2 reasons behind terminations of distributorship agreements

2 reasons behind terminations of distributorship agreements

Guess how long the average exclusive partnership lasts in medical supplies industry? It is about 3 years. Surprised? That’s how it is, in medical distribution agreement.

 

By comparison, for a McDonald’s franchise, over in the food service industry, it’s well over 20 years. We have a whole different return on investment over here, and a whole different lifetime value, against customer acquisition.

 

Why is that?  How come distributorship agreements don’t last very long in the medical industry? Well, there are 2 main reasons.  One’s about not knowing who we’re dealing with, and the other is about transparency.

 

The first reason for the short life of distributorship agreements.  We just don’t know enough about each other in this business. There isn’t an agreed-on ranking system for medical distributors.  There should be, but there isn’t.  You can’t go look up distributors and know at a glance how good their communications, how good their sales force, and all the other things you’d like to know, like their customer service, and their financial capacity which I consider the most important thing,  as 60% of ALL contracts terminate when the distributor gets big orders but is too weak financially to make the orders from the supplier.

 

That means a lot of partnerships come together by random chance – not because they were the best fit to each other.

 

And what’s the second reason? It’s related to the first.

It’s a lack of transparency between manufacturers and distributors about the opportunities out there.  Distributors often represent many manufacturers at once.  They might fear missing or not being able to accept some tenders.  Other distributors take advantage of this by sending the tender that the representative distributors missed to the manufacturer directly.  The idea is to create conflict, and afterwards an opportunity to take the position of the representative distributor for themselves.

Leave a Reply

Your email address will not be published. Required fields are marked *