Redesigning Medical Device Commercial Models in Europe: Addressing … ·  · 2015-12-17Commercial Models in Europe: Addressing the Rise ... positioning and segmentation. ... often

Redesigning Medical Device Commercial Models in Europe: Addressing the Rise of the Economic Buyer

Rohan Fernando and Roz Lawson

S A LES & M A RKE T ING INS IGHTS

This paper will outline the challenges medical device

companies in Europe face with their multiple sales force

structures, and will illustrate why companies should

analyze their sales force structures to make sure they correctly

reflect their strategy and the buying process.

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Table of Contents

3 Introduction

3 Current Challenges

5 From Strategy to Structure

7 Addressing the Rise of the Economic Buyer

10 Conclusion

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Introduction

Medical products and services companies are often saddled with cha-

otic sales force structures across Europe. Because of how they evolved,

a company’s sales force in one country may scarcely resemble its coun-

terpart across the border. This prevents them from effectively execut-

ing their commercial strategies and often leads to lack of alignment

with important stakeholders. Payers and buying groups are becoming

more powerful in Europe and many medical products companies are

struggling to address their needs in part because of their own chaotic

commercial structures.

While different country structures are not unusual, we have found they

are often unnecessary and reflect local historical evolution rather than

business need. With the increasing importance of commercial stake-

holders and with increasing cost pressure and need to drive margin,

there is no better time for device companies to purposefully look at

their sales structures. Redesigning these structures often requires a

new role focused on commercial stakeholders, such as a key account

manager (KAM).

Companies that adopt more ‘rational’ commercial structures—in which

differences across countries are driven by a clear business rationale

and meet the needs of economic buyers—are better able to execute

their sales strategies, and position themselves for changes in their

markets.

This paper will outline the challenges medical device companies in

Europe face with their multiple sales force structures. We will illustrate

why companies should analyze their sales force structures to make sure

they correctly reflect their strategy and the buying process.

Current Challenges

It is common for medical device companies to have a European sales

and marketing strategy. However, the same company often approaches

customers using different sales models, dependent upon the country in

which they are doing business. We have seen this often: For instance,

one medical products and services provider has separate sales rep-

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resentatives for two product lines in the United Kingdom, combined

representatives in France, an additional senior representative role plus

distributors in Spain and agents in Italy. As odd as this ‘chaos’ may

appear, it is common throughout Europe.

There are several reasons for this variability. Structures evolved over

time through local management decisions and acquisitions. In some

cases, the individual salespeople’s skills determined the approach.

Furthermore, rapid business growth meant that many such structures

went unchallenged. Because of successes in each country, corporate

management saw no reason to question individual country structures.

It is not that companies’ sales structures today are ‘right’ or ‘wrong,’

but the sheer diversity we see in the market indicates that companies

have not truly and objectively examined their sales structures.

What is the impact of this lack of purposeful assessment of sales

structures?

• Companies have difficulty executing their strategies. Most device

companies have regional strategies on the key commercial levers

like pricing, positioning and segmentation. By going to market

without a coordinated plan, companies struggle to execute these

strategies effectively.

• Companies’ sales structures may be a poor fit with their customers’

buying process, which results in lost opportunities. This is especially

true as there have been changes in the market, such as the increas-

ing power of payers like hospital buying groups in Germany.

• Companies miss out on the sales force effectiveness and efficiency

gains that a homogeneous sales structure across Europe can bring,

such as improvements in targeting and incentive plan design.

This is a common problem—of the many device companies we have

worked with in Europe, almost all had significant opportunities to

improve their commercial structures. The time is right for companies

to examine their disparate sales structures to take account of market

changes and their own strategies.

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Different structures in different nations can subvert a company’s sales

performance, as each country may have different structures, incentive

plans and sales processes. These differences become engrained in

how representatives interact with customers, and the results can be as

uneven as they are disappointing. For one company, their approach in

the United Kingdom—focusing on a specific product with a dedicated

commercial team—led to the highest sales in Europe. But in France, the

selling strategy meant that representatives discussed several products

with their customers in each call, and the company’s incentive plan did

not focus effort on one product over another. As a result, French sales

were well below those of the other big European markets.

From Strategy to Structure

Two key drivers—the customer buying process and company sell-

ing strategy—should inform decisions about sales force structure (see

Figure 1). If a company closely examines its strategy and end-user

buying patterns and finds them consistent across markets, then a con-

sistent structure also makes sense.

The customer buying process is often more similar than different, even

if the titles and positions of the customers vary by market. Although

mechanisms for evaluating products may differ, key usage and pur-

chasing drivers are similar across markets. Buyers in any market need

to make the same purchasing decisions. Health care funding is under

scrutiny in all markets, and some kind of cost-benefit analysis is re-

quired at every level. Purchasing drivers usually include whether the

CASE STUDY

Figure 1. The customer buying

process and company sell-

ing strategy should inform

the sales force structure

decision.

Customer Buying Process

Company Selling Strategy

Sales Force Structure

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technology delivers a clinical benefit, a decrease in costs or an increase

in value-in-use—whether the customers make that assessment in Spain

or in Germany.

Sometimes buying processes actually vary by country. For example,

companies selling ostomy products interact with different customer

groups in Germany than the United Kingdom. In Germany, ‘ban-

dagists’ sell medical and health care supplies that pharmacies do

not. In the United Kingdom, this group does not exist, and community

nurses largely manage ostomy home care. This observable and impor-

tant difference in the buying process may be a good reason to have

different sales structures in the two countries.

So if the buying process is often similar, what about selling strategy? This

is frequently consistent across countries because most device companies

have chosen to adopt regional sales and marketing strategies across the

key levers like pricing, positioning and segment strategy. They recognise

that there are more similarities than differences in customer needs, and

devise strategies to market their products in similar ways across countries.

Sceptics may accept that different countries’ buying processes are

similar, but may still question the need to restructure. Even if market

changes have occurred beneath their feet, what are the real benefits of

spending the time and money to establish a consistent sales structure

throughout the Continent? Hasn’t the current model worked well?

The biggest benefit of changing to a more consistent sales model is

being able to actually execute the strategy effectively. This is true whether

the company is launching a new product, defending market share or

targeting a different group of customers. A well-considered structure

allows companies to manage cross-border influences—key opinion

leaders, conferences and Web sites often transcend country boundaries.

A consistent structure also allows companies to improve sales force

effectiveness and focus their resources on the most profitable markets

and customers.

Finally, as economic buyers have become more important, companies

need the right structures to manage these stakeholders effectively. That

often requires a change in their commercial model to, for example,

add a new role such as a KAM, to focus on these commercial stake-

holders. This is the focus of the next section.

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One company was planning to launch a new, single-use surgical device

to different target customer groups in different countries. Through

market research, the company identified that the buying processes

of each customer group were similar across Europe, so the company

chose a common strategy.

As a result, it was able to position the new device consistently across

countries. By selecting a specific group of target customers, it was able

to minimise the risk of cannibalizing existing sales. The product was

launched consistently and successfully in each market.

Addressing the Rise of the Economic Buyer

We have argued that the customer’s buying process and the company’s

selling strategy should determine the sales structure. But the buying

process has changed in many device markets with the emergence of

important commercial stakeholders (see Figure 2), such as purchasing

groups, hospital administrators and, in Germany, buying groups.

How should companies alter their selling strategies to capitalise on

these changes?

One approach is key account management. The idea behind KAM is

straightforward: empower a single salesperson to lead a major (‘key’)

account, such as a government payer, hospital chain or buying group.

As they are charged with handling institutional accounts, KAMs can

help cope with the emergence of commercial stakeholders in making

purchasing decisions, as many medical products companies have

plenty of clinical representatives but few commercial ones.

A KAM has the experience, skills and gravitas to make a value-based

business case to senior decision makers. What makes the KAM structure

ultimately different is that it enables the medical device company to

offer its full value proposition to the client rather than a series of indi-

vidual product pitches. KAMs often work across a portfolio, bringing a

wider range of product and service solutions to the customer. The KAM

coordinates resources from within the organization as needed to meet

customer needs and to maximise the value of individual accounts.

CASE STUDY

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Figure 2.

Via KAMs, companies can develop a partnership with customers to

generate mutual benefits rather than working as independent (and

sometimes adversarial) entities. Since KAMs can represent a company’s

entire product portfolio, they bring clients a wider range of solutions,

and can coordinate corporate resources as needed to meet customer

needs in ways heretofore not possible. Salespeople with the right com-

mercial skills can unlock opportunities that clinical sales representatives

often fail to crack for years.

For example, one medical supplies company had relied on clinical spe-

cialists for each of its business units. These people were highly skilled,

often with a background in a hospital or nursing setting. However, they

lacked commercial capabilities—negotiation skills, analytical ability

or business acumen—and were losing out to competitors who were

engaging with commercial stakeholders more effectively.

Enter the KAM. The company decided to introduce KAMs to focus on

large hospitals and buying groups. The KAMs typically spoke to cus-

tomers who were one or two levels higher up in the decision-making

hierarchy. As well as discussing the whole portfolio of products from

across the different business units, they were able to discuss non-prod-

uct solutions. This opened the door to some innovative value offerings

such as taking over supply and logistics for an entire class of products.

This helped the customer by removing a time-consuming activity, and

helped the company better demonstrate its product benefits through

Figure 2. In the current European

Union environment, com-

mercial sales roles are of-

ten an essential component

of the sales force structure.

Customer Buying Process

Company Selling Strategy

Sales Force Structure

• Product expertise• Clinical benefits• Value-in-use

• Business expertise• Health economic benefits• Value proposition

ClinicalCommercial

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access to usage data. The clinical representative would not even have

been allowed to have this kind of conversation.

The KAM structure is not without challenges. Many device companies

(and pharmaceutical companies) have added KAMs but have struggled

to make them effective. Common issues include the following:

• Integration with the wider sales force. Many companies have

struggled to define how KAMs should integrate with representa-

tives, first-line managers and the local marketing department.

They need to define the positions’ respective roles, responsibilities

and coordination points.

• Recruiting and retention. Many companies have difficulty finding

and retaining the right people to be key account managers; a top

salesperson will often not succeed as a KAM.

• Pay and benefits. KAMs are often not given the same kind of

pay and benefits as a first-line sales manager, even though their

responsibilities may be similar or greater in scope.

• Resources and value proposition. Many companies make the

mistake of assuming that since KAMs are smart, they will figure

things out, rather than taking the time to understand what KAMs

require in terms of process, resources and support to be effective.

All of these problems are surmountable with adequate focus and

some patience—a successful KAM structure may take significant time

to fully develop.

In the end, however, the benefits of a well-integrated KAM structure

are enormous. KAMs are creating industry-leading business models,

influencing senior non-clinical decision makers and breaking down

traditional sales barriers. Resources need to be directed toward both

clinical and non-clinical customers, and getting this balance right will

be a differentiator of performance for medical products companies

in Europe.

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Conclusion

Leaders of device companies in Europe often inherit chaotic com-

mercial structures, with operations in one country bearing little resem-

blance to those of another. These structures are the result of historical

evolution that has often gone unchallenged for years.

These inconsistent structures inhibit companies from implementing their

strategy effectively and from capturing opportunities with important

emerging commercial stakeholders. Companies should examine their

commercial structures and make sure they reflect the buying process in

their key markets and their own strategy. This may often require some

restructuring and the addition of new roles like KAMs to interact with

important non-clinical stakeholders.

Companies that do focus on designing effective commercial structures

will be winners in the medium term. They will be able to better manage

the key customer stakeholders and better able to implement their own

strategies.

About the Authors

Rohan Fernando is the Managing Principal of ZS Europe and is based

in London. He has consulted with numerous medical device and

pharmaceutical companies in sales force strategy, integrations/mergers,

targeting, compensation, product launch strategy and customer seg-

mentation. Rohan received an M.B.A. from the Wharton School,

University of Pennsylvania, an M.P.P. from the Kennedy School at

Harvard University and a B.A. from Oxford University.

Roz Lawson is a London-based Manager at ZS Associates. She has

worked with medical and surgical products companies in Europe on

sales force strategy, structure and sales effectiveness projects. Roz has an

M.B.A. from London Business School and a B.A. from Oxford University.

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About ZS Associates

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As the largest global consulting firm focused on sales and marketing,

ZS Associates has experience across a broad range of industries,

including medical products and services, pharmaceuticals, biotech-

nology, high tech, telecommunications, transportation, consumer

products and financial services.

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