy to ensure that it was providing value beyond price to its key customers. This initiative involved sales representatives developing customized plans designed to serve the individual needs of important customers.

There is typically a trade-off between the efficiency of a marketing channel and its effectiveness. Highly efficient channels, such as mass advertising and targeted direct mail, feature low cost per exposure and are appropriate for products and services that appeal to a wide audience. The most effective channels, on the other hand, involve salespeople. A sales force is appropriate when the product or service is complicated or expensive, or requires multiple stakeholders to approve its purchase. The optimal go-to-market strategy for a given bundle of products and services employs a judicious mix of channels.

Transforming the Sales Program

Bracco had traditionally relied on its sales force to serve all of its customers and prospects, but customer segmentation made possible more-efficient deployment of resources. The company decided to build a telephone sales organization to serve customers in the low-value segment. Since Bracco had never attempted to sell other than through field sales, the idea provoked much uncertainty. The risks were worth it, however, because the alternatives—selling unprofitably or dropping accounts altogether—were even less appealing.

The telesales program rolled out in early 2002. Results were generally quite positive, even early on. Some customers expressed a preference for face-to-face interaction with a sales representative, but others had a different point of view. Many customers, particularly small ones, preferred phone contact over face-to-face coverage, finding phone calls less intrusive and more time efficient.

The new telesales organization enabled greater efficiency in the field organization. Customers previously poorly served by overstretched sales reps could be served appropriately by one team or the other. Streamlining the organization even led to overcapacity in the field. ZS Associates developed sizing models that helped determine the number of representatives actually necessary to cover high-value accounts. This allowed Bracco to reduce its sales force and optimize its geographical distribution. The company's cost structure then fell back in line with industry benchmarks. The necessary personnel adjustments involved difficult decision making, of course, and sensitive explanation of the rationale.

Building on Success

The new go-to-market strategy surpassed the expectations of most. Bracco increased sales in 2002 by nearly 10%, grew market share by 1.4%, and simultaneously eliminated 20% of its operating costs, saving several million dollars by reducing unprofitable effort on low-value accounts. These positive trends continue.

Bracco surveys reflect an increase in customer satisfaction since the reorganization. Customer retention has also improved—evidence that smart account segmentation ensures every customer is served appropriately.

Bracco has gleaned additional benefit from this project. The database of current accounts and prospects became a building block for other projects and decisions. Beyond sales territory design and the telesales channel, the account-universe map has been useful for goal setting, targeting, and compensation. Bracco leaders have proved their effectiveness as change agents. The field sales force has learned the value of focusing on important accounts, and the telesales force has exhibited success with its target accounts. Both field sales and telesales have been increasing.

Change management within the Bracco organization was key. The difficulty of overcoming organizational inertia should not be underestimated. Bracco executives have driven the necessary change with continual reinforcement of critical messages. Means to this end include:

• Getting the right people in the right places and supporting them.
• Bringing key issues to the fore-front and discussing them.
• Using data, rather than perceptions, to drive decisions.
• Implementing decisions swiftly and with confidence.
• Holding people accountable to metrics.
• Keeping everyone focused on the strategy.

Conclusion

Bracco has shown that sales growth does not necessarily result from higher spending on sales and marketing, but from smarter spending. It segmented the customer market and right-sized its sales force by refocusing efforts on core customers and targets. With a value proposition tailored for each market segment and a plan to delight key accounts, Bracco has made its customers happier—a positive indicator for long-term sales growth. And the work of transforming the organization has not ended with the initial success.

Copyright ©2004 MX