Case Analysis

Becton Dickinson: VACUTAINER Systems

Division

Presented By :
Presented to:
Group-2 , 29NMP
Prof. Vibhava Srivastava
Abhishek Sharma (29NMP03) B2B Marketing
Raksha Chaturvedi (29NMP43) Management Development
Raj Singh (29NMP62) Institute,Gurgaon
Sarvesh Sahay (29NMP74)
Sonal Lamba (29NMP80)
KEY DECISION MAKER:
William Kozy National sales director for
Becton Dickson
VACUTAINER systems
(BDVS)
Hank Smith Vice President of marketing
and sales BDVS

CRITICAL DECISION
How to respond to APGs demands
concerning pricing ,branding and
distribution terms .
MAJOR CUSTOMERS
HEALTHCARE MEDICAL NON HOSPITAL
PROFESSIONALS RESEARCH HEALTH CARE
(hospitals) INSTITUTIONS CENTERS
(commercial labs)

PERCENTAGE 7000 hospitals 700 labs 25% of all 5% of blood test

OF MARKET 70% blood testing blood test
SHARE
Bench people-Best Cost conscious as Easy to use and
BUYING quality and not price they competed less expensive
APPROACH Materials managers- primarily on price
price sensitive
PURCHASE Historically chief lab Owner manager Physicians
DECISION technicians asked for
MAKER certain brands now
professional
purchasing agents
and buying centres
are making cost
effective purchases
 Market trend
Cost containment pressure in
health care markets.
Centralised purchasing behaviour
through buying centres.
Growing numbers of non-hospital
sites.
Change in payment system- DRG
Reduction in employment- 100000 jobs
have been lost in the range of health
care field.
Cost-containment pressure resulted in
1% compounded annual decline in
hospital blood testing between 1983-85.
Growing competition increased need to
reduce cost
Affiliated to buying groups which negotiated
in centrally on price and delivery terms.
40% of blood testing would be done in
commercial labs and physicians offices.
Government changed the reimbursement of
all cost to a payment based approach based
on national and regional costs for each
DRG.
Market has seen a decline in hospital Patients hospital stay fell 5% to 6.7
blood testing between 1983-85. days.
Admissions of people over the age
of 65 declined.
Number of hospital beds would fall
to 650000 in 1990.
In- home treatment expected to
grow.

Clear technological trend is to enable It has implications on distribution

end user to do more of diagnostic network built around lab distributors
testing. More technical selling demands on
sales force
 COMPETITOR ANALYSIS
BDVS TERUMO SHERWOOD Med CORP.

PRESENT MARKET 80%-tubes 18%-Blood collection 2%-tubes

SHARE 30%-needles tubes 15%-needles
50%-blood collection
needles
AVERAGE UNIT PRICE TUBES-Increased from 6 Maintaining at 6.5 cents ------------
to 8 cents NEEDLES-7.5cents
NEEDLES-7.5 cents
STRATEGY Maintain a leading Increased share in all ---------
market share and segments
become a lowest Price aggressiveness
cost producer in all
segment-higher
volume allows them
to amortize the
capital investment
over larger base.
Improvement in
product
quality(quality
aggression )
Accelerated new
product development

CATERING TO Process reagents and --------- -----------

DEMANDING chemicals in its own plant
SPECIFICATIONS and pioneer in new tube
sterilization techniques
DISTRIBUTION

BDVS sold its products through 474 independent distributors who fell in 2
categories.

Nationally there were 1000 distributors of hospitals/medical supplies but the 10

largest accounted for nearly 80%.

BDVS had 6 largest distributors accounting for 65% of division sales,50 largest
for 85% and 67 dealers out of 474 for 95% sales
LABORATORY PRODUCTS MEDICAL SURGICAL
DISTRIBUTORS PRODUCTS
DISTRIBUTORS
TARGET Hospital and commercial Physicians hospitals and
labs. non-hospitals site.

MARGINS Reduced distributors gross Rarely dropped below

margins from 25 to 12% on acceptable levels.
blood collection products.
MAJOR SALES Blood collection items Other BD divisions
 MAJOR DISTRIBUTORS
ASP
40% market share among distributors.
Total sales of $3.45 billion.
21 warehouse locations.
Important part of logistical system in major hospitals.
Less costly order entry and delivery.
Higher commission to sales people for selling their own product -45% share
and 70% profit-hoped to manufacture 65%.
Terumo (70%) and Sherwood products were also distributed by ASP.
BD was one of the ASPs top supplier and the accounted for 25% of product
sold by ASP.
Kimball opened the door for Terumo at ASP-Terumo developed relationship
on focussing on individual ASP rep in individual branches.

CMS
Has 20 warehouse locations
Sold primarily to hospital labs

Fisher-scientific
20 warehouse locations
Sold primarily to medical schools research centres and industrial labs
 What are the alternatives?
Target the growing physician market that
includes surgicenters, emergency centers,
diagnostic centers, and physician's offices
Accelerate new product development and
quality standards while maintaining the
current distribution model
Reject APGs private label, pricing and
distributor affiliation requirements
Partner (or merge) with APG
 Target Growing Markets
Pros Cons
Untapped market, Lower
high growth potential prices/margins,
compete on price
Potential for new
Currently only 5% of
product
entire market
introductions
Different type of
sales approach
 Product Development/Quality
Pros Cons
Market/product High R&D costs
innovator Increased risk
Maintain good associated with new
distributor products
relationships
Premium pricing for
higher quality
 Reject APGs Requirements
Pros Cons
Maintain brand Loss of significant
identity/awareness market share &
revenues
Maintain good
Inflexible image to
distributor
other purchasing
relationships groups
Maintain control
 Partner with APG
Pros Cons
Maintain significant Low price/margins
source of market Loss of control
share & revenues
Strained distributor
Economies of scale
relationships
through higher
volume Same concessions
Flexible image demanded by other
Potential for purchasing groups
inclusion of
additional products