How the microscope market works, or doesn't

This is how the microscope business works as opposed to how a microscope works. The microscope business is based on a three tier marketing system. The manufacturer sell to the dealer who then sells to you. Theoretically this leads to a very efficient system were each level does what it does best. It looks great in marketing books anyway.

All manufacturers except for Zeiss which sell directly to the customer have dealers. A dealer has an assigned territory that they are supposed to sell in and not sell out of. There may or may not be other dealers for the same microscope brand in the territory. Each manufacturer has a different territory structure.

A territory with no other dealer for the same brand is called an exclusive territory and it is what all dealers want. Dealers are not supposed to sell outside their territories but frequently do. Its just hard to turn down a sale. Of course the manufacturer expects something from the dealer and that's lots and lots of sales.

All dealers have quotas, a dollar number and in many cases a fixed number of frames that they are required to sell. A dollar amount would seem obvious but the frame volume is an important number to the manufacturer. If the manufacturer knows how many frames the dealers have to buy as a minimum then they know how many to make. Experience will show how many accessory modules and of what kinds to build.

What the manufacturer wants to do is let the dealers do all the stocking of microscopes and what the dealer wants to do is stock as little as they can get away with. This is particularly true if the dealer is financing their stock. Microscopes have a good profit margin but a slow times turn rate.

The times turn rate is the number of times in a year that you sell your inventory. When I worked for a computer wholesaler we turned our inventory about 24 to 30 times a year. That's at least twice a month. Somethings we turned 3 to 4 times a month. That's a very good number. With that high a turn rate we could afford to reduce our profit on each sale and literally make it up on volume.

A microscope dealer may have a 1.5 to 3 times turn rate per year. That means the stock is sitting around a long time. If the dealer has financed the stock each sale will have a lot of finance costs attached to it. The way out of this slow inventory turn rate is to have less inventory. But the manufacturer has the same problems so they don't want to stock in large amount either.

Now here's the rub, if the dealer doesn't have it and the manufacturer doesn't have it then the customer waits. The customer then gets ticked and cancels the order or tell everyone at a national meeting what a group of losers this brand is.

Just to make it more interesting lets throw in production scheduling. Not every part in the dealers price list is made all the time, some of them aren't made at all. Some items are only made at one time of the year, this is called a "run". If the dealer doesn't have an item and the manufacturer doesn't then you wait for the next run. This is a problem with exotic parts. An experienced dealer knows what parts they must stock to prevent shortages.

One way around shortages is to call other dealers and see if they have any extras they want to sell. It is common for dealers to sell to other dealers at 5% to 10% over their cost. They make money and move goods and keep up good relations for when they need something. If the item is rare and in demand the dealer may want to keep it for themselves and make the higher markup selling to and end user.

To sell all these microscopes the dealer is required to hire sales people. This is the coverage issue. A sales person is an expensive proposition. The usual deal for a dealer sales person with experience is a car allowance, insurance, expenses and one third of the profits of each sale in the sales rep.'s territory. Sometimes a base salary is paid and the commission reduced but the compensation package will tend to be in this ballpark.

It's hard to get experienced sales people and it takes a long time to train an inexperienced one. The costs to the dealer are high and getting higher. The manufacturer wants to see the dealer people calling on every account every day. The dealer wants good coverage to but the dealer pays the bills. This is why the dealer wants an exclusive, costs are high and the dealer needs to keep the profit margin up.

Just to make it more fun for the dealers the manufacturers have their own sales people out in the field. These are called "factory" or "factory direct" sales persons. Theoretically they are supposed to help the dealer's sales people. Ten years ago the factory people were supposed to be more technically competent. Now they act as an alternative sales force and a way for the manufacturer to take a sale with no profit to the dealer.

This is called "sell direct" and it is the nightmare of all dealers. For what ever reason the manufacturer can bid against the dealer and take the sale away from the dealer. They may do it to make a sale they otherwise wouldn't have gotten by giving a price that the dealer couldn't afford to give. They may do it as a demonstration of who is really important or the factory person may have done all the work and deserves the credit for the sale.

If a manufacturer makes a sale the dealer may still get a percentage. Olympus contracts give the dealer the same percentage of the factory direct sale that they would make if they had made the sale. Of course if its under there profit margin then there is nothing to split. Nikon may of may not give the dealer anything, it just depends. Leica is all over the place but they have very few factory people.

Buying a microscope

Here's the scene, the long awaited money has come through and you are all set to buy the microscope you've needed for so long. Now how do you negotiate your way through the maze of specifications and sales persons to get the best microscope at the best price?

First of all you need to know what you need. You need to sit down and write out what you want the microscope to do. This can be as simple as saying "We need a new microscope for a new cytologist" or much more complex for a research application. The needs statement should say what the microscope will be used for. Let the competing manufacturers give you their ideas on how to do the job.

Call up the dealers and tell them that you are in the market, what you want the microscope to do and when you need the microscope. Ask them for quotes and demonstrations. Ask each sales person when they can let you see the microscope they recommend.

When you are dealing with a rep. you should receive professional, courteous service. The rep should call you by your honorific, and always use maam and sir. Just like a repair tech. the sales rep. should know more about the microscope than you. If the sales rep. is rude or disrespectful to you immediately report this to the owner or sales manager.

You need to get the quotations before you start setting up the demonstrations. The quotes should clearly set out what the microscope will be able to do and the cost. Be honest with the sales persons about cost. Let them know the price range you have to be in. Let them know how important cost is; very important or is performance more important. Remember in buying a microscope value is more important than price. A microscope will last at least fifteen years as a front line microscope and probably another ten years as an active part of the lab. If you save a few hundred dollars but the microscope is not as productive you have lost a lot of money. The most expensive part of a lab is personnel, make sure that the microscopes you buy make them as productive as possible.

After looking at the quotes invite the sales persons that sent acceptable quotes to come in and demonstrate their microscopes. It is more than fair to make everyone show up at similar times and show their microscopes. This is referred to as a "head to head" demo. and if the sales person is confident about their product and interested in serving you they will jump at the chance.

A head to head demonstration is a very good way for you to see the competitive strengths and weaknesses of each microscope. You will also see the strengths and weaknesses of the sales persons and their organizations. The quality of the organization is critical. These are the people that will resolve warranty and service problems. If they don't perform neither will the microscope.

Now you need to prepare for the demonstrations. Find some space for the microscopes. They should be set up so that you can be comfortable and relaxed when looking through them. Help the sales persons to get the microscopes there. Parking and unloading can be a real hassle when you have a lot of equipment to bring in to a building. See if there is an easy way to do this.

Prepare one of your specimens to view on the microscopes. Make them as challenging as possible. You don't want to find out later that another microscope does better with the more difficult specimens. Each specimen should be viewed on each microscope.

Prepare a list of questions that you will ask all the sales persons. Include questions about service, repair, parts availibity and delivery. Make sure the sales person can and will train you and any other users to use the microscope. This includes photography or use of a video camera if it is included.

A demonstration is a very expensive proposition for a dealership. If you want the best price you need to help them keep their cost down so be fair with the companies involved. Be there when a demo is scheduled, give the sales person your full consideration. It is rude and costly to the dealer to send a person out on a demo and then no one is there to see the microscope. Have all the persons involved in the microscope's use there to see the demonstration.

Sometimes the sales person will leave the microscope with you for a period of time so that you can see how you like it. Before you accept the responsibility for the microscope check with the dealer as to their requirements and with your employer to see what their requirements are. Usually this is no problem but you want to know what your responsibility is if any thing goes wrong.

If the microscope is left with you take the time to really try it out. Make sure all the potential users try it to. The purpose of this type of demonstration if for you to see how the microscope wears on you. If you have questions call right then. Don't wait for the sales person to re-appear. If you call immediately the sales person can correct the problem right then if possible. It will also tell you a lot about what kind of service the company really gives. If they aren't quick to respond when trying to sell you something they are going to be a disaster after the sale.

If a sales person makes you a promise that has a direct bearing on your decision to buy that microscope, make the person send you that promise in writing. This is true for any purchase of goods. If this promise is not in writing you may not be able to enforce it in court or arbitration if it comes to that. If the sales person refuses to write it down and asks you to take there word then forget it. All you may be left with is words.

After the reps. have been picked up their microscopes sit down and decide which one would be best for you. Include in your evaluation the ease of use, the performance and the quality of the dealer. Once you know what you want it is time to get the price you want.

You need to know whether you are a bid, contract or private institution. The differences will affect your price negotiations. If you are a private institution you can negotiate the price yourself. If your are a contract institution there will be a contract price available to you although usually this is a floor price, with some negotiation you can do better. If you use bid you will have to know the purchasing rules very well.

Most places use a sealed bid system to purchase microscopes. This can put you at a real disadvantage. The key to controlling a bid purchasing system is writing the bid specification. If you really want only one brand and model you will have to write the bid specifications so that only that brand will win. Your sales rep. can be a real help in writing what is called a "lock out spec.".

If you don't care what you get then a bid is a good way to drive down the price. Specify the microscope as exactly as possible, use one manufacturers specifications. This helps you to get the features you want and stops the dealers from cheapening the microscope to lower the price. This is a legitimate way to win a bid. It is up to you to write the specs. that will get you the microscope you really want.

Tell the sales reps, whose products you like, that you are willing to buy from them if they win the bid. Make sure you tell this to the dealer whose microscope you didn't spec. Otherwise they might get discouraged. Mostly users spec. the instrument they will accept and reject others.

When the bids come back review them closely and make sure that the bids are apples to apples comparisons and not apples to oranges. If you have any questions have the sales rep. bring in the exact microscope that they bid and take a look at it. If there is a problem then get with purchasing and reject that bid. The key points in a bid institution is to get the microscope you want at the lowest price. You the user must write effective specifications and get purchasing to accept them. Remember that a sales rep. is not going to give you the lowest price on a quote if they know that the microscope will be bid. If they gave you the lowest price on a quote and a competitor found out then the competitor would know what they had to beat. This is a big advantage.

If you have a price contract or you are a private institution you will have to negotiate to get the best price. Price contracts in most areas are the least discount you will receive not the fixed price. If you are a Government account covered by Government Services Administration (GSA) the dealer can't give you a lower price since this establishes this price as the price nation wide. No dealer will negotiate with a GSA account and GSA is the loser for this policy. This, along with the red tape and rapacious tactics of GSA, is the reason that most dealers hate GSA and why a lot of government accounts get lousy service.

A lot of states have gone to a contract pricing system to reduce the expenses of the bid system. Bids are expensive for all concerned from purchasing to the dealer. I know I used to do all the bidding for a company. Even at the pittance they payed me I was still expensive.

As you are discussing price be frank, bold and treat the money as yours. Act as though you were paying for the microscope out of your own pocket. This will make you a more effective negotiator. Remember that you aren't trying to be the reps. friend, you are trying to establish a business relationship. When you are talking to the sales rep. let them know how important pricing is to you. Ask them for their best price in writing. Do not show this to the competition, this is called "shopping the quote" and is a despised activity. You may just get a call telling you to bug of, its list price! When negotiating remember that the goal for a good negotiation is two fold, for you to get a good price and still have a good business relationship with the dealer. A couple of good negotiating tactics is to let the sales rep know that you are looking at the competition and that they look good, good prices to. If you need a lot of training admit it to the sales rep but if you don't ask for a price that reflects that.

Take your time when negotiating. If you push to hard and fast the dealer may not take the time to give a good price. Wait, be patient, let the dealer look out at all the stock in the warehouse just sitting there. Call back and ask if this is the best price. Let the dealer know that you have gotten quotes from the competition. Don't name figures but let them know that the competitors numbers were very good. Sometimes dealers will have equipment that they have used for demos that they can't sell for new. Ask about the price for this "demo stock". If it's available if could be a good deal for you.

When you are negotiating with a rep. you need to know their mark up. You also need to know what profit they have to have before they will loose money. On a single microscope sale a dealer needs around 18% for the deal to be profitable. This is predicated on a list price of $3,000 to $12,000. Theoretically the higher the price the less profit margin you need since the after sale costs are similar for low and high priced microscopes.

This isn't totally true. Higher priced microscopes are more complex, weigh more and sell slower. These drive up the after sale costs to the dealer. If you expect the sales rep. to install, train and in general hand hold then that increases costs, someone has to pay the rep to do this.

Discounting microscopes is a fact of life in high volume markets such as the student market and the clinical market. In low volume markets were the technical competence of the rep. is important discounting is less frequent. Typically a clinical microscope will be discounted at least 10% by any dealer while a research microscope will be discounted 2%. To increase available discounts Nikon went to a high list price, high markup strategy.

Olympus markups are 30% on everything except the student CH line of microscopes. Usually Olympus has a 40%-45% markup on the CH line. Nikon has a minimum of a 30% margin but if dealers buy in volume and buy packages of frames, optics and accessories the margins are 40% to 45%. A Nikon dealer can afford to give a better discount. However since Nikon list prices are higher the actual price historically to the dealer has been similar to Olympus's.

Leitz products carry a 30% markup. A lot of Leitz dealers don't like to discount at all since they tend to sell big microscopes that need a lot of service. In the clinical markets Leitz dealers will discount to get your business.

Zeiss doesn't really have a markup policy since they sell direct. However in the last few years they have been very aggressive in pricing. The sales reps seem to have a fair amount of lee way in discounting the product if the need to.

When you have made a decision call both the winner and the loser. It isn't fair to leave everyone hanging. Let the loser know why you made your decision. This will help them improve, everyone needs feed back.

When the microscope is brought into the lab have the sales rep unpack it. This reduces the lost in shipping hassles. If there is something missing then the rep can note it and take care of it. If you unpack it and something is missing you could be blamed for it.

After the microscope is assembled have the rep check of everything on the packing list that will come with the microscope. Check of each item and compare it to the quote or purchase order that was used to buy the microscope. Any discrepancy should be immediately taken care of. If the equipment does not conform to the packing list then make a note of this and have the rep sign the note. This way everyone agrees that there is a problem.

Make a file and put all the documentation from the purchase in it along with the manuals for the microscope. This will help you enormously if you have a warranty dispute or question with the dealer. This is what you have to have if there is any dispute of any kind. Before a manufacturer will do anything under warranty they have to see when the microscope was purchased and who purchased it.

All manufacturers provide a warranty with the microscope. However like all warranties this may actually limit your warranty rights under state law. It is a good idea to talk with or have a seminar put on by your lawyer so persons responsible for capital goods will understand their warranty rights. This can be a real eye opener!

If there is a warranty problem or you have any question the rep. should promptly address it. This does not mean telling you everything will be all right it means getting something done about the problem. If you feel that you are getting the run around call the manufacturer and tell them your problem. Manufacturers tend to take calls like this very seriously.
What this means to you

When buying a microscope know what performance and features you want. Get quotes and demo's then bargain in good faith.

The user in the microscope market

The world of business and management has been turned upside down in recent years. Were businesses were once considered top down structures with the boss telling everyone what to do, we now have customer centered companies were the customer indeed comes first. However microscope manufacturers haven't gotten there yet.

Its not all the manufacturers fault. Customers are not demanding that there views be heard in the design offices. Computer user groups are considered crucial in the design and marketing of new computers. Computer companies listen intently to user groups. However microscope users have never had the same input.

Users must get directly involved by making sure that sales reps and dealers are being their advocates to the manufacturer. Users should insist that manufacturers pay attention to the needs of working lab personnel and not just the more features game. This doesn't mean more lip service but more direct contact between design teams and users.

Some of the areas I'm concerned about are ergonomics and proprietary lamps. Look around a busy lab. You'll see microscopes up on books, tilted and otherwise kludged up. How a microscope fits a user is critical to that users productivity. Manufacturers should be much more conscious of these problems.

Manufacturers should be and now are just beginning to promote adjustable ergo heads made for bio-med application. Control positions should be studied and improved. The feel of controls should be user adjustable with easy to use mechanisms. There needs to be studies of repetitive motion injuries in microscope users.

Now on to proprietary lamps. In industry companies avoid using any product that only has one supplier. If that supplier goes out of business then they are stuck. However users will buy microscopes with lamps supplied by one vendor.

This should never happen. A standard question when buying a microscope should be "Were besides this manufacturer can I get this lamp?". If the answer is nowhere then reconsider buying that microscope. There are microscopes out there that will have to be modified or scrapped soon, the lamp they depend on is no longer made by the one company that made them.
What this means to you

Get involved with your sales reps and let them know that you expect user input into the design process. Never buy a microscope with a proprietary lamp.