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Jun 1, 2009 (Vol. 29, No. 11)

Long-Term Viability in a Down Market

Suppliers Need to Focus on the Future Even if It Means Temporarily Reducing Sales Volumes

  • Anticipated Changes in Laboratory Purchases

    Notwithstanding the anticipated decreases in FY2009 operational research budgets and the estimated decrease in spending on instrumentation and capital equipment, life science suppliers should note that projected expenditures on consumables for FY2009 compared to FY2008 will likely increase by 5.9% for academic labs and 10.4% for industrial labs.

    Industrial respondents, in particular, are anticipating a bigger decrease in spending for cell biology instruments—microscope-based (-16%) more so than flow cytometer-based (-7%)—than are academic respondents (-7% and -4%, respectively).

    In contrast, academic respondents are expecting a larger decrease in spending for genomic analysis instrumentation (-14%) than are industrial respondents (-2%). High-throughput screening and analysis systems and image analysis systems will also experience spending decreases by both academic (-14% and -10%, respectively) and industrial respondents (-12% and
    -6%, respectively).

    During this period of economic uncertainty, life science suppliers may have opportunities to attract new customers through a combination of price reductions and product promotions. This scenario may be more likely for consumable product categories where there is no single dominant supplier, i.e., cell biology kits and reagents, gene-expression analysis products, protein purification and separation products, and RNAi products.

    In general, only a small percentage of study respondents indicated that they would never switch their primary supplier. For the right price savings, most scientists could probably be convinced to buy products from a different supplier in this recession. However, the cost may be too high to really be practical for most life science companies.

    As a general rule of thumb, a minimum of a 10% savings would be required for scientists to switch suppliers. In a market where switching suppliers rarely occurs, this may prove to be a once-in-a-lifetime opportunity to capture share through price leadership, provided it can be sustained.

    This intense interest in saving money has implications for life science suppliers hoping to interest scientists in products that they may consider nonessential or luxury items, such as kits (when they are making do with do-it-yourself reagents) or high-ticket purchases like new instrumentation.

    Instead, life science suppliers may want to concentrate on emphasizing the value of essential items such as critical, must-have  consumables and replacement parts for existing instrumentation or extension-to-service contracts that are still deemed lab vital. Except for cell culture media and reagents and lab plasticware where ordering in bulk is the most common cost-saving measure, buying fewer kits is the most popular choice for all other consumable product categories, especially for cell biology kits and reagents.

    Despite the antikit mentality espoused by many labs, life science suppliers with persuasive sales and marketing teams may still be able to make a case for the economic value of kits, if they can effectively position their kits as tools to decrease a lab’s labor costs and maximize its productivity.

  • Adoption of Cost-Saving Lab Practices

    Click Image To Enlarge +
    Figure 2

    Buying fewer kits also seems to be a more widely adopted thrifty practice than conserving reagents. While participating in institution-wide purchasing contracts is a relatively uncommon means of saving research dollars, it is more regularly practiced for cell culture media and reagents and lab plasticware than for other consumable products.

    As many of these cost-cutting measures in the lab are relatively new for at least one-half of the labs surveyed (i.e., within the last year), scientists, in general, seem to be quite receptive to advice from suppliers on how to conserve reagents and preserve the operational shelf-life of their instrumentation.

    It is no surprise that most scientists would prefer that life science suppliers offer them discounted prices on commonly used items. However, no handling or shipping fees and “buy one, get one free” offers would also be a welcome relief, especially to academic labs.

    While such promotions are unlikely to attract many new customers on their own, they may, when combined with strategic price reductions, resonate with scientists taking a hard look at how to reduce their budgetary expenditures. Scientists may perceive that no shipping fees and discounts on commonly purchased products, even though they may be small per individual order, could add up to significant savings over time.

    Scientists are also more concerned with saving money now rather than the prospect of saving money in the future, i.e., special offers on new products, reduced prices for soon-to-expire products, or reward points—so these more intangible types of savings will likely not be as well received.

    While there is some degree of overlap between academic and industrial labs in their adoption of cost-saving lab practices—with delaying or canceling nonessential purchases and deferring capital equipment purchases being the most common—there are differences in approach that may impact their purchasing behaviors (Figure 2).

    For example, a greater percentage of academic than industrial labs share instrumentation and other resources with other labs. More industrial labs than academic labs engage in staff downsizing and outsourcing. Furthermore, industrial labs also try to increase their energy efficiency, purchase used instrumentation and, when necessary, postpone or suspend projects.

    Although not yet widely embraced, scientists indicated that they would consider reagent rental programs, instrumentation rentals and leases, and, for academic labs, used instrumentation purchases (currently, used instrumentation appears to be more common in industrial labs). These areas may be poised for increased growth over the next year or so. As a result, they present opportunities for some life science suppliers to reposition or promote their product offerings to customers via unique purchasing channels.

  • Looking Forward

    Life science suppliers who approach this recession by balancing their short-term focus on ensuring sustainability with a long-term focus on building capability will fare better than their competitors focused solely on the bottom line. In tough economic times it may be in the best interest of suppliers to manage their customer relations in such a way as to ensure the future health and survival of research labs.

    And if this approach means temporarily reducing sales volumes—by aiding customers in stretching their budgets—it could ultimately help not only retain current customers, but also attract new customers when the economic upturn begins.

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