The BOC Group: Ohmeda (A)
Marketing Management

Company Analysis:

Ohmeda, a wholly owned subsidiary of the BOC Group, operated historically in three key areas: medical equipment, gases, and supplies. In 1985, Ohmeda’s president, W. Dekle Rountree, was planning to exit gases and supplies in order to focus solely on high-tech medical equipment. Through this shift in strategy, Rountree was hoping to grow equipment revenues from $95M in 1985 to $158.5M in 1990.

In order to execute successfully on his growth plan, Rountree would need to re-assess Ohmeda’s marketing channel strategy. In 1985, 43% of equipment sales ($41M out of $95M) were booked through dealers. Dealers provided increased coverage, but also carried significant costs; while direct sales were typically had a modest 6% discount, dealer sales discounted 21%. This added cost was compounded by heavy overlap between dealer sales and the direct sales force. 30% of dealer sales were believed to originate from the direct sales team, which often relied on dealers to deliver equipment for on-site demos. For an individual sales person attempting to sell a $25K anesthesia system, the $64 reduction in commission for letting the dealer book the sale was trivial. Ohmeda, on the other hand, was giving up much more. This same $25K order would cost Ohmeda almost $4K in lost revenues ($25K * (21% - 6%) = $3,750).

Another key decision faced by Rountree was whether or not to re-organize the direct sales force into specialized product groups. Ohmeda sold a variety of medical equipment solutions, including anesthesia systems, infant care, respiratory therapy, suction, patient monitors, and architectural products. All of these products were sold through a general sales force. The key benefit of a general sales force was efficiency; one sales person could visit multiple decision makers within a given hospital