Sales Account, Management, and Design Plan
HART HOSPITAL EQUIPMENT, INC.*
Hart Hospital Equipment, Inc. (HHE) manufactures and sells medical care equipment to hospitals, surgi-centers and emergency rescue teams. In the past, the bulk of the companys revenues came from the sales of defibrillators (devices that use an electric shock to jolt a heart into beating again) and EKG machines (devices to analyze cardiac functions). However, two years ago, Hart released its first line of monitors (devices to track vital body functions). Monitor sales have grown so rapidly that they now constitute over 50% of total HHE sales. Hart has another high-potential product, a pacer, in the pipeline. It is scheduled for release in June, 2017, a little more than a year from now. The pacer maintains cardiac functions for up to twenty minutes, giving physicians time to determine appropriate treatment for cardiac arrest victims. Since Harts pacer will be the first in the industry, high sales volume will depend on the sales forces ability to develop physician awareness and acceptance.
Harts philosophy of developing innovative products, marketing them through well-trained sales representatives, and providing excellent service, has led to a strong position in the defibrillator and monitor markets. Sales in 2014 reached $71 million, nearly a 42% increase over 2013, and this years sales look like they will be 15% higher, due to monitor performance. Tough competition is slowing growth rates in the current product lines, but the introduction of the pacer should boost next years sales an aIDitional 22%, to $100.5 million. Harts stockholders are delighted with their hefty dividends.
Harts R&D and production departments are proud of their successful products. But Harts marketing department worries whether the current size and structure of its sales force will optimize sales.
The Sales Force
The field force is Harts main vehicle for product promotion. Not only has it proved to be by far the most effective way of conveying information, but Hart has also attracted and kept customers because of the service that its sales force provides. Field force expenditures account for nearly 75% of HHEs marketing budget. The remaining disbursements cover journal advertisements, direct mail and conventions. Harts sales force costs approximately 13% of total sales, two percentage points lower than the industry average.
The HHE field force consists of 93 sales representatives: 87 who have geographically determined territories and si who cover only national accounts. The geographically-based representatives report to district managers who, in turn, report to regional managers. There are three regions, each with three districts and 29 representatives. The six national account representatives report to the national account sales manager. The regional sales managers and national account manager report to the Vice President of Sales. As Harts sales have multiplied, so has the number of territory-based representatives. The number of national account representatives has remained constant for the past three years.
Harts sales force has high visibility in the firm as well as within the industry. It is well compensated and well-trained because of the complex skills needed to sell its equipment. For example, it takes six to 12 months before a newly-hired representative becomes truly effective in selling defibrillators, EKG machines, and monitors. Management expects that representatives will require even more training before they can sell pacers well, because in aIDition to mastering the equipment, they also must be able to explain conceptual issues to cardiologists who have never before used this type of device. Pacer training programs will therefore begin in six months.
Harts customer base can be divided into hospital and pre-hospital users. The pre-hospital market consists mainly of Paramedics, Emergency Medical Technicians (EMTs), and surgicenters. A further division in HHEs customer base can be made between contract and non-contract hospitals. The entire per-hospital market is served locally, but a steadily increasing number of hospitals that HHE sells to belong to national account purchasing groups. In its national account agreements, Hart offers discounts on equipment to national buying groups. The discounts, ranging up to 10%, are tied to the quantity of equipment purchased by the accounts members. In some cases, hospital buying groups have only one national account supplier per product. The degree of contract compliance depends on whether the purchasing group is proprietary or voluntary. Proprietary arrangements are the stricter of the two since the hospitals that belong to such groups are centrally owned. In voluntary groups, winning a national contract can be equated with qualifying for the championships, not earning the trophy. Purchasing agents for voluntary groups negotiate discounts, distribute lists of national account suppliers, and encourage each member hospital to buy from the listed companies. However, members are under no obligation to do so.
National account representatives work closely with local representatives who pressure voluntary hospitals to follow the centrally-made recommendations. Local sales force activity is also essential to successfully covering proprietary hospitals. Representatives make sure that certain types of equipment are budgeted and that Hart products are picked when competitors also have contracts. Currently 47% of total selling effort tis devoted to national account hospitals.
Harts slow growth in the mature defibrillator and EKG markets can be attributed to stiff competition. Furthermore, in the past year, Hart has taken sales force effort away from EKG machines and defibrillators and focused it on monitors. The strategy of increasing monitor share is based on two points. First, the competition in the monitor market is still relatively weak, and hence there are significant opportunities to grow the business. Second, hospital and pre-hospital buyers are, with increasing frequency, purchasing all of their equipment from one manufacturer. It is felt that, due to their complexity and importance, monitors will become the base system that will determine other purchases. Nonetheless, Harts monitor sales are beginning to flatten. Competing monitors are beginning to beat Harts products on price. Harts edge on quality is expected to erode in two years when its leading competitor is expected to introduce a higher-tech line. Therefore, Hart expects future growth to come largely from its pacers, which have a first twelve month sales forecast of $12 million. The pacers advantage is that no competitive products are expected to enter the market for at least two years. Thus Hart plans to capture the market before competitors have a chance to make inroads.
Faced with level sales in its two traditional product lines, growing sales in its new product line, and a multi-million dollar forecast for its upcoming pacer line, HHE sales and marketing executives have made the following decisions for its sales force size and structure .
You are to assume the role of Harts sales executives and provide The Plan by making the following decisions:
NOTE: You must include your rationale and support each of your decisions/ comments.
As described in our syllabus, this should be approached as an ongoing project. You must not wait until the end of the semester and approach this like a case analysis. This is much more than a case analysis it is a project. So, I highly recommend that you approach this project in sections that are intentionally aligned with each week of study and class material.
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