I had an insightful conversation with top executives at two of the top medtech suppliers. The basic message was that these organisations face huge uncertainty as products commoditise, thus rendering their existing sales force uneconomic.

Today, these companies have enormous direct sales forces. One spends hundreds of millions of dollars a year on its sales force in Europe. Paid $200-300,000 a year, these individuals are used to making technical sales to surgeons. Innovation has historically sold the equipment. Margins on high-end kit were, and are, huge at 80-90%. “The sales rep would go in, give a technical demonstration to the surgeon and make the sale. The more sales reps you had, the more sales you made.”

However, regulation cuts in public expenditure are killing this market. As one executive put it: “Regulation means that we can not innovate anything like as fast as we did before, so products have become much more commodity.” At this point, these companies find themselves faced by the need to tender constantly. The percentage of tendered items varies across Europe from a high of 80% in the Nordic region down to almost nothing in southern Europe.

Meanwhile, the customer has also changed. In the private hospital sector, it is now senior management who look on the equipment with business, rather than technical, eyes. Buying groups in Germany are also having a big impact. “Sana, Rhoen, Asklepios, Klinik Partner are demanding and getting 25% rebates.”

Similar changes are also happening in the public sector, particularly in Germany, where the professionalism of hospital management has changed out of all recognition in the last decade. “The young surgeons have nothing like the power of the previous generation who are retiring.”

The response is to build services around the equipment - to become a service provider with a long-term relationship, rather than a seller of commodity product.

For the private sector, this often involves a lot of public relations and even sales and marketing to help drive new customers to use a new piece of technology. It also involves the use of telemedicine. St Judes, for instance, has recently launched a Remote Patient Care Network in Europe. Another supplier said: “Pacemakers have become commodity items, so we add an additional service which means that they can be monitored remotely.”

Some companies even offer lean sigma consulting to cut costs in the operating theatre. “You can not imagine the levels of waste we find,” said one executive, adding: “But it is a two-edged sword because often we are recommending staff cuts and that doesn’t make you popular in the public sector.”

An alternative approach is to move to an ecommerce model. Boston Scientific, for instance, has recently launched a new eorder website. Here the buyer gets a lower price, but has to pay for access to the sales executives. But this also looks dangerous. A supplier at another medtech company said: “If it is 20% of our business that is manageable, but if it is 60% that is another matter entirely.”