As already discussed in my previous post, distributors are an essential part of the medical device business and there are lots of advantages of selling through them, especially for companies looking to enter new markets.
Hence, in moving on, I will focus on the other side of the coin: the disadvantages.
What Are The Disadvantages Of An Indirect Sales Force?
The Indirect Sales model remains one of the most patronized forces in medical business but have you ever pondered on its likely disadvantages?
Well, let’s find out what they are:
- Quality and price policy: It is not always easy to find a partner who shares the same policy for quality and price.
A typical example is a distributor with complementary products that are not in the same price segment as your product.
Hence, if your product is premium priced, it could be difficult for a distributor having low-cost complementary products to promote it properly to its customer base.
- Competition for mindshare of the sales rep: Distributor’s sales representative faces different challenges, and probably the most critical of them all is dealing with multiple products from different suppliers.
The time and sales effort dedicated to a product line is a zero-sum game; and your gain is the loss of other participants.
- Conflict due to distributor goals and priorities: In indirect sales model, the distributor operates according to its business strategy; the selling activities are defined and based on the entire product portfolio and on market opportunities.
The distributors strategic focus may not align with yours and you can expect that third parties will sell the products that are more profitable for them.
And most of the time, there is nothing you can do about that.
- Lack of transparency: The distributor will want to keep confidential all the information as much as possible because it is part of its power in its relationship with the manufacturers.
The distributor’s market knowledge (pricing, competitors, customer base, dynamics etc…) is critical for its long-term development and its means of keeping manufacturers locked in the business relationship.
Highlighted Below Are Further Disadvantages Of The Indirect Sales Model
- Filtered customer feedback: When you have a middleman, it is more difficult to have direct customer feedback.
Apart from the complaints handled according to regulatory and quality standards, all the other market information passed to you by the distributor could be manipulated for their own gain.
- Selling style not aligned: Distributor’s sales reps could have a selling style (hunters/farmers) or skills set which is not appropriate for your product, thereby reducing the effectiveness of the sales effort.
- In the long run, for products becoming a standard of care the distributor could become expensive: When the volume of products increases substantially, the cost of an indirect sales force becomes significant, and the company can benefit from a change towards a direct sales force.
- Short term rewards are typically prioritized over long-term payoff: Distributors search quick wins due to their intrinsic business model.
Therefore, if your product has a long selling cycle or requires a substantial number of prospects to generate one single sale, you might need to find a way to support your distributor in selling your product. Else they might sideline your products for others that have quicker gain margins.
- Business practices of the distributor are not in line with the values of the company: Here, I am not referring to cultural differences; it is important for the company to clarify and agree on practices especially when dealing with HCP.
Conclusion
In the medical device business, finding the right sales force organization takes time and experimentation.
Different markets may require a different approach for the same product and some choices will be more or less effective at different stages of the evolution of the company and of the market.
Distributors have advantages and disadvantages as everything else in business, and commercial success is the result of several elements. While an important one among these elements is the knowledge of sales force models.