9-593-070

Rev. November 15,1994

Becton Dickinson Division: Marketing Organization

In June 1990, Gary Cohen, Director of Marketing for the Becton Dickinson Division (BDD) of
Becton Diclunson and Company (BD), was reviewing the current alignment of roles and
responsibilities in BDD's marketing department. Mr. Cohen noted:

Like most medical products manufacturers, we are facing ongoing price

pressures associated with tighter health-care reimbursement procedures as well as
many new requirements in our traditional markets. So, it's important that we keep
our marketing efforts aligned with current customers' evolving needs and continue
to provide superior value in our division's core product areas.

At the same time, a number of potential new products and services may soon
be vital aspects of the business. These developments are driven by important trends,
and some represent new markets, significant techno1ogical change, opportunities,
and threats. They may also mean developing new marketing skills, programs, and
partnerships not currently a big part of our department's activities.

I want to be proactive in meeting these developments rather than play catch-

up a few years from now. How do we organize to handle effectively our existing
business while building the capabilities required for new business developments?

Company Background

BD manufactured and marketed a range of products for use by health care professionals,
medical research institutions, industry, and the general public. Net sales in 1989 were $1.8 billion (see
Exhibit I), with non-U.S. sales representing 40% of the total. The company was organized into two
product sectors-Medical (59% of 1989 sales) and Diagnostic (41%)-with 19 operating divisions
(each with profit responsibility and most with their own manufacturing, marketing, sales, and service
resources) and the international sector. BDD was a division in the Medical sector and, in terms of
personnel and sales volume, the largest division at BD.

In BD's 1989 annual report, management noted: "Our strategic response to the industry
trends of cost containment, changing patterns of purchasing and delivery of health care, and
internationalization is to continue to build our competitive advantage through technological

Professor Frank V. Cespedes and Research Associate Laura Goode prepared this case as the basis for class discussion rather
than to illustrate either effective or inefective handling of an administrative situation. Certain coinpany data, wlzile useful
for discussion purposes, have been disguised.
Copyright 01992 by the President and Fellows of Haward College. To order copies, call (617)495-6117 or write
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593-070 Becton Dickinson Division: Marketing Organization

innovation. This allows us to differentiate our products on the basis of superior performance, and to
enhance our reputation as a worldwide quality leader."

~ e c t o nDickinson Division

Mr. Robert Flaherty, president of BDD since 1985, had previously run VACUTAINER
Systems, another BD division. Reporting to Mr. Flaherty were executives heading the division's Sales,
Manufacturing, Marketing, M.I.S., Human Resources, R&D, and Quality Assurance functions as well
as a controller and a general manager for Technique Products (see Exhibit 2).

In Sales, Mr. Robert Jones managed an organization aligned geographically by region, each
headed by a Regional Sales Manager (RSM), who in turn managed a District Manager and 7-12 sales
representatives, most of whom sold the full line of BDD products. Also reporting to Mr. Jones were: a
Director of Contract Sales, responsible for contract terms established directly with large hospitals or
buying groups as well as two senior sales representatives designated as Managers of National
Accounts; a Market Manager for sales training, sales promotions, and communications to the sales
force; and a Manager of Sales Administration & Services, responsible for sales analyses and general
sales administrative tasks including order processing.

BDD's products were sold to hospitals, laboratories, other manufacturers (OEM sales), the
government, and a variety of alternate care providers. Except for OEM and government segments,
virtually all sales were made through distributors. Unless otherwise indicated, all hospital,
nonhospital, and distributor accounts within a territory were the responsibility of the field sales rep.
Key users of BDD's products in the hospital setting were nurses, pharmacists, and physicians such as
radiologists and anesthesiologists. Product preferences in nonhospita1,settings were influenced by
product adoptions at hospitals.

In the hospital market, BDD salespeople called on hospital accounts to negotiate pricing and
other terms-and-conditions for orders. Their chief contact was typically the director of purchasing
and/or materials management at hospitals. Other important buying influencers called on by
salespeople were the director of Nursing, director of Pharmacy, and the director of Central Supply,
who often administered and dispensed supply products across various hospital departments. In
addition, salespeople also promoted their products with the hospital's Standards Committee, Product
Evaluation Committee, and director of Infection Control. .

After negotiating terms with BDD, hospital accounts selected a distributor for order
fulfillment. Distributors typically received from BDD a commission for stocking and delivery of
product; but in recent years, many hospitals had entered into a second round of negotiations with
distributors in order to bargain down further their product acquisition costs. As a result, distributors
often relinquished part of their commission from the supplier in order to get or retain hospital
business. BDD salespeople called on distributors to monitor inventory and stocking levels, help with
specific sales situations, and (as one manager noted) "maintain our share of mind with the
distributors; this is particularly important for nonhospital customers, since we do not make many
direct calls in that large but fragmented market." Some distributors focused on hospital accounts and
some on nonhospital segments; most of BDD's distributors sold to both.

Commenting on the typical usage situation for BDD products, Mr. Cohen noted:

Syringes and needles are used in many different hospital departments. In

fact, of hospital supplies, only N solutions are used in as many different areas. This
tends to increase the decision-making power of the hospital's Purchasing
department, because no single group of users has the final say for a big order.
Purchasing personnel often believe that hypodermics are "commodities," because
Purchasing is not always familiar with specific needs and applications in various
Becton Dickinson Division: Marketing Organization 593-070

departments or with the many other devices that hypodermics must be compatible
with in the hospital setting. However, this situation also means that our installed
base has some protection, because conversions in this product category involve so
many different people and departments at hospitals.

In managing accounts, a key task for sales reps at hospitals was to conduct "in-service"
training programs for all users when a hospital switched to a BDD product. With marketing support,
this process required the rep to demonstrate proper product usage and to educate nurses, physicians,
and other end-users on BDD products. A marketing manager commented that, "Done well, in-service
builds our relationships and brand image with important influencers at accounts. Done poorly, it
makes future sales to that account more difficult."A sales manager noted:

Product conversions in our category are traumatic for hospitals and their
employees, and any conversion won't hold if the in-service is not handled well. Our
products, and especially our packaging, are different than our competitors', and that
makes in-service important. New product introductions and, especially with needles,
a heightened awareness of AIDS and other factors, also make in-service important. It
must be handled patiently with every end-user, and that's a big task.

Sales compensation in the division involved a base salary and a commission portion that
typically accounted for 20%-35% of the salesperson's total annual compensation. Commissions were
based on two factors: regional performance in relation to budgeted sales goals, and the individual
salesperson's achievement of sales goals on 12 designated "focus products." Salespeople also received
a car, coverage of all normal business expenses, and generous fringe benefits.

Mr. Jones became vice president of Sales at BDD in 1985. He noted that:

BDD sells the corporation's well-established, core products. For years, it was
informally considered the "flagship" division in our company. But in the early 1980s,
changes in our environment placed many new pressures on our operations. When I
got here, most of my initial efforts were aimed at improving field morale and sales
results in the new environment. My focus now, however, is on upgrading the skills
of our sales force in the full use of "value added" selling of both our product and
service capabilities in selected segments, and in developing in-depth field sales
relationships beyond purchasing with decision influencers in various departments.

Products

BDD's major product lines are listed in Exhibit 3. Hypodermic needles and syringes
represented more than half of BDD sales and a higher percentage of divisional operating income.
BDD's market share in the hospital segment of the U.S. market for needles and syringes had increased
over 10% in the past five years to about two-thirds of sales in t h s segment. Shenvood Medical
accounted for most of the remainder and a new entrant, Terumo, for 1%.

With over 300 products, BDD's line was the broadest available and noted for excellence in the
areas of needle sharpness, ease of use, and safety. In the past three years, moreover, BDD had
introduced new product features such as a clearer syringe barrel and bolder scale for reading ease
and dosage accuracy by end-users, sharper needles, and a syringe with a built-in sliding shield for
maximum safety. These product improvements had required extensive capital investments in R&D,
quality control, manufacturing capacity, and plant tooling and production processes. In addition,
management cited the division's extensive U.S. distribution network, and its strong worldwide
position, as reasons for its success in hypodermics.
593-070 Becton Dickinson Division: Marketing Organization

An important element in BDD's strategy for hypodermics was what one executive termed
"quality aggression." Since BD had vertically integrated into the production of most components, it
codd manufacture these products at especially demanding specifications and pioneer in product
feahres whch demanded a tight hold on quality.

During the 1980s, unit demand in the United States for hypodermics had grown at single
digit rates. But government cost-containment legislation enacted in 1983 had caused selling prices for
most medical products in the hospital market to decline. In addition, new forms of medication
delivery systems (e.g., premixed delivery systems and controlled-release capsules) had the potential
to decrease usage of hypodermic products.

Medical gloves, less than a fifth of BDD sales in 1989, accounted for about a quarter share of
the vinyl glove market in the United States and less than 10% of the total vinyl/latex glove market.
BDD sold its vinyl nonsurgcal gloves to the hospital, alternate care, and government markets.

In recent years, medical personnel had become increasingly concerned with hand protection,
and stricter FDA regulations had recently changed market priorities from fit and comfort to
protective durability and strength. Management believed these trends supported BDD's historical
emphasis on premium-priced, high-quality medical gloves. Nonetheless, in 1989, 65% of medical
gloves sold worldwide were latex, and there was an oversupply of vinyl capacity. As a result,
manufacturers of vinyl gloves faced a difficult selling environment.

Technique needles were specialized for use in anesthesia, biopsy, and radiology procedures,
and were purchased by hospitals, alternate care facilities, and OEMs. This product category
accounted for less than 10% of BDD sales in 1989, but BDD anticipated significant growth over the
next few years due to a rapidly growing biopsy market.

Thermometry included glass and digital thermometers and accessories, and accounted for
less than 1O0/0 in 1989 divisional sales. A pioneer with a long-standing reputation for quality, BDD
maintained a leading share of the glass thermometer market. But thermometry had been rapidly
moving toward electronic products in recent years. Hence, BDD's strategy was to focus on the higher-
priced, specialty applications for glass thermometers at hospitals and alternate care facilities as well
as selected growth opportunities for digital thermometers.

In 1989, the approximately 6,000 short-term hospitals in the United States accounted for a
majority of BDD's hypodermic business. Mr. Cohen noted:

Our best customers buy on value for a broad range of applications. An

important marketing task is identifying such customers and developing appropriate
product and service programs. An important sales task is learning to sell our value
(versus our lower-priced competitors) by maintaining and developing our presence
with the hospital bench people-i.e., the people in various departments who actually
use our products, care about the quality of what they use, and complain to hospital
administrators if they do not get the product they want.

The nonhospital market included physicians' offices, nursing homes, health maintenance
organizations, veterinarians, and outpatient centers. There were about 550,000 nonhospital sites in the
United States in 1990. The nonhospital segment was growing, both in terms of sales volume and
number of facilities. Further, this segment typically delivered hgher margins than hospitals, since
average selling prices tended to be higher in alternate care sites. However, this was a relatively
fragmented market segment.
Becton Dickinson Division: Marketing Organization 593-070

The OEM market was primarily composed of medical equipment manufacturers and custom-
kit packers that included syringes and needles in procedure trays and other kits for sale to hospitals.
.OEM accounts represented less than 10% of BDD's hypodermic business.

The government market included all government-operated hospitals (e.g., veterans'

hospitals), clinics, pharmacies and agencies. Contract awards in this segment were typically made
through a formal bid process and awarded to the low bidder meeting government specifications.This
segment also represented less than 10% of BDD's hypodermic business.

Market Trends

In 1983, a change in how the U.S. government reimbursed hospitals for Medicare patients
(40% of all hospital patient days) affected the entire health care industry. Previously, hospitals had
been reimbursed for all costs incurred in serving those patients. The 1983 legslation mandated a
prospective-payment approach based on "diagnosis-related groups" (DRGs). Payment to a hospital
was based on national and regional costs for each DRG, not on the individual hospital's costs.
Moreover, the average costs were continually updated so that, as hospitals improved their cost
performance, they were subject to stricter DRG-related payment limits.

During the 1980s, the impact was dramatic. Hospital admissions fell, the average length of a
patient's hospital stay declined, and hospital profit margins decreased. In 1990, over 75% of hospitals
surveyed expected to lose money on their Medicare patient load.

By 1990, the number of hospital beds in the United States had declined slightly to about one
million. In their place, a variety of smaller, short-term health care facilities had proliferated. In
addition, some hospitals were diversifying into outpatient surgical centers, rehabilitation centers,
home health senrices, and other forms of nonhospital treatment. In 1984, inpatient senrices had
represented more than 80% of total hospital revenues; by 1988, it accounted for 74% and was
projected to drop to 68% in 1991. A related development was increased concern among employers
and insurers about the costs of health insurance. Many health plans encouraged employees to shorten
their hospital stays and to shun more expensive in-patient treatment in favor of outpatient care.

These trends affected health care products manufacturers. First, hospitals placed increased
pressures on manufacturers to lower prices while reducing their supplies inventories. Medical
supplies accounted for 10°/i15% of a hospital's total operating costs, while the order processing and
logistical expenses associated with supplies made up another 1O0/0-15%. (Labor costs usually
accounted for at least 60% of hospital costs.) A BDD salesperson noted, "just-in-time delivery is a very
important concept for hospital materials managers. Hypodermics typically account for less than 5%
of the total supplies volume purchased by a hospital. But it's a key product line with high visibility
among nurses, doctors, and their patients. Hospitals order hypodermics frequently, and most have a
standing weekly order with one or more distributors for needles and syringes."

Second, purchasing decisions had changed. Mr. Cohen noted that, "In the past, the hospital's
director of nursing was often the key decision maker in our product category. But cost containment
has increased the influence and power of the purchasing department."

Tlurd, the formation of group purchasing organizations (GPOs) and multihospital chains had
accelerated. Both were intended to increase the purchasing power of hospitals for equipment and
supplies and, by 1990, most hospitals belonged to chains and/or buying groups. In these
arrangements, purchases were handled centrally; but individual hospitals were often free to accept or
reject the terms negotiated on a specific item by the central buying group.
593-070 Becton Dickinson Division: Marketing Organization

Fourth, during the 1980s, the incidence of AIDS patients had increased the medical
community's concern with product quality and safety, especially in categories where accidents
involving skin puncture were not uncommon (e.g., needles).

Competition

BDD competed primarily with two other firms: Sherwood Medical, predominantly a U.S.
competitor, and Terumo, a global competitor.

Shenvood Medical, a division of American Home Products, represented about 10% of the
sales of its parent company, which manufactured and sold a variety of health care products, many of
which competed with other BD divisions. Sherwood's main emphasis was the hospital market, but it
also sold to the dental, consumer and industrial sectors.

Sherwood's primary line was known as Monoject, and its key differentiating feature was its
packaging: each Monoject needle/syringe was self-contained in plastic package. However, as a BDD
marketing manager noted, "Sherwood's packaging is both its strength and potential weakness. Many
users like their package, but it also yields more waste material for hospitals than competing brands."
Another BDD manager noted that, "In its latest annual report, American Home Products emphasized
the importance of being a low-cost producer in this business, and outlined plans for a $125 million
program to develop state-of-the-art production, distribution, and warehouse facilities by late 1992."

Terumo Corporation, with 1988 sales of $715 million, sold over 1,000 health care products
worldwide. About 27°/0 of the corporation's sales were from injection systems (including
hypodermics), 26% from pharmaceuticals, 17% from blood transfusion equipment, and the remainder
from a variety of clinical testing systems. Terumo had been selling health care products in the United
States since 1974. But as its U.S. general manager noted in a trade-press interview, "Until recently, it
wasn't a serious effort. We had some products and we sold them where we could." In 1989, however,
a corporate restructuring and a $75 million investment in a new U.S. manufacturing facility were,
according to this manager, "Symbolic of the serious commitment Terurno is making in the U.S.
market. In 1988, Terumo imported from Japan about 70% of the products it sold here; today (late
1989), it manufactures about 65% of its products here and expects to increase that to 90% within two
years." In outlining these plans, Terumo's U.S. general manager also noted that:

If we're going to be a major player [in the United States], it's important to
establish our name as a quality company with a large part of the market. And what
products are more widely used than needles and syringes? The biggest advantage
BD and Shenvood have is the sheer momentum of the thousands of people who use
their products. A syringe is so fundamental to what a nurse or doctor does that it
becomes part of them, like a watch or wedding ring, and many won't even think of
changing until someone comes in and does a selling job on them. But t h s market is
too large, and the customer base too broad, to be satisfied by two players.

Terumo's first U.S. plant was built to focus on hypodermics. But plans called for construction
of two additional U.S. plants with capacity to manufacture other products such as catheters,
specimen collection, and other lines also sold by various BD divisions.

Terumo, both in the United States and abroad, followed a low-price strategy. As part of its
U.S. marketing effort, moreover, Terurno had created special distributor incentive programs which,
depending upon a distributor's commitment to the line, offered guaranteed m a r p of around 15%
regardless of actual market or bid prices with a hospital or buying group. Terumo's distributor
margins for alternate-care business were not guaranteed but, as with other suppliers, were reported
to be 25%-4O0/0. Terumo had less intensive U.S. distribution than BDD.
Becton Dickinson Division: Marketing Organization 593-070

According to a standard industry research source, average unit selling prices for hypodermic
syringes in the hospital market were:
FY 1988 Index FY 1990 Index
Average market price
BDD
Sherwood 101 101
Terumo 85 86

BDD Marketing Organization

In the early 1980s, BDD's marketing department had been organized along traditional
product-management lines. Each product manager had P&L responsibility for his or her line in all
market segments, and each reported to one of three Group Product Managers (Hypodermics,
Technique Products, Gloves), who in turn reported to a Director of Marketing. In 1985, this structure
was modified to make Hypodermics a separate business unit, but the product focus remained. Within
Hypodermics, there were three product managers (Needles/Syringes, Sharps Collectors, and
Pharmacy Products), each with P&L responsibility.

During this period, new divisional management established a task force to examine sales and
marketing. The task force held meetmgs to discuss ways of improving organizational effectiveness.
Below are representative comments from the division's sales managers:

Marketing people do not spend adequate time in the field. They don't take
customer complaints seriously enough. Marketing people will call salespeople for
information, but then the marketing manager often gets upset when these same sales
reps call the marketing manager for product information and help. Marketing needs
to establish a system for better field communications.

Marketing should be more demanding with manufacturing and R&D to alter

product designs, meet production schedules, or alter schedules when necessary. We
sometimes introduce products that marketing is successful in attaining from other
functions, not what the customer wants.

Sales gets plenty of excellent product literature. But most other

communications from marketing come through the "grapevine" or informal
discussions. The biggest frustration to sales reps is lack of timely information. We do
not track our sales to end-users or track concrete results of promotional programs.
So, in a cost-conscious environment, we can't justify the programs and Finance can
shoot holes in what we're doing because we lack the facts.

Our compensation system is not geared for the current environment. Reps
should not be penalized for price erosion.

Below are representative comments from the division's marketing managers:

Sales reps are quick to phone for information they have already received. We
spend considerable effort gathering and writing up product and competitive
dormation, and reps call in a week later for the same information. Also, when reps
come to headquarters for sales training, it's clear that many haven't read the product-
release memos. This takes time away from other things.
 Becton Dickinson Division: Marketing Organization

We are under-resourced: too many chiefs and not enough implementation

people to help deal with sales, manufacturing, finance and customer service. Top
. management points to long-term changes in the environment, and we agree; but our
personal success depends on fulfilling expectations for tomorrow.

Marketing offers tools for sales, but there's no accountability to ensure that
sales uses the tools. Being outsold by competition is never cited as the reason for an
unsuccessful program; sales is happy to criticize rather than make efforts to suggest
improvements.

In 1987, Marketing was reorganized along market-management lines. Mr. Cohen (a product
manager in the previous organization and a market manager after the 1987 reorganization) noted that
the change was made for a number of reasons: "Cost containment in hospitals was driving more
rapid growth in nonhospital sectors due to shorter hospital stays, more outpatient referrals, and other
practices. We needed to develop programs especially tailored to these segments. Also, some product
managers (especially in the core hypodermic business) found it increasingly difficult to manage
adequately across all the division's markets as buying groups became more prominent in the hospital
market, as new alternate care sites proliferated, and as the division began to introduce new products
and new product/senrice features." Four market manager positions were created (Hospital, Alternate
Care, Pharmacy, and Safety/OEM/Dental), with specific product lines attached to each position but
with some product overlaps between markets as well. In this organization, P&L goals were
established by product and then allocated to each market manager according to the segment or trade
channel each was responsible for.

In 1989, Mr. Cohen became BDD's Director of Marketing and reorganized the department
along program/product management lines. He described the current ofganization (see Exhibit 4) as
follows: "At the beginning of the year, we identify key strategic objectives as part of the divisional
planning process. Program management responsibilities are then created to address each objective
and to develop specific programs."

In the current structure, each Product Manager had responsibility for various assignments as
well as budgets and sales goals for individual products and programs. Product assignments tended
to cut across individual program assignments. For example, while Ms. Higgins was the Senior
Product Manager for Hypodermic Programs, Ms. Ferro in National Account Services, Mr. Short
(responsible for the Hospital Market), and Mr. Sutton (responsible for Distributor Programs) also had
individual sales and profit objectives for the hypodermic line as part of their SOPs (standard of
performance). Also in the SOPs of all Product Managers was budget and implementation
responsibility for assigned programs. Mr. Cohen noted that "These program objectives and
implementation plans are established at the start of the year, and used in performance appraisals.
Simultaneous product and program responsibilities does make it sometimes difficult to measure each
person's discrete impact and achievements. But I believe this structure fits the facts of our business
and allows us to achieve focused responsibility for programs that reflect specific opportunities and
threats in a fast-changing environment." He added that other organizational considerations were his
desire to align the strengths and aspirations of individual marketing personnel with formal
responsibilities, and the goal of having both previous sales and marketing experiences represented in
the department.

What follows is a more detailed description of the roles and responsibilities in the BDD
marketing organization as of June 1990.

Ms. Laureen Higgins, senior product manager for Hypodermic Programs, had
worked for six years in marketing positions in BD's Consumer Products division and had
gained much experience in consumer promotions and advertising. Her main responsibility
was to launch and coordinate end-user advertising programs for BDD's hypodermic product
Becton Dickinson Division: Marketing Organization

line. She was responsible for ad planning, concept development, direct mail, contests, and
sales force education regarding the use of these materials. Ms. Higgins described BDD's
.advertising objectives:
Our primary objective is to maintain and build awareness among end-users
as to how BDD's hypodermic products and services differ from competitors. Our
prices are higher, and our ads emphasize our quality, ancillary services and support,
and our general value as a supplier. I am currently looking at how to promote BDD
to current users of our products. This is a new approach for us, but my research
indicates that many end-users only learn of our advantages after having switched to
a competitor's line and then experiencing problems.

Ms. Higgins' other major responsibility was gathering and disseminating competitive
information, and she had recently assumed responsibility for a "Hot Line" and monthly newsletter,
both designed to facilitate worldwide hypodermic sales efforts and communication.

The "Hot Line" was a telephone exchange where sales reps reported information about
competitive threats or opportunities at hospital accounts as well as feedback and suggestions
concerning products, promotions, distributors, or other marketing activities. Conversely, Ms. Higgns
provided the sales reps with information and advice when they requested assistance in dealing with
a competitive threat related to hypodermics. She noted that "the Hot Line keeps me closer to current
field activities and market developments. Before, competitive information was buried in the Monthly
Management Reports and other reports. By the time I had dug out this information, it was often too
late to deal with the actual field situation. Now, reps are more apt to call since they know we can
respond quicker." Data from the Hot Line also served as an input to the monthly newsletter. Ms.
Higgins checked sales rep reports with external sources and, along with data gathered from industry
research services, published a newsletter distributed to about 50 people throughout BD, including
sales managers in various divisions, corporate executives, and international general managers.

Ms. Higgins also had P&L responsibility for Allergist Syringes, a small but growing BDD line
sold to doctors' offices. Ms. Higgins noted that "Gary gave me this line because I was already familiar
with allergst products from my experience in Consumer Products."

Ms. Higgms said that in her previous product management position she had "complete
responsibility for a product from start to finish and I always felt I knew the total story about that line.
But in BDD, we have three marketing managers dealing with different customers of a common
product line: distributors, hospitals, and (in my case) end-users. This creates overlaps that I'm still
learning to manage. For example, my ad programs cut across all the division's market segments, and
I must work hard at interfacing with those managers to gather data and buy-in about the campaigns.
Sometimes we're not sure where one job ends and another begins. But the strengths of this structure
are that everyone in marketing has broad exposure to a variety of issues, and the program
responsibilities allow Gary to make good use of people's individual skills and abilities."

Mr. Robert Short, senior product manager for the Hospital Market, had been in sales
with BD for 19 years before accepting his current position in October 1989. He had three
major responsibilities: forecasting, hospital conversion programs, and product development.

Forecasting sales involved tracking inventory and sales movement through distributors,
OEMs, and government. Mr. Short explained that "I am concerned both with units sold and average
selling price because prices and competition vary significantly in each segment." Mr. Short obtained
data from various sources. In the hospital segment, most business was transacted via distributor
rebates and hospital buying group contracts. BDD typically negotiated unit prices with hospitals or
buying groups which were lower than those paid to BDD by distributors. The difference was then
rebated by BDD to distributors upon receipt of an invoice. This process permitted the tracking of
 Becton Dickinson Division: Marketing Organization

sales by product to specific hospitals or buying groups. However, no such mechanism currently
existed for tracking sales to nonhospital accounts.

Another source was the division's sales force. Although there were no formal forecasting
forms completed by BDD reps, Mr. Short was able to obtain "important bits and pieces" through
informal discussions with sales reps, "many of whom I know from my years in the field." In addition,
reps completed a monthly Management Report documenting competitive activity at their accounts.
This form was sent to Regional Sales Managers and then to divisional headquarters. However, Mr.
Short used this information as a "check on broad market conditions, not forecasting; these reports
tend to be too general and distilled for the latter purpose."

Hospital conversion programs involved the management of "in-service'' training programs

for all end-users of BDD products. Mr. Short explained that "my role is to develop and disseminate
tools that make our salespeople more efficient during in-service. My previous sales experience is an
advantage here. I know what details are important and can establish credibility with busy people in
the field."

Product development involved work with multifunctional teams (8 at the time of this case
study) that examined aspects of product development ranging from new product research and
existing product modifications to worldwide standardization of divisional product codes and
numbering systems. The functional areas represented were R&D, Lnventory Control, Manufacturing,
and Product Management represented by Mr. Short. Product development also involved extensive
interaction with customer segments and Mr. Short coordinated these meetings, field tests, and
feedback sessions. He also noted that "I get several calls weekly from sales reps looking for a new
product or a product modification to respond to a specific customer request or segment opportunity,
such as a syringe with a different plunger for infant applications. The sal'es force supplies 6O0/0-70% of
our product development ideas. Our core products have many applications, making it difficult to
identify common market needs. Also, our division has highly automated manufacturing operations,
making any design or other product changes a complex and expensive process."

At BDD, Mr. Short had worked in four different sales territories before becoming RSM in
Atlanta. He noted: "When I was in Sales, I had no appreciation for what Marketing does. In Sales,
there are identifiable wins and losses, but 80% of what Marketing managers do is invisible. Much of
my time is spent responding to special requests or attending meetings or gathering information
required for decisions and effective sales efforts. On the other hand, with two decades of sales
experience, I realize that field Sales can realistically focus on only a few strategic areas and programs
at any one time. But Marketing managers tend to proliferate lots of ideas, programs, and segments."

Mr. Greg Sutton, senior product manager for Distributor Programs, was responsible
for developing BDD's distributor programs. Ten distributors accounted for a significant
percentage of BDD sales volume, and these included large national and regional
organizations such as Baxter Corporation's Hospital Supply Division (the largest U.S.
distributor of health-care products), General Medical Corporation, Owens & Minor, Inc., and
Durr Fillauer Medical, h c . Many of BDD's distributors (including its largest) also sold
competitors' products as well as products sold by other BD divisions.

Mr. Sutton administered the division's Advantage Distributor Program, which offered
distributors an incentive package based on three factors: a distributor's unit sales versus the previous
year, hospital versus nonhospital sales volume, and the number of hypodermic product lines carried
by the distributor. Mr. Sutton also had product management responsibilities for BDD's line of nursing
home syringes and alternate care syringes, segments where BDD had few dedicated sales reps and
where distributor support was crucial.
Becton Dickinson Division: Marketing Organization

Ms. Peggy Ferro, product manager for National Account Services, had started at BDD
in field sales in 1985 and, in 1988, moved to marketing. In early 1989, she became responsible
.for National Account Services and for the division's Pharmacy Products line. Ms. Ferro noted
Ithat the latter represented a small percentage of sales but was a "developmental assignment
that's initiating me into core product management tasks."

Ms. Ferro was a liaison between marketing and BDD's three National Account Managers
(NAMs) responsible for sales efforts to large hospital buying groups. She had recently developed a
program targeted at BDD's top 30 groups. "The goal," explained Ms. Ferro, "is to educate and
convince these customers of the importance of BDD's services and product offerings. This means
gathering and presenting facts that demonstrate how, despite higher prices, our total cost-in-use for
hospital accounts is often much lower than competitors. Another goal is to improve our standing in
the contract renewal process. Typical contracts with groups are three years in duration, and in the
past we began to focus on renewal only weeks or months before expiration. I'm instituting a quarterly
review with the NAMs so that we're more proactive in segmenting account needs, buying influences,
competitive threats, and senrice opportunities."

Ms. Ferro also helped to develop and make presentations to national accounts. As buying
groups became important in the 1980s, marketing input became a more important aspect of selling,
according to Ms. Ferro. "I saw this happening during my time in Sales. More formal presentations to
big hospitals required more facts about many different matters in addition to price and product. Part
of my job is to gather, analyze and position all this data for the NAMs, and this involves working
across other product and market segments in the organization."

The NAMs were veteran salespeople whose responsibilities included working with BDD
territory and distributor sales reps in selling and servicing their assigned accounts. In the past, Ms.
Ferro noted, NAMs were often reluctant to allow Marketing personnel to deal with their customers or
take an active role in account management activities. "Their relationships with customers are of long
duration, and they rightly feel that their efforts are an important reason we have the market shares
we have today. Also, the NAMs hear about any problems at these accounts, and their incentive
compensation is tied to sales results at these accounts. In the past, few marketing personnel had
previous sales experience; part of my job is building this link with our account managers and
demonstrating how Marketing input can help selling efforts."

Mr. Roger Hankin, product manager for Safety Systems, had been in his current
position since joining BDD in early 1988. He had an MBA from the University of Chicago,
and had worked several years as a product manager for a large firm in the printing industry.
Mr. Hankin noted that he had come to BDD "without any working knowledge of the health-
care industry, and Gary designed my current position with this in mind. Whereas most other
marketing managers here have responsibility for programs organized by channel, market, or
function-as well as profit responsibility for multiple product lines-I focus only on one
product line and so can thoroughly learn one piece of the business. At the same time, Safety
Systems is a group of products that cuts across all our channels, exposing me to a variety of
purchasing processes, distributors, and market needs. Safety Systems also involves much
interaction with BDD sales reps, product managers in other BD divisions, and people from
various external groups."

Mr. Hanlun was responsible for products and services that facilitated the storage and
disposal of hypodermics at their point of use and, in particular, helped to reduce the incidence of
accidental exposure. Currently, this involved primarily two products (Sharps Collectors and Safety
Lok), which together accounted for less than 10% of 1989 divisional sales.

Sharps Collectors were containers for used needles and blades ("sharps").Traditionally, used
sharps were transported from the point of use to a centralized storage and disposal site in a hospital
593470 Becton Dickinson Division: Marketing Organization

or alternate care facility. But as safety concerns increased, many hospitals and some nonhospital
accounts wanted specialized containers installed in each room where sharps were used. BDD sought
to emphasize its education programs and training services and to encourage an increase in overall
levels of safety compliance at accounts.

Safety Lok was an innovative needle-and-syringe combination. It could be used as a normal

syringe, but a movable shield slid forward to cover the needle after injection; hence, no recapping
was required and needlesticks were virtually eliminated. Safety Lok had been introduced in 1988 at
unit prices five times that of BDD's standard syringes. But, by mid-1990, Safety Lok's average selling
price was 2.5 times that of BDD's standard needles and syringes. BDD had targeted this product
category for significant growth in 1990.

The Safety Systems line did not have as high a market share as most other BDD products. An
estimated 9%-12% of hospital employees were involved annually in needlestick accidents, and
certain diseases were transmitted through puncture wounds including hepatitis, malaria, and AIDS.
The latter was of special concern due to the increasing numbers of HIV-positive people. A 1988 study,
for example, estimated that one in sixteen emergency room patients in the United States were HIV-
positive, a dramatic increase over previous years.

Hankin developed educational programs for safety products. These programs were used by
the sales reps to instruct end-users. He noted that "I essentially compete with the other
product/program managers for the sales force's time and attention, and my line is new and different.
I work hard at developing sales relationships by returning phone calls from the field as quickly as
possible and, when possible, working with reps on any safety problems or issues at an account. But
this is not easy with a large, full-line, geographically dispersed sales force." Hankin also noted that, in
1990, Sharps Collectors and Safety Lok became part of the dozen "focus'products" highlighted in the
sales compensation plan, and "this obviously helps a lot. Of course, I must set realistic targets for the
reps or the bonus goal becomes meaningless. But having focus-product status increases attention and
effort." Mr. Hankin also established volume-based pricing guidelines for his products. These pricing
policies were given to RSMs, who explained them to field reps.

When a marketing manager wanted to offer an incentive program, he or she had to "sell" the
idea to Mr. Cohen and divisional management. Such funds came from a divisional sales promotional
budget and were allocated at the start of the year. In 1990, Mr. Hankin had won approval for a
contest concerning Sharps Collectors: sales reps received $1 for every sale of a new unit and, at the
end of a six-month period, the rep with the most volume received a trip to a resort. Mr. Hankin
believed that this contest had helped to increase sales of Sharps Collectors during the first half of
1990.

Mr. John Kao, manager of Marketing Research, had joined BD in 1971, after receiving
an MBA degree from Columbia University, and held a variety of market research positions.
Mr. Kao noted: "We now focus much more closely on specific hospitals' needs, problems,
opportunities and buying patterns. We rely less on traditional research activities such as
marketwide surveys, focus groups, and aggregate purchase studies. This reflects our
recognition that BDD must develop new products and applications, and offer many new
sen~icesthat are often account-specific."

Mr. Kao spent time traveling with BDD sales reps. He described a recent example: "To assess
the potential for a new product, I asked certain reps to identify accounts that are using this product
(developed by another firm), and we spoke with users about applications and experiences. Sales reps
are not trained to ask the right questions and get the kind of information from users that is necessary
for product development purposes. This is especially true with unfamiliar products or applications."
Becton Dickinson Division: Marketing Organization

Market Developments

Mr. Cohen believed any organizational decision should consider various factors likely to
affect BDD's market position. One factor was the continuing impact of cost-containment in the
division's core hospital market. Mr. Cohen commented:

As hospital purchasing personnel and buying groups become more

influential, there is the threat that our core product categories will be viewed as
"commodities." Countering that perception has meant new product, service, price,
promotional, and delivery approaches. It may also mean f o r p g new marketing
alliances with other divisions and with complementary suppliers outside the
company.

A second factor was competition in the hospital market:

In different ways, both Sherwood and Terurno have become more aggressive
in their marketing efforts. This has further increased price and margin pressures.
Although we gained market share in the past year, for example, our net income did
not increase proportionately. Are we organized to deal effectively with these ongoing
buyer and competitive developments in our major market?

A third factor was the increasing importance of nonhospital/alternative-caremarkets:

All estimates indicate that nonhospital treatment should account for larger
proportions of health-care activity during the next decade. But we're staffed to
manage our base business where the majority of sales volume is to hospital
customers. In addition, the nonhospital market, while growing fast, is also
fragmented and composed of many different types of health-care facilities.

A fourth factor was new technologes. In 1990, for example, one large company was test-
marketing a product that allowed health-care workers to pierce IV sets with blunt, plastic insertion
tips into special rubber injection sites on the IV. The result was a "needleless" means of delivering
certain medication. One estimate indicated that, if successful, such a product could substitute for up
to 10% of hypodermic needle sales within two years. Mr. Cohen noted:

In one form or another, such products are likely to become increasingly

common, since fears of accidental needlesticks are an important issue in hospitals.
But this situation can also open up opportunities in what has been a mature market,
if we become an active participant. As a full-line supplier with broad distribution, we
can save our customers time and worry in this area (e.g., concerns about training,
delivery, compatibility with different sizes of syringes). But this will require closer
linkages between R&D, Manufacturing, Marketing and Sales to develop, introduce,
and build business for any such initiatives.

A fifth factor was increased market interest in new product/service arrangements:

Our initiatives in Safety Systems are an example. Developing and marketing

these products requires a high service component. We need to reeducate doctors,
nurses, and hospital housekeeping personnel about sharps disposal processes; and
the hospitals, already under severe cost pressures, must provide data, access,
resources, feedback and high-level support. We want to position ourselves as
consultants and partners with our hospital customers in this area. But, thus far,
adoption of the new safety products has been slower than expected.
593-070 Becton Dickinson Division: Marketing Organization

A related development concerned medical waste disposal. U.S. hospitals generated over two
million tons of waste annually, 10% of which was considered infectious by the Environmental
Protection Agency. Estimates indicated that waste disposal had become two to three times more
expensive for the average hospital between 1988 and 1990. In many instances, product acquisition
costs were lower than the costs of disposal, especially for supply items. Mr. Cohen noted:

The opportunity and threat is that the product/service package is being

redefined. Disposal costs make customers more conscious of total cost-in-use; they
may expect vendors to identify cost effective ways to dispose of infectious waste.
Due to our broad line, we can offer product/service packages and forge external
partnerships. But this takes time and attention.

Commenting on these factors, Mr. Cohen stated:

The precise direction of each development is still unclear, but the impact of
these factors will certainly be felt in our product categories. The marketing
department is now dealing in some form with each of these factors, but the danger is
that our organization will allow either new opportunities or current responsibilities
to fall between the cracks. It's therefore important to prioritize attention and focus
our limited resources on specific opportunities and threats.

Organizational Decisions

During the 1990 budgeting process, Mr. Cohen had obtained approval to hire an additional
marketing manager. Budgeted costs for the potential hire (including salary, benefits, and expenses)
were set at about $150,000. Mr. Cohen commented:

At this point, adding another good person is attractive. But I want to be clear
about the focus of this person's responsibilities, since an addition can impact other
managers' responsibilities. I'll also need to spell out the kind of background,
experience and skills a candidate (from inside or outside BDD) should possess.

At the same time, continuing price pressures in our market mean continuing
pressures to lower expenses. There's a good chance that, at some point in this fiscal
year, we'll be asked to reduce marketing expenses. If so, I'd rather not make cuts in
key areas after already incurring the financial and other start-up costs of b r i n p g on
a new person. It's easier, and less disruptive to ongoing activities and personnel, to
freeze a part of the budget not yet in place, such as the approved hire.

More generally, I want to know if we're structured to make optimal use of

current personnel. Are the right people focusing on the right issues? Do any of these
market developments warrant a reallocation of marketing responsibilities, or an
additional person, at this point? If so, does the marketing organization require
significant changes or will small modifications be sufficient?
Becton Dickinson Division: Marketing Organization 593-070 -15-

Exhibit 1 Three-Year Summary of Selected Financial Data (thousands of dollars, except per share amounts)

Operations Net sales

Gross profit margin
Income from continuing operations
Earnings per share
- Continuing operations
- Net income
Dividends per share

Financial position Total assets

Current ratio
Long-term debt
Book value per share

Financial Relationships Income from continuing operations before income

taxes as a percent of sales
Return on total assets
Return on equity

Additional data Capital expenditures

Research and development expense
Number of employees
Source: Company annual reports
Note: Earnings before interest expense and taxes as a percent of average total assets.
aIncludes after-tax gain of $44,658, or $1.12 per share on the sale of Edmont subsidiary.
bExcludes gain on sale of Edmont and Endevco subsidiaries in 1989 and 1987 respectively.
Becton Dickinson Division: Marketing Organization

Exhibit 2 Organization Chart

President
R.E. Flaherty

I
Vicepresident, Vicepresident, Vice President, Director, Director, Director.
Manufacturing R&D Sales Market inga Human Resources M.I.S.
F. Calabrese C. Goldstein R. L. Jones, Jr. G. Cohen H. Klein A.N. Gmber
II

Manager,
Sales Training
II
ManaGer. Sales ~e~ionil Sales ~irector,
Administration & Services Managers (10) Contract Sales
1I I
District Aanagers (91b
1I
Bids & Quotes
Administrators
Customer
Service
Reps
I
I
Sales ~epresentativesb
(7-10 per district)
Manager,
Contract
Ahinistration
Manager,
OEM
Sanes
Managers,
National
Accounts

Medical lllndustrial ~echnicalService ~ove~nmnt

Sales Specialists Coordinator Sales
Specialists
Maniger,
Sales Promot ions
& C m n i c a t ions

Gee Exhibit 4 for detailed marketing organization.

bNot all District Managers had supervisory responsibilities, and some field Sales Representatives reported directly to Regional Sales Managers.
Becton Dickinson Division: Marketing Organization 593-070

Exhibit 3

BECTON-DICKINSONDlVlSlON SERVES: Physicians

Stanley S:reet Nurses
Rutheriord. NJ 07070 Radiologists
201 -460-2000 Anesthesiologists
Pharmacists

Becton-D~ckinsonDivision is the
market leader in the manufacture
of high quality single-use products
such as hypodermic syringes.
needles and related products.
The Division is also a major
manufacturer of vinyl medicai gloves
and your source for an expanding
line of technique needles for use in
various procedures, including
biopsy, anesthesia, angiography
and myelography.
Becton-Dickinson Division
products include:
Hypodermic Products
B-DT Single-use Syringes and Needle
B-D Sharps Collectors
B-D Insulin and Allergy Syringes
B-D Pharmacy Products
B-D Reusable Syringes and Needles
Technique Products and Supplles
B-D Medical Gloves
B-D Anesthesia, Radiology, and
Biopsy Needle Products
B-D Thermometry Products
ACEv Brand Bandages and Elastic
Support Products
A-VT Fistula Needles
Becton Dickinson Division: Marketing Organization

Exhibit 4 M a r k e t i n g Organization

6. Cohen
Director of Marketing

I
L. ~ I g g i n s G. ~"tton
Sr. Product Manager, Sr. Product Manager,
Hypodermic Programs Distributor Programs
End-User Advertising I ED Advantage Program Sharps Collectors
Marketing Intelligence Easy Draw Syringe Safety Lok Syringe
Worldwide Hypodermic Nursing Home Syringe Solo Shot Syringe
Allergist Syringe Alternate Care Syringe Syringe Disposal

R. ~/;ort M. ferro J. /(a0

Sr. Product Manager, Product Manager, Manager,
Hospital Market National Accounts Service Marketing Research
Hospital Conversion Nat lonal Accounts Primary Research
Programs Marketing
Hospital Advantage Market Share Reporting
Forecasting Program
Multi-Divisional CustomerIMarket Analysis
Product Development Program
Pharmacy Products Competitor Analysis
Packaging