This week at Hearing International is the second in the series of articles by guest author Siamak Sani discussing Global Market Dynamics. As presented last week, as an entrepreneur Siamak has worked with various technologies and distributors to address the world’s hearing impairment with his technology and products. It is our pleasure at Hearing International to again have this unique perspective on the problems of bringing hearing healthcare to the international community.
Global Market Dynamics: A Crisis Growing Rapidly
by Siamak Sani
As presented last week, it was indicated that, achieving success in development of international markets for hearing instruments beyond a 1% market penetration requires advances in 4 general areas. After further investigation, this week I have revised the 4 areas and offer a better organization of issues with market growth to more accurately reflect the specific issues in this area:
- Issues and Problems
- 3 Ps: Product, Price, and Performance
- Distribution and Global Training Programs
- Global Cost of Hearing Loss
Having reviewed some distribution issues last week, actually the Issues and Problems were presented. Further information on distribution will be discussed in Part III and the global cost of hearing loss is discussed Part IV.
3 Ps: Product, Price, and Performance
The majority of current high technology “100% digital” products require an accompanying service element to personalize each device to the patient needs. Despite personalized fitting of such devices to individual patients by certified experts, the markets still face a 20%-30% return rate. Additionally, 20%-30% of patients do not use the products even when tuned specifically for their impairment. These rates of return and non-use would suggest that 50% of the current generation of hearing aids do not perform well enough for the patient to use them. Such high return rates are also deemed as key barriers in developing direct-to-consumer channels as retailers cannot accept such high return rate for consumer products sold at low prices. The low-tech and no-tech products available on the global markets continue to fail in attracting major volumes and gaining market penetration. Several attempts to commercialize instant-fit and disposable products have also failed to obtain high use rates. Similar to reading glass concept, the key product features that could open high volume Over-the-counter and Business to Consumer channels would include, highest quality audio, excellent performance in noise, self-screening and self-selection of fitting profiles, easy-to-use features and highly aggressive price points. All of these features are achievable today and could be ready for commercialization in the near future. Wireless connectivity has recently become a hot topic as new technology advancements hold the promise of allowing patients to self test and self fit without the service elements using connected “wearable, or in our case, Hearable” devices. This technology area by far holds the biggest promise of turning the hearing aid market into a high volume consumer electronics market for major consumer electronics device manufacturers. Key issues again revert to protection of current high profit markets and shareholder values by existing hearing device manufacturers. Outside the industry giants such as Apple and Samsung certainly have the power to disrupt this market by using off-the-shelf technologies and global branding and marketing reach. Most likely, viewed as a channel and distribution challenge, none have thus far entered this space in a significant manner.
Price and Availability
By far, the most cited reason for “non-acquisition of hearing devices” is the current high prices of hearing aids, which today includes audiological services. Capturing international markets will require significant departure from the current $1000 per unit average prices for the high audio quality products (US and EU prices are more than double this figure). Burdened by large research & development and selling and general administration budgets, it is understandable why the current major manufacturers continue to only focus on developing and servicing their current high priced, high profit markets. At the core, the high cost of miniaturized components/total “Cost of Goods” for each device ranges from $40 per unit to $100+ per unit (including the hybrid circuit, microphone, speaker (receiver), shells, switches, tubes, etc.). These high costs limit the ability of the Big 6 manufacturers to provide high performance products at a low enough price to excite international markets. Moreover, the fear of alienating and upsetting existing sales channel and market dynamics, by providing a true low-priced high-performance option, only to watch their sales channels move to the next major manufacturer/competitor, has provided additional barriers for any major price drop by existing players. Highly interested in the international markets, the major 6 manufacturers will most likely look for other entrants/distributors to open these channels and then acquire them. The small international manufacturers, bound by the same cost of goods burden for key components and have smaller Research & Development, Selling and General administrative costs continue to fail in gaining significant market traction. Therefore, they are unable to drop prices.
Unfortunately, today, wireless options are only available on the most expensive hearing devices which added the wireless connectivity to the hearing. The promise of adding hearing enhancement functions to current wireless devices by large OEMs such as Apple and Samsung may come at a minimal cost to them. Even with large channel and manufacturing strengths, this dynamic has yet to play out as such major OEMs would view existing 13 Million total market as a very small volume niche and distracting to their core high volume business. Regardless of the products developed, patient satisfaction must also be a primary consideration for growing global markets. Viewing the range of available products within the parallel optic industry might provide the best starting point. A bottom-up approach of studying the existing products such as reading glasses (no-service required) and disposable contact lenses (minimal service required) are important. Several hearing industry reports and conventional wisdom indicate that providing low enough prices would excite the existing markets and attract new channels and patients. Prior failing attempts by current manufacturers at lowering prices (such as Avance by Resound at $500 per unit), which have failed to attract market growth, prove that price needs to be much lower than what the existing manufacturers are willing to entertain. Reverting back to the successful optic industry, creating an equivalent for reading glass concept in hearing aids would make reasonable sense. Target retail prices, for such a high quality audio easy-to-use/self-fit device, would need to drop below $50/u to attract major volumes. This price would need to include retailer profits and also cover the cost+margin for manufacturers. Given the current cost of components involved, this price target continues to remain a major barrier to entry for all who wish to provide a high audio performance device. Since several current consumer products such as wireless headsets can retail at such prices, one can clearly argue that same cost/price features should apply to hearing devices. Developing high volume channels remains as the main obstacle towards reaching the wholly grail of “large volumes”. The other key missing drivers for reaching this $50 retail price threshold are large volumes and/or a major drop in cost of components via technology innovation in providing the highest audio quality at an incredibly low cost and enable key features that provide low profiles, self test and self fit features.
Next Week at Hearing International, Siamak Sani will return for Part III of his discussion on the Global Market Dynamics of hearing instruments…..RMT
Siamak S. Sani, Chief Executive Officer, World Hearing Organization Inc. Mr. Sani holds a BS degree in Electrical Engineering and Computer Sciences from UC Berkeley and an MS degree in Engineering Management from Santa Clara University. He is, currently, President & CEO of World Hearing Organization (WHO) Inc. For the past 10 years, Sani has been creating Wearable and hearing enhancement devices and technologies which provide the highest audio performance, 8- prescription instant-fit feature. He has also focused on developing innovative distribution platforms for the global hearing consumer markets. For more than 30 years in executive management of start-ups and $100M public corporations in the Semiconductor and Hearing Industries, he aspires to address the 99% unmet needs of the world’s 2nd largest medical condition, hearing loss. Siamak may be reached at: firstname.lastname@example.org
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