How "free goods" has messed up an industry
“It's unwise to pay too much, but it's worse to pay too little. When you pay too much, you lose a little money - that's all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot - it can't be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”
I predicted problems many years ago!
When I started in the family dental supply business in 1984 with my Dad - we were selling about 50% product we sourced directly, as authorized distributors to our customers. We sourced about 30% from a small authorized family distributor. The rest we imported from different parts of the world
It would have been considered grey market at the time - and we learned pretty quickly it wasn't a very profitable way of doing business. As a grey market supplier, it was difficult to buy North American sourced product that had the same labels, manufacturing methods and quite simply quality and remain profitable.
At the time, I would say the typical "Markup" on product was pretty firm. We had a suggested price list that offered a small profit margin, enough to reasonably stay in business. On top of that, there may be some room for a small percentage of profit by paying up front, a rebate on large volume, etc.
As a small grey market distributor - we worked with this company to try to gain some profit with volume purchases. Its wasn't very significant, because in order to compete in our market we paid a small premium to this Company for the opportunity to buy from them (10-15% over their cost) AND freight from their location to ours. On top of that we had to be competitive with the "big companies" at the time (remember Denco, Healthco, Canadian Dental - all out of Business now!) so we discounted. Our net profit, once blended with our exclusive and directly purchased lines was slim.
There were not any great inventory systems. Computers were just starting to come into existence. We had a HUGE amount of money we would put out for a successful campaign - backordering 50% of an order was pretty common. We would easily wait 90 days to get paid...
Eventually, my Dad sold to Sinclair Dental. I changed companies and eventually Henry Schein purchased the company I worked for.....
I know I skipped a lot of history. My point is that I UNDERSTAND the grey market intimately and have a large network of friends that have been in this business for many years.
A prediction is coming true.
I started writing when I was helping publish our regular, monthly flyer in 1984. I wanted to add some "flavour" to the flyers, and learned to use Word Perfect (when computers became available).
Over the years, I have written literally THOUSANDS of blogs and published articles.
It almost cost me my career! My personal opinions published on "DMDrep.com" about a product that was launching was not well received by the manufacturer or the exclusive arrangement they had made with our company. I had to withdraw a post, apologized and kept my job.
I was wrong.
I have been wrong. However, I have been predicting an issue in our business for many years. A problem I identified many years ago, that would have HELPED me stay in the family business distributing with my father. It would have given us the ability to remain competitive and make higher profit.....
When I started in this business, free goods were not as common. generally it was a "bakers dozen". A reward to a person buying a case of Jeltrate (9 for the price of 8) since the shipping and handling were reduced. It was easier to send a case rather than break it open and take one at a time out.
Many of the products we sold at discounted rates were marketed as "free goods" when it was basically a "case rate" discount.
We started to publish these "case rates" as "free goods" and eventually cases of gloves had 9 plus 1, saliva ejectors, many other products were simply packed in larger quantities. Some manufacturers decided to market this way and the first products I remember selling with actual free goods outside of "case rates" was rubber dam and cavitron tips.
The sales that would include these types of free goods were limited time promotions. You actually had to buy during a certain time. The dental distributors would ship the items with the order, and then provide the invoices to the manufacturer to replace. It was pretty simple and helped increase volume of sales to loyal and larger purchase customers.
Over time, we have evolved to the point that SO MANY manufacturers are using "free goods" - it's almost impossible to keep track! Our "manufacturers specials" are now almost 100 pages of small print and in each product category have another half dozen promises - like 3 plus 1 or 5 plus 2 or 6 plus 3 or buy 2 trade 1 get 1 but only if....etc.
Also - some items ship WITH the order, others have to be redeemed. I also GUARANTEE YOU the invoices you provide are being used for competitive reasons. The manufacturers can now log you as a customer and see what other products you purchased on the invoice. All for the cost of sending you a loyalty free product reward.
Here is the issue.
Large buying groups formed to take advantage of the larger free goods promotions - like the 6 plus 3....how about I get 100? Can I get a couple more free? Maybe...
Then we started to see formations of mega dental practices with ownership of dozens or hundreds of smaller offices. Negotiating for the group - take out the free goods and just give all my practices the better price.
Instead of Buy 100 get 50 free (a recent composite special from a manufacturer) how about you just give us the net price even when we order 2 at a time for these clinics. We are STILL going to buy the same volume at the end of the year, but I need to keep my cash flow.
So instead of $100 a box x 100 = $10,000 / 150 = $66.67 per box we will just get invoiced $66.67.
THIS IS what is happening, and it all started many years ago with something that seemed easy and logical.
It needs to be fixed.
I'm not just a complainer, I'm a thinker
Many years ago I wrote about the free goods problem. The problem of free goods getting shipped by the manufacturer. I suggested that about 1/3 of offices forgot or didn't realize there were free goods owed and simply missed out.
Any free goods missed are an opportunity for the manufacturer to keep profit. Although I don't believe there is an intention on the part of the Manufacturer to purposefully miss shipping free goods to retain profit. I believe it was the intention of Manufacturers to provide an incentive by purchasing through "authorized" partner dealers.
The answer to me was automated redemption. ALWAYS shipping free goods from the supplier. It would help reduce the everyday price for the entire industry - the freight involved, the tracking, the expensive labour. Customers could enjoy the free goods immediately without being punished and having to wait for something they were owed.
It's become such a significant part of our every day ordering, it's kind of crazy.
Second I suggested that in lieu of the hundreds of pages of free goods - we go to a simply formula. Reduced every day pricing. Let's keep it simple for everyone!
Let's just see an everyday fair price that allow smaller practices to keep their costs in line as much as large practices. The end of the day - one doctor at a time is working on one patient. The quality of care using the same product should be equally priced and the ultimate benefactor is the patient.
There is MUCH more that could be said on this subject.
The fact is, we are seeing such a variety of marketing programs and prices. It's my sincere belief that all customers have the same opportunity to buy at the same pricing.
We just need to simplify the process.