The right mix: direct and distributor sales.

Analytical instrument makers have two choices about how to sell their products: directly or through distributors. The choice is especially important for sales in other countries. Although selling directly ensures more control over the sale, direct contact with the end-user and a full percentage of the sale, it also requires substantial investment and greater resources. Selling through a distributor, whether domestically or in foreign markets, provides a partner with a sales force knowledgeable about the market, as well as an existing customer base and infrastructure.

Three recent announcements detailing new distribution relationships illustrate changing distribution strategies and how distribution choices are made. IBO spoke with Shimadzu, Horiba and Analytik Jena AG about these announcements and why such changes were made at this time.

Shimadzu Scientific Instruments (SSI), the US subsidiary Shimadzu, began a nonexclusive partnership with US distributor Thomas Scientific in May (see IBO 7/31/08). Thomas Scientific is distributing SSI's UV-1800, the UV Mini and BioSpecmini spectrophotometers. Founded in 1900, Thomas Scientific is one of the oldest and largest independent distributors in the US.

"Shimadzu has been looking to expand its presence in the UV-Vis marketplace in the USA for some time. While our sales force has done an exceptional job promoting the UV products, we wanted to explore other avenues, a key one being distribution," said Leonard J. PoLder, manager of Corporate Business Development for National-Global Accounts and Legal Affairs, at SSI. "Essentially, the benefits of direct sales of these entry-level products, which this agreement covers, were negligible as customer demonstrations are rarely needed, evidenced by that fact that the spectrophotometers related to this agreement can be bought directly from our internet store without direct communication with sales personnel," he told IBO. "We expect this agreement will enable Shimadzu to expand our footprint in the US, while freeing up our sales force to focus on higher-end UV (and other) instruments."

Mr. Poirier cited Thomas Scientific's extensive distribution network and brand recognition as reasons SSI chose the company. However, Thomas Scientific does not replace SSI's direct sales, but supplements them, similar to SSI's US distribution agreement with Fisher Scientific for HPLC and spectroscopy products. Asked about the challenges of US distribution, Mr. Poirier stated, "I wouldn't necessarily call this a challenge, but a key aspect to developing and maintaining effective distribution is communication. From training and technical support, especially early in the relationship, to providing appropriate marketing and promotional materials, we need to maintain a strong, ongoing dialogue with distributors to ensure a smooth, mutually beneficial relationship."

Also making adjustments to its US distribution choices is Horiba. Horiba Instruments and Horiba Jobin Yvon, two of the company's US subsidiaries, announced in May an exclusive distribution agreement with Qwest Scientific (see IBO 6/15/08). The agreement was signed in December 2007. Qwest distributes the company's elemental analyzer and particle analysis product lines in nine Western states through seven representatives.

Michael Pohl, vice president of Horiba Instruments' Scientific Group, told IBO that the company is actually returning to how it use to distribute products in the US two decades ago. The company switched to a direct sales organization in the 1980s, but has recently found it less than optimal. "When you have just a few small organizations, they have to cover many states for you," said Dr. Pohl, who also cited expenses and a lack of adequate coverage as drawbacks.

Although the Qwest relationship is reminiscent of past distribution choices, it offers important differences, according to Dr. Pohi. Qwest is staffed by former Horiba sales people, who are familiar with the company and its products, in addition, Qwest's central office handles all of the representatives' paperwork, allowing the representatives to spend more time selling. Qwest also assumed some of the activities formerly handled by Horiba, such as newsletters and seminars. Most importantly, said Dr. Pohi, the partnership allows greater customer contact: "You really just want more people representing the product because you just need to be calling on the customers more. You need to be in front of them."

Like Mr. Poirier, Dr. Pohl cites training as important to a manufacturer's relationship with a distributor. "How do we get these reps to do as good of a job as other people, who are direct sales people for other companies?," he asked. "So that's where we have to spend a lot of time educating them, bringing them in for training, getting them up to speed on the latest offerings we have, and things like that. So it's really a training challenge for us."

German firm Analytik Jena is another company that uses a mix of distributors and direct sales. In July, the company announced a distribution agreement for Germany with Fisher Scientific for products from its bio solutions division, specifically, thermal cyclers, nucleic acid isolation kits, sample preparation equipment and nucleic acid extraction systems. Explaining the decision, Mario Voigt, Investor Relations representative for Analytik Jena, told IBO, "The business unit bio solutions of Analytik Jena is still the youngest unit within the company, but has a growth rate of more than 30%. Two years ago, Analytik Jena decided to build a separate distribution network specialized and focused on biotechnology customers and demand. Hence, the agreement with Fisher Scientific is part of our overall strategy to strengthen our national and international distribution efforts."

Mr. Voigt said Analytik Jena chose Fisher Scientific because of its broad presence, but that the agreement does not replace direct sales. "The agreement will supplement the existing distribution structures of Analytik Jena in Germany, which consists predominantly of direct sales. We expect Analytik Jena business through Fisher Scientific mainly to be generated by orders from its catalog." Analytik Jena also uses domestic distributors for other products. Although this agreement is the only one in place between the companies for Germany, Mr. Voigt noted, "we also have agreements in place with Fisher Scientific for the Malaysian and Singaporean markets. Agreements in other markets and countries are currently under review."