With the transition to exclusively selling medical equipment, Ohmeda must incorporate more direct and specialized selling into its channel mix. Given the aggressive revenue growth targets, the best channeling mix for Ohmeda is 75% direct sales / 25% dealer sales and 75% specialization / 25% geographical. This optimal strategy will allow Ohmeda to increase revenue, meet target customer needs, challenge competition, and capitalize on the strengths of the Ohmeda products. Business Strategy
Ohmeda's business strategy is to no longer carry medical supplies and gas products, yet to increase equipment sales revenues by an average of 11% each year for 5 years. The current channeling structure consists of 50% Dealers and 50% Direct sales representatives arranged 100% geographically by region (Exhibit 1). This structure is both inefficient and ineffective, and must be adjusted to meet the change in product mix and aggressive sales goals. Deficiencies in the current channel include: overlap of dealer and direct representative sales, a disproportionate number of sales hours spent in rural hospitals, and the inability of sales reps to communicate the specifications of the technologically advanced products to medical specialist decision makers. Channel Structure
Currently, the dealer and direct sales force are overlapping in their customer sales. Ohmeda's current sales structure is designed for 50% of the revenue to be generated from direct sales and 50% of the revenue to be generated from dealer sales. When the 30% direct/dealer overlap is removed, however, direct sales actually contribute to 72% of the revenue while dealer sales contribute only 28%. In some instances the direct sales representatives are working with dealers in order to reduce the hassle of transporting equipment. Dealers are then able to book the sale, reducing Ohmeda's revenue from an average of 6% below list price to 21% below. This overlap also reduces the efficiency of sales and proves that there is an over supply of generalists. In order for Ohmeda to grow at a rate of 11% annually, Ohmeda will need to prevent the dealer/ direct sales representative overlap to maximize profit. Geographical Channel
The most efficient geographical channeling strategy is generating 25% of revenue from geographically orientated dealers (Point A to Point E; Exhibit 1). This shift in channeling is necessary because urban and rural hospitals have different demands and require different approaches. Currently, Ohmeda salespeople spend only 47% of their time on urban hospitals, which takes almost 20% more time to sell. Sales reps are also less effective in large hospitals they spend over 140% more time selling the same machine at a large /urban hospital than at a small / rural hospital. Ohmeda only has 4.8% of the urban market (Exhibit 2). This indicates that they are focusing sales attention and time on the wrong market (rural hospitals). It also indicates that more competition is present in the urban setting. Furthermore, the case indicates that competitors are targeting large teaching hospitals, while Ohmeda has made little attempt in that niche. This is a powerful tactic since medical specialists are now making more capital allocation decisions in hospitals. Medical specialists are more likely to purchase equipment with which they are comfortable. In order to attack competition and increase sales, Ohmeda must focus their attention on large, urban hospitals, which make up 75% of the market. Specialty Channel
An increase in urban sales requires another channel modification--specialization of the direct sales force. Ohmeda's current strategy calls for 15% of its sales force to specialize (architectural products), whereas increasing specialization to 75%, while less efficient on paper, will be more effective going forward. Ohmeda's lack of specialists is affecting its ability to effectively sell against the competition. The specialists must...
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