ELITE MEDICAL IMAGING S.A.
The case was prepared by Professor Samuel Rabino as the basis for class discussion. Copy rightNortheasternUniversity, Boston, MA, Graduate School of Business Administration, September 2001.REVISED OCTOBER 2005
ELITE MEDICAL IMAGING (EMI), S.A.
On December 11, Carl Nixdorff, a sales engineer for the German Sales subsidiary of Elite Medical Imaging (EMI), S.A., was informed by KolnUniversityHospital in that it had decided to place an order with Epsilon, A Dutch competitor, for a CT scanner. The hospital’s decision came as disappointing news to Nixdorff, who had worked for nearly eight months on the account. The order, if obtained, would have meant a sale of 1,450,000 euros for the sales representative. He was convinced that EMI’s CT scanner was technologically superior to Epsilon’s and, overall a better product.
Nixdorff began a review of his call reports in order to understand better the factors that had led to KolnUniversityHospital’s decision. He wanted to apply the lessons from this experience to future sales situations.
Background
At the time, the computer tomography (CT) scanner was a relatively standard piece of equipment in the field of diagnostic imaging. CT scanners combined sophisticated X-ray equipment with a computer to collect wafer –thin cross sections of internal anatomy and translate them into visual images. Commenting on the advantages of CT scanners, a product specialist with EMI said, “The end product looks very much like a traditional X-ray image. The only difference is that with CT scanners we can see sections of the body that X-rays can’t. A radiologist, for example, can diagnose cancer of some organs less than tow weeks after it develops. This was not possible before CT scanners.” New advances in CT scanner technology – including increased resolution, faster scanning speeds, and portable viewers – were creating almost real-time images, allowing applications beyond diagnosis, like non-invasive surgery.
EMI was a subsidiary of Technologie 2000, A Belgian conglomerate. In addition to CT scanners, the company’s product line included X-ray, ultrasonic, and nuclear diagnostic equipment. EMI enjoyed a worldwide reputation for advanced technology and competent after-sales service.
“Our competitors are mostly from other European countries,” commented EMI’s sales director for Europe. “In some markets they have been there longer than we have, and they know the decision-makers better than we do. But we are learning fast.” Epsilon, the subsidiary of a diversified Dutch company under the same name, was the company’s most serious competitor. Other major contenders in the CT Scanner market were General Electric, Seimens, and Phillips.
EMI Executives estimated the European market for CT scanners to be around 6,375 units per year. They pointed out that prices range from 714000 euros per unit, with service contracts ranging from 44,500 euros to 134,000 euros. The company’s helical CT scanner sold in the upper end of the price range. Explained a sales representative:
“Our equipment is at least two years ahead of our mosttechnically advanced competitors. Unlike older systems, the new helical, or ‘slip-ring,’ technology allows for continuous motion of the x-ray beam while the patient passes through the machine. Combined with the new x-ray tubes, the scan time is significantly reduced. And our price reflects this technological superiority.”
EMI’s sales organization in Europe included eight country sales subsidiaries, each of which was headed by a managing director. Within each country, sales engineers reported to regional sales managers who, in turn, reported to the managing director. Product specialists provided technical support to the sales force in each country.
Buyers of CT Scanners
A sales representative at EMI described the buyers of CT scanners as follows:
Most of our sales are to the public sector, health agencies that are either government and EU sponsored or affiliate with non-profit organizations such as universities and philanthropic institutions. These organizations buy through formal vendors and budget their capital purchases at least one year in advance. Most hospitals buying a CT scanner are replacing one that is technologically obsolete or is no longer functioning at peak level. Once the budget is allocated, it must then be spent before the end of the fiscal year. Only a minor share of our CT scanner sales goes to the private sector, which consists of profit-oriented organizations such as private hospitals or private radiologists.
Both the public and the private sectors’ purchasing methods are very complex. In the public sector there are usually at least four groups that get involved in the purchasing decision: radiologists, physicists, administrators, and representatives from the supporting agency, (i.e. a university’s board of directors) who approve the capital budget.
Radiologists are the ones who use the equipment. They are physicians whose diagnostic services are sought by other doctors in the hospital or clinic. Patients remember their attending physicians, but not their radiologists. They rarely receive flowers from the patients! Radiologists know what their current machines can, and cannot, do and have a clear idea of what they are looking for in a new scanner. Also, radiologists are very aware of what equipment their counterparts at other hospitals are using or adopting –they can not professionally afford to fall behind.
Medical physicists are the scientists in residence. They write the technical specifications which competing vendors of CT scanners must meet; they are expected to be familiar with the state of the art of diagnostics imaging. Their primary concern is expected to be the patient’s safety and well being .In addition Cat scanners as well as other imaging devices are required to be in compliance with safety and quality standards as specified in various EU directives.
The administrators are involved in other sets of decision. These are two main administrative tiers that a sales rep must interact with: 1.The first tier is the hospitals top administrators such as the CFO, CEO, and board of directors, who have the financial responsibility for the hospital. The upper administration focuses on the cost of CT scanners, but also on what revenues they can generate. For example, a hospital usually bills 260 euros for the average, 25-minute CT scan, so there is an incentive to get as many patients as possible through the lab. They also look at the long-term business plan of the hospital, including which departments should be growing and which should be shrinking. Administrators are often concerned more with the terms of the service contract than with the specs of the machine itself, and are extremely wary of purchasing an expensive technology that will become obsolete in a few years, or experience frequent repairs or downtime.
The department administrators, the second tier, coordinate a department’s activities on a day-to-day basis, trying to optimize their department’s 12-hour days. When purchasing new equipment, the department administrator will often be the point-of-contact, setting up vendor presentations in the hospital and channeling bids to the appropriate parties. Frequently department administrators walk the line between the cost-conscious upper administration and the technological demands of the departments’ physicians.
The interplay among the four groups is rather complex. The influence of each group varies from hospital to hospital and sometimes from product to product. The department administrators, for example, may be the final decision-makers in some hospitals. In others, they are only buyers. One of the key tasks of our sales engineers is to define for each potential account the relative “power” of the players(i.e., they need to find out whatis the ability of each member of a purchasing committee, formal or informal to influence a buying situation. Only then, can they set priorities and formulate selling strategies}.
The European sales organization at EMI had recently started using a series of forms designed to help sales engineers in their account analysis and strategy formulation (Exhibit 1).
KolnUniversityHospital
Koln University Hospital (KUH) was a large general hospital, servicingKoln, a city of over one million residents. The hospital was part of the university’s medical school. The university was a leading teaching and research institution and enjoyed an excellent reputation. KUH'’ radiology department had a wide range of diagnostic imaging equipment from a number of European and American manufacturers, including Epsilon and GE. The radiology department had 12 staff members, headed by a senior and theinternationally-renown radiologist, Professor Marcuss.
Nixdorff’s Sales Activities
From the records he had kept of his sales calls, Nixdorff reviewed the events for the period between May 5, when he learned of KUH’s interest in purchasing a ct scanner, and December 11, when he was informed that EMI had lost the order.
May 5
Office received a call from Ms. Hegel, the radiology department administrator at KolnUniversityHospital, regarding a CT scanner. I was assigned to make the call on Ms. Hegel. Looked through our files to find out if we had sold anything to the hospital before. We had not. Made an appointment to see Ms. Hegel on May 9.
May 9
Called on Ms. Hegel, who informed me a recent approval by university directors for the radiology department to replace their five-year old CT scanner. Ms. Hegel wanted to know what we had to offer. Described the general features of Our CT system. Gave her some brochures. Asked a few questions which led me to believe other companies had come to see her before I did. Told me to check with Dr. Stein, the hospital’s physicist, regarding the specs. Made an appointment to make a presentation of EMI’s helical CT scanner to the department, including Professor Marcuss, ten days later. Called on Dr. Stein who was not there. His secretary gave me a lengthy document detailingdesired scanner specs.
May 10
Read the specs last night. Looked like they had been copied straight from somebody’s technical manual. Showed them to our CT engineer who confirmed that our system met and exceeded the specs. Made an appointment to see Dr. Stein next week.
May 15
Called on Dr. Stein. Told him about our system’s features and the fact that we meet all the specs listed in the document. He did not seem particularly impressed. On the other hand the good doctor turned out to be a fanatic fan of VFL BOCHUM who lamented about the dominance of BAYERN in the BUNDESLIGA Left him with technical documents about our system.
May 19
Made the usual presentation on the helical CT scanner to Professor Marcuss, Ms. Hegel, Dr. Stein, and three other radiologists. All read the materials I had left with Ms. Hegel. Highlighted the technical advantages of our scanner, including how the new x-ray tubes[1] and the slip-ring scanning can give speeds of 0.8 seconds per slice instead of the 1 second per slice on their current scanner. They seemed rather pleased with the features. Professor Marcuss asked about our service plans. Explained our Extended Warranty would cover five years of x-ray tube replacements and system maintenance. This impressed them. Also answered questions regarding image manipulation and image processing speed.
Just before I left, Professor Marcuss inquired about our combined price for the scanner and the warranty. Told him I would have an informative quote for them at our next meeting. Made an appointment to see Professor Marcuss and Ms. Hegel on June 23, after Professor Marcuss returned from his vacation. Ms. Hegel told me to get in touch with Otto Bauer, the hospital’s director of purchasing, in the interim.
June 1
Called on Bauer. It was difficult to get an appointment with him. Told him about our interest in supplying his hospital with our CT scanner which met all of the specs as defined by Dr. Stein. Also informed him of our excellent service capability. He wanted to know which other hospitals in the country had purchased our system. Told him I would provide him with a list of buyers within a few days. He asked about the price. Gave him an informative quote of 850,000 euros for the scanner and 133900 euros per year for the warranty – prices my boss and I had determined after my presentation. He shook his head saying, “Other scanners are cheaper by a wide margin.” I explained that our price reflected the fact that our scanner was built with the latest technology. Also mentioned that the price differential was an investment that could pay for itself several times over through the faster speed of operation. He was noncommittal. Before leaving his office, he instructed me not to talk to anybody else about the price. Asked him specifically if that included Professor Marcuss and Ms. Hegel. He said it did. Left him with a lot of material about our system.
June 3
Went to Bauer’s office with a list of three hospitals similar in size to KUH that had installed our system. He was out. Left it with his secretary who recognized me. Learned from her that at least two other firms, Epsilon and GE, were competing for the order. She also volunteered the information that “prices are so different, Mr. Bauer is confused.” She added that the final decision would be made by a committee of Bauer, Professor Marcuss, Ms. Hegel, and one other person whom she could not recall.
June 20
Called on Dr. Stein. Asked him if he had read the material about our system. He had, but did not have much to say. I repeated some of the key operational advantages our product enjoyed over our competitors, including Epsilon and GE. Left him some more technical documents.
On the way out stopped by Bauer’s office. His secretary told me that we had received favorable comments from other hospitals using our system.
June 23
Professor Marcuss and Ms. Hegel were upset to hear that I could not discuss our price with them. Told them about Bauer’s instructions to that effect. Neither could believe this, especially when Epsilon our major competitors had already given them their quote of 803,750 euros plus 89,300 euros for a limited service contract. When Professor Marcuss calmed down, he wanted to know if we were going to be at least competitive with the others. Told him our system was more advanced than Epsilon’s and that our service contract was more comprehensive. Promised him we would do or best to come up with an attractive “package”. Ms. Hegel mentioned she intended to speak to the lunching Mr. Bauer that afternoon about our bid. Then we talked about Professor Marcuss’s forthcoming vacation and sailing experience on the Aegean Sea. Clearly he loves Greek food.
July 15
Called to see if Bauer had returned from what appeared to be a long lunch at his favorite restaurant (known for its fine beer selection). He had. While checking his calendar, his secretary told me that our system seemed to be the “radiologists’ choice,” but that Bauer had not yet made up his mind.
June 30
Visited Bauer. Bauer seemed to be fixated about the price. He said, “All the companies claim they have the latest technology” so he could not understand why our offer was “so much above the rest.” He concluded that only a “very attractive price” could tip the balance in our favor. Repeated the operational and service advantages our system enjoyed over others, including those produced by Sigma and GE. My boss indicated that we were willing to lower our price to 879,500 euros for the scanner and 129500 euros per year for the warranty if the equipment was ordered before the end of the current year. Bauer said he would consider the offer and seek “objective expert opinion. He also said a decision would be made before Christmas.
August 14
Called on Professor Marcus who was too busy to see me for more than ten minutes. He wanted to know if we had lowered our price since the last meeting with him. I said we had. He shook his head and said with a chuckle, “maybe that was not your best offer.” He then wanted to know how fast we could make deliveries. Told him within three months. He did not say anything.
September 2
The regional manager and I discussed the desirability of inviting one or more individuals from the KUH to visit the EMI headquarter operations near Brussels. This idea was finally rejected due to conflicting schedules of some of our managers.
September 3
Dropped in to see Bauer. He was busy but had time to request a formal “final offer” from us by October 1. On the way out, his secretary told me there had been “a lot of heated discussion” about which scanner seemed best suited for the hospital. She would not say more.
September 25
The question of price was raised in a meeting with our regional manager and the managing director. I had recommended a sizeable cut in our price to win the order. The regional manager seemed to agree with me but the managing director was reluctant. His concern was that too big a drop in the price looked “unhealthy” They finally agreed to a final offer of 861,500 euros plus 125,000 euros per year for the warranty.