Case 8.1A: What is the Most Effective Sales Structure for Future Growth?

Sal Linkman is part of the Critical Care division sales management team for Medical Science, Inc. This firm is a leading manufacturer and marketer of medical devices for hemodynamic monitoring of the critically ill patient. Domestic sales are $200 million. Medical Science, Inc. enjoys a number one or number two market share in most product lines it sells. Brand recognition and loyalty are outstanding.

The product offerings that Sal manages are separated into two groups: (1) Base products, which are established near-commodity products with declining utilization and dominance by group purchasing organizations (GPOs); and (2) new Concept products with high use potential, no competition for at least five to seven years owing to heavy patent protection, high technical and clinical understanding, no GPO influence, and long six- to seven-month sales cycles.

Base products are declining at a rate of 6% per year. Their average gross profit is 45-65% and this is predicted to decline. The customers have loved the service that Medical Science, Inc. provides to them. Up to 85% of Base products are covered on GPO contracts. GPOs dominate the healthcare landscape of today and are made up of several hospitals banded together (most represent 700-1,000 hospitals). Their number one goal is making sure suppliers follow through with their contract goals. These can be very broad, but normally focus on maintaining consistent reliability and quality at the best price available.

Currently, Sal has a sales force of 45 reps who sell the Base lines. Conversely, 14 specialists sell the Concept products. All reps are trained on the Concept products. Sales of Concept products account for $35 million of domestic sales. The gross profit of Concept products is 75-80%. Annual growth of Concept products is $35 million and is broken down into two segments: Hemato-1 annual sales are roughly $25 million and are projected to grow at a rate of 50% per year, and Lympho-2 annual sales are roughly $10 million and are projected to grow at a rate of 20% per year.

Clearly, the future of Medical Science is in Concept products. But the Base products represent a cash cow or an annuity of sorts that is needed to fund operations and future growth. As a sales manager, Sal worries that the older Base products are eating too much of the reps' time with service calls that do not produce new sales, and this keeps them from prospecting for Concept product sales. The General Manager of the division has come to Sal and asked for a presentation regarding a future sales structure that will maintain current Base revenue but position the division to capture a remarkable growth opportunity with Concept products. No new head count for fully loaded reps is in the budget. All sales reps are paid equally.

Case Questions

1. More reps are needed to sell the Concept products. What number of reps are needed to sell Base and Concept products respectively?
2. Are the service calls on Base products necessary? Can service be handled differently? If so, will that free up more time for Concept selling? How should this be done? Provide a solution.
3. Do GPOs play a role in defending Base business? How can they be viewed as a positive, helpful influence?
4. The sales current structure must change. What should Sal recommend to the General Manager?