As we described in a prior Practice Edge article, the drug manufacturer world has consolidated significantly in the last 10-15 years, going from 15+ manufacturers to four major ones today – BI, Zoetis, Elanco and Merck (“The Big Four”). There are many other manufacturers but they tend to be smaller with niche products and services.
What does manufacturer consolidation mean for an individual practice owner? If you think strategically about your product choices, you may be able to drive lower costs to help your profits. The common thread among The Big Four is that they all have (i) a full line of vaccines and (ii) a stable of flea, tick and heartworm brands. Each of the manufacturers also has non-steroid anti-inflammatory drugs (NSAIDs) but the size of this category is much smaller than vaccines and parasiticides. Beyond those two categories, only Zoetis has a truly unique product line with Apoquel, Cytopoint, Cerenia and Convenia and it recently acquired Abaxis to move aggressively into diagnostics.
So, which products are the best?
Here are a few ways we think individual owners can take advantage of the consolidating manufacturer market:
- Stay up to date
Most veterinarians know the clinical benefits of the products that they use but are not as aware of the benefits of the competitive products. It’s my opinion that there is significant upside in being open to receiving education from a manufacturer about products you don’t currently use, which can help you to understand research and clinical capabilities that you may not otherwise be aware of. I mention this because in this consolidating world, the key tool the veterinary practice owner has is the ability and willingness to switch manufacturers, especially if you aren’t get the degree of discount or the rebates you deserve.
- Consolidate your purchasing and push for discounts
As a practice owner, you can likely create the ‘best deals’ for yourself by concentrating your purchasing with one manufacturer and pushing that manufacturer’s sales person to provide discounts or rebates on other products in their line. The Big Four tend to have clinic level incentives for you to use multiple products from them – these are always clearly the best deals. In addition, they provide material incentives for growth – which is most likely to be achieved by switching from one manufacturer to another.
- Be smart when negotiating discounts
When pushing manufacturers for discounts, keep in mind that they don’t like to discount the parasiticide products because they believe clients have brand loyalty. However, clients have no tangible brand loyalty with vaccines – so there are usually strong discounts on this category. The opportunity is to (i) understand the multi-product incentives available from the manufacturer and (ii) negotiate with your sales person to get better pricing for being loyal to one manufacturer for vaccines AND flea, tick and heartworm products. If your primary products are from different manufacturers, you are likely not maximizing your discounts or rebates!
- Don’t be afraid to switch
Manufacturers all like growth but don’t always reward loyalty. We have seen the most profitable veterinarian owned clinics being the ones that will consolidate their vaccine and parasiticide purchases but will also switch every couple of years to maximize the ‘growth’ discounts offered. Switching flea tick products is not easy and takes client education – and if you like a product, stick with it. However, make sure the manufacturer rewards your loyalty with better pricing (not always simple to do)!
The manufacturers have gained market power over the distributors through their consolidation (see previous post). The way for the veterinarian to retain or gain some pricing leverage is concentrating your purchasing dollars with one primary manufacturer and looking for price benefits. Asking a competitor for price breaks if you switch will then help you understand what discounts your main provider should provide and if they don’t – you exercise your market power by switching!