Full article reprinted from "The Gray Sheet" - February 16, 2009
Find out how Philips sales exec Joe Robinson says his people will start asking more questions to understand what capital-starved hospitals are going through, and offer customers new ideas for financing during the economic downturn.
The electronics giant saw a single-digit increase in U.S. sales of its imaging systems in the fourth quarter of 2008, but saw a decline in new orders (1"The Gray Sheet" Feb. 2, 2009, p. 9).
Robinson, senior vice president of sales and marketing for Philips Imaging Systems, North America, spoke with "The Gray Sheet" earlier this month about how his business unit is adapting to the challenging sales environment.
"The Gray Sheet": How has the credit crisis hit diagnostic imaging sales in recent months?
Joe Robinson: I think about interest rates, and I have [hospital] customers that I know have been directly impacted by this. The sacrifice, oftentimes, is that if they had cranes all over the campus, and they had a lot of different construction projects under way, they are not going to remove the cranes. They are going to cut back on the capital expenditures within the buildings.
TGS: In the larger economic picture, are there other ways hospitals are being hit beyond the credit crisis?
Robinson: A very big system in the Midwest - well endowed, not for profit - they had such a decrease in their big philanthropic fund that it cut about $80 million out of the capital expense planned spending budget across their system - not just imaging equipment, but across their system for capital expenditures. Well, that's pretty big.
TGS: Does this influence the time it takes to make a sale, or are there fewer sales overall?
Robinson: Every indication is that the overall market in North America was down in 2008 versus 2007, so the amount of available orders to get in the year declined. I saw the most dramatic decline probably from September on.
You get so caught up in what's going on with the marketplace, economics and government regulations and everything that you start to think some days that nobody is buying anything, but that's not true. We're getting orders every day for things; it's just that the process is slower.
Until [hospitals] see that funds free up for them, whether it's from investments or through cheaper capital or whatever it might be, they're going to be slower to issue purchase orders to spend money.
TGS: Has anything changed in the sales environment in January or early February?
Robinson: Maybe one thing has changed: I'm not surprised by it now.
In Q4, this was happening so rapidly, just like the news hitting the headlines so rapidly, that you were kind of reeling every week about what was going to happen next. We've adjusted to that, and the sales force has adjusted to asking more questions.
Our customers have begun to adjust. The customer who used to say, "I know I can give you a purchase order at the end of the month," because they know the process and they know what's normal, has begun to adjust to an abnormal process in their own institution. We see intent to buy, but uncertainty: "Am I going to be able to do it or not? Let's see what happens next month."
Internally, it creates a greater sense that we've got to understand our customers better. It's really a good opportunity for us to help them understand what's going on in the market better, because they look to us.
In the midst of this, there is really a great opportunity to become closer to the customers, to understand what they are doing better and to become more consultative to them. That's what I'm driving my organization towards.
TGS: Do you want your sales force to start asking your customers different questions?
Robinson: Yes, different questions and more questions and in different places in the organization.
If last year you knew your customer - you've been calling on him for a few years and you know generally where the decisions are made, and you know if the VP and the director and the purchasing guy all give you the green light, everything is OK, and that's always worked - well, now all of a sudden, because of maybe the cost of capital and those types of things, the chief financial officer is basically saying, "No, I'm not signing off," when before that was a rubber stamp.
You have to go now and understand what's happening financially with the hospital. If someone says, "I'm not sure if I'm going to be able to issue a purchase order or not," [you should say] "Well, help me understand why."
"Because right now we're at a capital expenditure limit."
"Well, have you thought about using operating capital to buy that?"
It opens up a different kind of conversation, and those are different kinds of questions than we may have asked that customer before because they've always just paid us with cash.
As we have reeled a bit, they've reeled a bit, too. If they hadn't looked at operating leases before, now maybe it's an opportunity to look at operating leases.
TGS: Are the hospitals that have trouble accessing capital to buy equipment also having trouble leasing imaging equipment?
Robinson: In some cases yes, in some cases no. It depends on their credit and where we are with them.
There are plenty of customers that we can lend money to that we haven't been lending money to, whether they haven't been buying our equipment or they've always purchased through bank financing locally, or whatever it might be. Those sources have dried up for them, and those doors now open for us.
Having a good, strong bank behind us helps us.
TGS: Are there certain types of imaging equipment that are any more or less vulnerable in this type of market?
Robinson: The general feeling - and the months to come will bear this out or not - is that the higher ticketed items are more likely to be slowed down at this point. So with million-plus-dollar purchases, customers are thinking longer and harder - "Can we hold off a few months? Do we have access to the capital to buy them right now?" - versus smaller ticket items, $100,000 to $200,000, which for us would be surgical C-arms or ultrasound as opposed to an MRI or a cath lab.
TGS: Are hospitals trying to make do with their aging equipment for longer periods of time?
Robinson: I think they are looking hard at those things, and if they can make do for another year or another quarter, they are holding off on those decisions.
That's a phenomenon of the last six months or so. We saw it hit in 2007 in the outpatient imaging market because reimbursements got cut [as a result of the Deficit Reduction Act] by approximately 30 percent, mostly MR and CT, and perhaps some ultrasound as well.
The interesting thing about everything we've talked about is we're heading into a pent-up demand period, too. If people are holding off on decisions they intend to make or spending the capital expenditure in a new construction area, they are going to spend it at some point. And it is going to happen when they feel comfortable that whatever is going to happen in health care they know and understand, and/or they have cheaper or better access to capital.
TGS: Are you referring to health care reform discussions in Washington?
Robinson: Yes, there is a fair amount of uncertainty in that. People think there is going to be some substantive change; the question is, what areas will be impacted the most? What's going to be impacted will dictate where you're going to spend your money. [Hospitals] are going to direct business development where they are going to be funded.
TGS: Do you expect greater competition among imaging manufacturers this year?
Robinson: That's a tough question, because the competition is always very tough. In imaging, there aren't a ton of small companies I compete against. I compete really against General Electric, Siemens and to a lesser degree Toshiba.
Those are big, formidable companies with big, professional, well-trained sales organizations and with manufacturing processes that are of the highest quality and everything else, just like us.
So the competition is always very tough. Is it going to be tougher this year? I don't know; it's tough all the time. We probably have to be smarter this year than anything else.
TGS: How likely is price erosion this year?
Robinson: There is some price erosion every year because as you introduce new products, the existing technology generally erodes in price. We plan every year for a certain degree of price erosion in the market.
Everything is getting more price competitive. To the degree to which we can expect some more erosion, I don't think that would be an unrealistic expectation. Do we plan on just eroding our prices? No, we don't. We plan on working diligently to maintain and get a better price in the marketplace.
TGS: So you don't expect to be the one to start a price war this year?
Robinson: No, not at all.
TGS: What do you plan to do differently this year?
Robinson: At Philips, we're going to be investing more in training our people, making them stronger financially, to understand customer businesses better. I believe that pays dividends in one, getting more business, and two, getting a better price overall.
This year we're probably investing more than we have in the last few years in training our people, and raising the level of our expertise and continuing on the quality programs we've had. We're not backing off on investment in those things at all in North America. Getting people working together to deliver better quality and customer and patient experience - those aren't areas where we're cutting expenses.
- Monica Hogan
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