Marketing Mix, A Strange Brew

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Marketing Mix, A Strange Brew

• by
• Harvey Hauschildt
• hauschildt1_at_msn.com

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Overview of Discussion

• Market research.
• Product development procedures.
• Vetting products and ideas.
• OEM/Private Label and Licensing agreements.
• Tales from the Crypt, when things go terribly
  wrong!

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You Need To See A Target Before You Can Hit It

• The best product development comes from market
  based research
• Research doesnt have to be complicated, but it
  does need to answer the hard questions.

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Getting The Answers

• The hard questions
• Does the product (FIT) the customers needs?
• Can it be delivered in the (FORM) the customer
  requires?
• Does the product provide better performance,
  (FUNCTION) or lower costs from what the customer
  is currently using?
• Can you prove your claims?
• What price point is acceptable to the customer?
• Do you have the distribution channel to deliver
  the product to market?

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Vetting Product Ideas

• What is the clinical validity of the idea?
• What is the time and cost to develop the idea?
• How many procedures are done and by whom?
• Is there reimbursement for the product/procedure?
• What are the barriers to market entry including
  regulatory hurdles, patent issues, and new
  technology challenges?
• Does the project strengthen the IP?
• Does it generate the revenue goals set for the
  company?

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Commercializing The Product

• What is it?
• Internal documentation
• Programming code
• Engineering diagrams
• User manuals
• Inventory projections
• Major component spares
• Training programs
• Technical Support
• Field Service
• Sales Training
• Promotional documents
• Data sheets
• Brochures
• Advertisements/Trade shows
• Press releases
• White papers/clinical studies

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Know Where The Land Mines Are Before You Step

• Market driven growth starts with
• Sound product development procedures.
• Seeks to leverages core competencies.
• Strives to strengthens grow I.P.
• Insures correct distribution channel is in place.
• Includes options for both vertical and horizontal
  paths for growth.

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Current Project

• Project Penetrate hospital market.
• 20 million dollar company
• Dominates sports medicine, Physical Therapy and
  well regarded in Orthopedics.
• Where to start?

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Expansion Markets

• Hospitals
• HMOs GPOs
• Military Veterans Hospitals
• Surgery Centers
• OEM/Private Label Agreements
• International Markets

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Hospital Military VA

• Conduct Three Regional Focus Groups by March 2009
• Understand product applications, (Fit) by
  department what is currently used.
• OR-PACU-ICU-MED/SURG-ER-PT-CS-BIOMED
• Discover issues surrounding products (Form)
• Is it acceptable in its present configuration?
• What changes need to be made?
• Does the revenue potential justify the changes?
• Map work processes by departments
• When would the product be used and by whom?
• Identify Decision Makers
• Who are they and what are their needs?

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Pin Point Barriers To Entry

• Infection Control Issues
• MRSA
• Methicillin-Resistant Staphylococcus Aureus
• Drug resistant infections kill two times more
  people annually in the U.S. than AIDS
• VRE
• Vancomycin-Resistant Enterococci Infections
• According to the CDC the incidence of occurrence
  in hospitals is increasing

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Infection Control Issues

• The Joint Commission National Safety Goal
  .07.05.01
• Hospitals must implement best practices for
  preventing surgical site infections.
• Medicare will no longer reimburse hospitals for
  preventable nosocomial infections
• Products must meet strict guidelines for
  eliminating the spread of infectious organisms

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Keys To Hospital Integration

• Identify key personnel that order and administer
  the technology.
• Determine the correct economic models
• Ownership vs. Rent per use program
• Evidence-Based Medicine
• Ability to prove ones superior clinical outcomes
  over traditional therapy.
• Getting rid of Sacred Cows.

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Meeting The Challenge

• Use current customers to create anecdotal
  articles that validate the product.
• Generate case studies that compare sports
  injuries and treatments with those seen in a
  hospital.
• Establish multiple clinical studies that validate
  both therapy and economical advantages of product.

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Clinical Studies

• Clinical Studies are a long term investment.
• Studies should be managed by a full time Clinical
  Coordinator with a Clinical Research Organization
  background.
• Studies must address both the clinical and
  economic benefits of the product and be
  conclusive in their outcome.

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Challenges Continued

• Establish beta sites for RD.
• Establish reference sites that can be used as
  validation to new customers.
• Develop strategic hospital alliances to test
  different economic use models.
• Define the roll of the Medical Advisory Board and
  actively engage them for clinical oversight and
  to promote the company.

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Going To Market

• Traditional hospital distribution channels
• Direct Sales Force
• Manufacturer Representative
• Distributors
• OEM/Private Label Agreements

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What Are The Differences?

• Direct sales people are paid company employees.
• Pros
• Company has complete focus on customers and
  results.
• Provides superior control of product and
  understanding of the customer.
• Cons
• Added overhead cost until sufficient sales are
  generated.
• Requires additional layer of management

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Distributors As A Sales Channel

• Distributors purchase and re-sell products in an
  exclusive territory.
• Pros
• Distributors contractually are required to buy
  specific levels of inventory providing a
  financial investment in selling the product.
• Minimal overhead cost to the company.
• Cons
• Diffused market focus do to dividing sales time
  between multiple manufactures.
• Less control over final pricing,where product is
  sold and more company exposure to false product
  claims.

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Manufacture Representatives As A Sales Channel

• Independent Sales Representative paid a
  commission on each sale.
• Pros
• Minimal impact on over-head.
• A must sell situation to survive, company
  maintains control of the billing and location of
  customer.
• Cons
• Company gets only a fraction of mind-share do to
  competing interests from other companies.
• More discounting by representative to get the
  business fast.

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OEM/Private Label Agreement

• Company builds the product for another
  manufacturer.
• Pros
• NRE funding for development may pay for RD.
• Well established manufacturers can provide a
  focused sales presence in a target market and
  shorten sales ramp up time.
• Minimum revenue levels can be contractually
  guaranteed.
• Very successful OEM relationships can result in
  selecting the company that buys you.
• Long term contracts increase company value and
  strengthen its product portfolio.

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OEM/Private Label Agreement

• OEM/Cons
• Successful sales growth is not associated with
  manufacturers name by the industry.
• No control over sales process or end user pricing
  or knowledge of where products go.
• Exiting the relationship can be complicated and
  time consuming.
• Company intervention in OEM sales process is
  almost impossible.

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Opportunities For License Agreements/OEM Products

• Technology is extremely competitive.
• Manufacturers are resource constrained and often
  short on fresh ideas.
• Product differentiation is critical to selling.
• Evidence based medicine is economically driven
  and required.
• Disruptive technology can be the pot of gold for
  everyone.

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You can't build a reputation on what you're
going to do.
Henry Ford
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You Are Not Henry Ford..Yet!

• What you should know about big companies
• Hard to get to a qualified decision maker, easy
  to get people who say they are.
• Have a well oiled NIH program in engineering.
• May still work against you once contracts are
  signed.
• Will give you contracts that are very one sided.
• Can take up to a year to sign a contract once
  everyone is agreed to go forward.
• Can easily absorb the failure if project bombs.

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Good Ideas Are Always In Demand

• Targets
• Small to medium sized companies that have a
  reputation for innovation.
• Licensing agreements that change the competitive
  landscape.
• Get help selling your idea
• Protect your intellectual property.
• Get help in Sales Marketing.
• Get sound legal advice.
• Understand financial ramifications of business
  transactions.

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Tales From The Crypt

• R.I.P.

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We Learn More From Our Failures Than Success
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When Things Go Terribly Wrong

• MARS 2000
• Technology that is to far ahead of the market and
  to complicated to explain.
• Black Fish
• Wonderful technology that everyone wanted except
  the sales force, marketing and engineering.
• Q-Flop
• Engineering never thought it necessary to see how
  the product was used.
• OEM- Mock Apple Pie
• It looked like a product and seemed to function
  like a product, but it never was a product.

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What These Projects Had In Common

• Someone knew from the beginning that projects
  were badly flawed in Fit, Form or Function.
• With one exception, there was no market research
  or customer input and no beta testing prior to
  release.
• Senior management did not understand enough about
  the technology or the market to audit the
  development process and correct problems before
  they happened.
• Two out of 4 projects were OEM because they fell
  outside core competencies of the company.

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Tales of The Crypt Continued

• Two products required extensive re-design over a
  span of two years to be acceptable to market.
• One product was killed as it would never work.
• One product ended up in litigation and was
  re-sold to another company.

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The Costs

• 2-to-5 Years of development per project.
• Cost of each project 1.5-to-5 million dollars.
• Lost revenue from failed projects 100 million
  dollars.

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Lessons Learned By Companies

• Being Stupid Costs Extra!