At some point in our company’s development, it may be helpful to consider distributing one or more products from other companies. Medical device manufacturers with a direct sales force often choose to distribute other products along with their own. There are many good reasons for this consideration including:
1) Expands our product line quickly and without investment.
2) More “arrows in the quiver” for our direct sales force to sell, increasing their potential revenue and that of the company.
3) Potential to lower the percent cost of each sale as the revenue per sale rises.
4) Provides differentiation of our product offering from competitors.
5) May enhance the perceived value or ease of use for our product when bundled with complementary products.
6) May create useful long-term alliances with marketing partners.
There are a number of criteria we might use as we sort through the distributed product selection process. These criteria and related questions include:
Compatibility with Our Products
Are the target physicians/decision-makers essentially the same as for our products? Is the sales call point the same? Is the distributed product compatible with ours from a demonstration perspective? Does it enhance our product offering? Does it fit well with our long term marketing strategy?
Clinical Criteria
Is there an established clinical need or demand for the distributed product? Is it a standard of care? What is the level of clinical evidence supporting the distributed product? We would rather not try to market more than one practice-changing product at a time.
Reimbursement Criteria
What are the reimbursement considerations related to the distributed product? Does it have a CPT code and CMS and/or private insurance carrier coverage? What is the reimbursement level? Is there any Comparative Effectiveness Research (CER)? Does it enhance reimbursement for our product’s use?
Technical Criteria
Is the distributed product technology ascendant or generic? Is it easy to use, train and support customers? Is the point of care the same for our product and the distributed product? Are the size, weight and features compatible with those of our product?
Market Criteria
What is the size of the potential market and is it similar to our product? This applies to physician users, third-party payers and the patient pool. Do we need to perform segmentation analysis to be sure? What is the competitive environment? Do we wish to put our name on the product?
Financial Criteria
What are the pricing and margin considerations? Is the payback worth the initial cost and effort to integrate the distributed product into our product mix? What are the up-front costs? Does the manufacturer of the potential distributed product require volume commitments and a long-term contract? What are the financial condition and reputation of the manufacturer?
The answers to all of the criteria questions above may be quantified on a simple scale of one to five, with one representing a low level of compatibility and five a high level. You may then score the various distributed products under consideration and decide to proceed or not, based on a reasonable degree of objectivity.