1) 1982 to 1985: Why Did BDVS avoid negotiating with APG headquarters? What was the consequence?

A) APG invited BDVS to have the standardized agreement for the purchase of needle and tubes besides price reduction on their products in the year 1982. It avoided negotiation. The reasons for BDVS avoiding negotiation with APG are as under: i) It is in the business since 1940s and has a good hold in the market in Blood collection tubes and needles and is having 80% market share in US; ii) BDVS used to have its own Independent Distributive Network of around 1000 Nos dealers through which it used to cater Hospital and Labs across US. However its six large distributors were contributing 50% business and 50 dealers were contributing 85% business. iii) The trump card of BDVS is commitment towards quality, range and service. The productions costs were also kept under control through its innovations to check abnormal price rises; iv) Its two products VACUTAINER AND MICROTAINER were the best products to be considered under tubes as per the Hospital lab technicians; v) Its sales program were so intense that it used to interact directly and offering concessions on case to case basis with the major hospitals directly by launching Z Contracts through its strong 55 Sales force, targeting the bench strength of laboratories to recommend its products, established relationship with small local distributor through its BD division vi) It has a good distributing network through ASP (American Scientific Products) , CMS ( Curtin-Matheson Scientific) and four others to cater the needs of the hospital for the timely supply of materials. Consequences for the above arrangement: i) These distributors have started developed manufacturing capabilities (backward integration) which can eat away the pie ii) APG formed the national purchase agreement with Temuro, the main competitor of BDV and thereby increasing the chances of losing..

1. Becton Dickinson & Company: VACUTAINER Systems Division Nina Cowley Zach Evans Sean Zemek

2. The Beginning Maxwell W. Becton and Fairleigh S. Dickinson met on a sales trip in 1897. Months later, they decided to go into business together, sealing their partnership with a handshake. They named their medical device import company Becton, Dickinson and Company.

3. Product Breakdown Becton Dickinson (BD) manufactured: Medical Diagnostic Industrial safety products For: Health care professionals Medical research institutions Medical industry General public

4. Business Segments 5. Medical Products Division 6. Becton Dickinson VACUTAINER Systems (BDVS) Formed as a business unit in 1980 Consisted of three main products Venous blood collection tubes and needles sold under the VACUTAINER name (70% of sales) Capillary blood collection tubes and lancets sold under the MICROTAINER name Microbiology tubes and specimen collector systems

7. BDVS Segment Facts 1984 sales were $90 million Each product group accounted for 33% of operating income Pioneer in converting market to evacuated tubes Estimated 80% market share in U.S.

8. Market Trends 7,000 hospitals performed 70% of all blood tests in 1985 700 commercial labs performed 25% of all blood tests 5% of all blood tests performed in non-hospital health care centers Market had seen a decline in hospital blood testing between 1983 & 1985 Projected that by 1990, 40% of blood testing would be done in commercial labs and physician offices

9. Market Trends (cont.) Shifting purchasing patterns Chief lab technician historically asked for certain brands Professional purchasing agents are now making decisions VERY price sensitive

10. Market Trends (cont.) Cost-containment pressures in health care markets have forced: Reduction in use of hospitals for blood testing Continued cost shaving within facilities by often choosing lowest-cost supplier Reduction in employment within healthcare industries

11. BDVS & APG BDVS is main supplier of blood collection products to APG-member hospitals APG has announced beginning of single-supplier purchasing for blood collection products APG is negotiating with BDVS as well as competitors

12. BDVS & APG (cont.) Major issues are: Pricing and terms for BDVS major products Use of distributors APGs request for BDVS to manufacture private-label products

13. What is the problem? What is the best price and distribution strategy for BDVS in a market that is experiencing such dramatic changes?

14. What are the alternatives? Target the growing physician market that includes surgicenters, emergency centers, diagnostic centers, and physician's offices Accelerate new product development and quality standards while maintaining the current distribution model Reject APGs private label, pricing and distributor affiliation requirements Partner (or merge) with APG

15. Target Growing Markets Pros Untapped market, high growth potential Potential for new product introductions Cons Lower prices/margins, compete on price Currently only 5% of entire market Different type of sales approach

16. Product Development/Quality Pros Market/product innovator Maintain good distributor relationships Premium pricing for higher quality Cons High R&D costs Increased risk associated with new products

17. Reject APGs Requirements Pros Maintain brand identity/awareness Maintain good distributor relationships Maintain control Cons Loss of

significant market share & revenues Inflexible image to other purchasing groups 18. Partner with APG Pros Maintain significant source of market share & revenues Economies of scale through higher volume Flexible image Potential for inclusion of additional products Cons Low price/margins Loss of control Strained distributor relationships Same concessions demanded by other purchasing groups 19. Becton Dickinson Today 2002 Revenue: $4,033,069,000 2002 Net Income: $479,982,000 Generates close to 50 percent of revenue outside of the U.S. Marketed in the U.S. through distributors and directly to end users Marketed in the internationally through distributors, sales reps and, in some markets, directly to end users 20. Becton Dickinson Today (cont.) BD manufactures and sells: Medical supplies Devices Laboratory equipment Diagnostic products. BD serves: Healthcare institutions Life science researchers Clinical laboratories Industry General public 21. Becton Dickinson Today (cont.) Company is broken down into three main business segments: BD Biosciences BD Diagnostics (the VACUTAINER line is a part of this segment) BD Medical 22. VACUTAINER Systems Today VACUTAINER product line broken into five subcategories: Venous Collection Capillary Collection Urine Collection Critical Care Collection Molecular Diagnostics