How Will Vertical Integration Affect You?
There has been a lot of talk in relation to vertical integration within the hearing aid industry. It would seem that a few professionals feel it would be the end of Independent hearing healthcare professionals. They rail against the manufacturers involved, call for boycots and generally start discussions based on fear. They feel that this should not be allowed and that they must protect their hegemony in the profession. I have a couple of thoughts and questions in relation to it, some you ain’t going to like, but hey, lets not fall out here. Disclaimer here, just in case you don’t already know, I work for a manufacturer. My views are my own and do not reflect the views or policies of the company I work for.
Why are you so special?
Why should your business be protected from market forces?
What have you done that should change a manufacturer’s mind about vertical integration?
Do you realise that vertical integration came about because your comrades sold their Practices to Manufacturers to get the best price?
Do you realise that in most cases Manufacturer owned chains are more expensive than Independents?
Vertical integration is not a new thing, it has been with us for many many years. It is like an arms race, if one does it, the rest need to follow to protect market share. But why are you suddenly so worried about it? The track record of vertical integration is not particularly good outside a rare star. Manufacturers up to now have not run retail operations very well. Why do you think this is going to change?
Every manufacturer has own retail, through the years they have nearly all had to acquire some retail outlet. I do mean had to, a good customer comes to them and says “I am thinking of selling, company X is interested”. Now that gets the interest of a manufacturer, right after years of hard work to acquire market share through building and developing a business relationship, they are going to sell it to the competition? No, isn’t going to happen, of course we will buy you.
That is how vertical integration began, yes many companies have formalised the arrangement particularly in the last few years. But back to what I said, it has been going on for many years, why are you afraid of it now in particular? That is a genuine question, truly I don’t understand why the fear is generated. I have heard about company outlets using their financial backing to offer cheap hearing instruments. But I have seen little evidence of it in Europe.
After being held over a barrel for a bath tub of cash most manufacturers want to realise their investment. Selling cheap hearing aids and reducing profitability is not going to service that need. In fact most of the manufacturer owned outlets charge slightly more than the going rate for instruments. they may well be more active in the marketing stake, but that in my experience is a tide that all boats ride. In my market the one downward force on average sales price of hearing aids is an Independently owned corporate.
So experience tells us that pricing up to now has not been detrimental. Added marketing spend has actually assisted the whole market, not just the manufacturer owned outlets. What drives the fear that this will change?
Regards
Geoff
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Great article, Geoff, and it echoes stuff I’ve posted myself to counter the fear mongers. And I DON’T work for a manufacturer.
I have seen many of your comments and statements of outlook and agree with them. The manufacturers have generally made a bit of a fist when they get into retail, although that is changing. They have always been careful with their pricing, I would assume for two reasons.
1. They need to maintain profitability to ensure ROI
2. Not to irritate the rest of the market