Solution to Becton Dickinson & Company, Vacutainer Systems Division
1983 – BDVS resisted negotiation. Why?
In 1983, APG demanded substantial price reductions from BDVS. BDVS was not willing to these price reductions owing to its superior quality, range and service and resisted negotiation with APG HQ.
Following are some of the main reasons why BDVS resisted negotiations.
BDVS was a pioneer in converting the market of Blood Collection Products Market from Needle & Syringe method to Evacuated-Tube Blood collection method. BDVS had the widest range of blood collection products and this was crucial for the Hospitals, which depended on this to run various diagnostic tests for chemistry, hematology, coagulation studies, special procedures and blood banking.
Product assortment / colour coding schemes offered by BDVS were preferred by the customers.
Blood collection products formed only 5% of the total supplies purchased by hospitals and the BDVS products were preferred by the “bench people” in the lab (medical technicians in the lab) for its range/ quality.
It was not binding on the APG member hospitals to buy only from the negotiated manufacturer for the product. Based on the preferences of the “bench people”, they could buy from an alternate vendor also. Taking advantage of this route, BDVS continued selling directly to Individual hospitals through its well-developed field sales force that maintained good contacts with their existing clients and was able to sustain the market share. Wherever price was an issue it retained most of its business with individual hospitals (that were affiliated with APG) through lower prices, on a case-to-case basis. So they did not have a compelling need to approach the negotiation table.
For the past few years, BDVS had put in place the “Z Contract” with its large and key Accounts after negotiation for price and quantities and supplied to them through its authorized distributors.
1985 – BDVS ready for negotiation. Why?
BDVS was ready for negotiation with APG due to the following reasons:-
Changing Market Trends:
In the US, 1800 largest hospitals accounted for 50% of the market for medical equipment and supplies. Also 70% of all the blood tests were done in the Hospitals in the US.
In 1983, the US government brought in new legislation for the re-imbursement of costs for Medicare patients based on diagnosis–related Groups (DRG) and not on hospital costs.
The hospitals had no choice but to resort to control costs and look at things differently and hence the hospitals encouraged people to opt for day care facilities rather than compl
This had a dramatic impact in terms of reduction in the hospital admissions by 4%, duration of days fell by 5% and the number of hospital beds also was forecast to fall in the 1990 by 35%. This meant that the market was shrinking and that there is a need to protect this shrinking market. BDVS need to maintain its share in this market, considering this future trend and APG was emerging as one of the powerful purchasing groups to reckon with. BDVS decided to negotiate with APG.
Due to the above DRG based re-imbursements, there was increasing cost containment pressure on the hospitals to bring down the cost of its purchases, maintenance and administration. This is another reason for the individual hospitals –small or large – to get affiliated to purchasing groups like APG to get a cost advantage for centralized buying of products.
Changing Buying Behavior:
The buyer has changed from being the Lab personnel, who knew the product and company representative to the Purchasing Personnel who came from different backgrounds. These people demanded regular service but with lower costs.
Purchasing has started from Corporate Purchasing from Hospital purchasing for large national multi hospital chains. These either negotiated directly with Manufacturers like BDVS or affiliated...
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