National account strategies are shifting - medical supplies vendors
John A. HendersonNational account strategies are shifting
Vendors' national account strategies are shifting as the bottom line becomes as important as market share and the number of national accounts a vendor signs up.
For many vendors selling to hospital groups, the original national accounts strategy was to sign as many contracts as possible, regardless of the terms.
Today, it is no longer the sheer volume of contracts that is important. Because of the great expense in time, money and resources used to develop contracts, a growing number of vendors are limiting the number of groups they will work with and the contracts they will sign.
Companies are evaluating national contracting opportunities in terms of:
* Time committed to signing and maintaining individual contracts,
* Profitability and volume of business represented by a group purchasing organization and
* Which GPOs have the potential to move market share.
Identify target GPOs
Vendors must identify the groups to target for their national accounts program. There are more than 400 multi-hospital systems, group purchasing organizations and alliances.
Which GPOs are not going to survive? Loosely affiliated GPOs with no real connection with their members will have a more difficult time surviving than others. Traditional group purchasing organizations will have a difficult time surviving if they do not have a well directed and organized program. Clearly the market can't support all these groups.
This presents some other questions for strategists.
* Is the actual survival of the GPO an issue?
* Which GPOs will survive?
* Will the same dozen GPOs be on all suppliers' lists?
Individual hospitals also are limiting the number of group purchasing organizations with which they will work. How is this going to affect the survival of the GPOs and which will be the winners?
Obviously, determining a strategy requires considerable research, including numerous personal visits with group purchasing organizations, their member hospitals and distributors that serve the GPOs and their members.
Relationship selling
This is where relationship selling becomes important. Several levels of management on both sides must become involved in evaluating and establishing working relationships. This doesn't happen over night.
* Is there a fit between the GPO and your organization?
* Do the organizations philosophically move in the same circles or are they at odds over expectations?
* Do the vendor and the GPO have the same expectations of compliance?
* Does everyone understand what is expected to make a successful contract?
Too small for the GPO?
The importance of these issues was clearly brought to light when a vendor discussed the problems it was having with a contract. The vendor had spent weeks preparing the contract, the terms and the pricing. The vendor even presented the lowest bid for the contract. However, it didn't win the contract when the group learned that the vendor had only a 15% market share.
The group insisted that it would only work with one of the leaders in this field to gain an immediate foothold on compliance for this product category. The vendor should have been aware of these considerations before seeking the contract.
Thus, more questions need to be asked:
* Will the group consider a vendor with a small market share?
* Does the group purchasing organization only consider vendor that have a significant share of the local, regional or national market?
* Does the group make a special effort to work with smaller vendors?
Management of group contracts is an issue for the vendor requiring close attention. Order fillers and computers need to be programmed to make important pricing decisions on orders as they are received.
Counter cherry pickers
For example, many hospitals are in more than one group purchasing program, and they cherry pick the programs to achieve the mix of pricing, service, product features and delivery they need for an order.
Thus, establish a strategy for cherry pickers.
* If the hospital has access to two or three contracts with different pricing, what is the pricing on acceptance of an order?
* Can we dictate from which contract the hospital will buy from when it has a choice of three?
* Does a vendor need to support all of the contracts that it has written?
* Is there too much overlap between hospitals that belong to multiple groups?
* Is it costing too much time and effort to support money-losing contracts?
The answers to these questions should help put a vendor's national accounts activities into context within the larger framework of the company's sales efforts.
Vendors want the national contract to support their traditional sales efforts. The vendor must determine whether it or its GPO clients will drive the marketing effort required to achieve target sales goals.
And it is possible to have both kinds of relationships with group purchasing organizations. Some may be very marketing oriented and good at winning member compliance with little vendor input. Others may achieve their goals with considerable vendor input, and a third group may be ineffective in marketing programs.
The latter require considerable sales efforts on the part of vendors for compliance goals to be reached.
It is the national accounts manager's job to gather competitive, but also about major accounts and their competitors and members. The first rule of selling is know your customer.
And that knowledge is becoming more valuable every day.
COPYRIGHT 1990 J.B. Lippincott Company
COPYRIGHT 2004 Gale Group