The Winds of Change at the Hearing Aid Manufacturing Level – Historical Events
In one of my previous blogs I described the transition of audiologists from being non-ethical for selling hearing aids, to going to legal and ethical if not sold for profit, and then essentially overnight to legal and ethical to sell hearing aids. Certainly, a schizophrenic ride for those who were involved at the time. But, during this same time, and to accommodate these monumental changes, hearing aid manufacturers were forced to make decisions that impacted their distribution systems.
If You Sold Telex Hearing Aids, You Were a Telex Distributor (Semi-Franchise)
In the early 1970s when I joined the hearing aid industry, and certainly earlier, hearing aid dealers who sold hearing aids were affiliated with a specific company. You might say that they were a “franchise” of the company, but perhaps not in the strict use of the term. However, if you sold Telex hearing aids, you had to pass a credit check and also sign an agreement that allowed you to use the Telex name, products, advertising, signage, logo, to be able to purchase Telex hearing aids, have an account, etc. This was the situation with all companies. Therefore, you were a Radioear dealer, a Maico dealer, an Audiotone dealer, a Sonotone dealer, an Acousticon dealer, a Beltone dealer, a Dahlberg dealer, etc.
Most hearing aid companies had two general types of accounts in order to meet dealer needs for hearing aids during this period. These were implemented to accommodate dealers who were also seeking referrals from audiologists: (a) a Net Account, and (b) a Rental Account. (They may have been described using somewhat different terms, but the concepts were similar among manufacturers).
The Net Account invoiced the dealer for all purchases of merchandise, services, etc. Monthly statements were sent indicating all purchases and payments made in the previous month and generally offered discounts for payment made (usually around 5%) within a few days of invoice date, or Net 30 days. Extended terms were often available on a 30-60-90 day account for hearing aid purchases only, with an additional charge per hearing aid, and with 1/3 of total invoices due 30-60-90 days following the date of the invoice. Audiometer and/or other equipment purchases could be extended over 12-24 months, with a nominal interest charged on these contracts. Shipping costs were borne by the distributor or customer. Guarantees were 12 months as standard in the industry. Loss and accidental damage was available for about $3.50 per year from the manufacturer, but could be purchased at the time of purchase for 1 or 2 years, and could not be renewed. Filing a claim would constitute termination of the insurance.
The Rental Account was available for loan instruments or for clinic instruments. The loan instruments were those used in the office to give or rent while the customer’s hearing aid(s) were being repaired. Clinic instruments were those placed in clinics or with physicians for the purpose of performing hearing aid evaluations, and hopefully, referrals. Loaners could be purchased or rented, and were inscribed with the word “loaner.” If purchased, they were generally 50% the regular cost. However, they were not returnable for credit and there was no cash discount. Rentals were charged on a rental account at a rate of approximately $5.00 per unit per month, and this was invoiced against the dispenser’s net account. These could be returned for credit at any time, but any repairs were at the normal rate. Clinic instruments were not inscribed because they were saleable units. They could be purchased or rented under conditions similar to the loaners. The difference is that these could be removed from the clinic after 6 months and sold, and new clinic instruments could replace them.
If you did not continue to sell the company hearing aid, the company name, logo, advertising, products, etc., were taken from the dealer. A representative from the company would physically visit the office and remove these items.
Multi-line Dealer Evolution
A situation occurred during the early 1970s that resulted in a shift from the historic “franchise” program. Although audiologists were banned from selling hearing aids, they were allowed to recommend specific hearing aids using clinical aids in their hearing aid evaluations obtained from local hearing aid dealers. Referrals and fittings were mostly to certain dealers the audiologists held in high esteem, and the dealer provided the hearing aids to the clinic(s) at their expense. The dealers, in efforts to garner more of the referrals, and manufacturers looking to have clinics use their products to penetrate certain markets, worked the system to find ways for the dealer to be able to sell more than a single product company line. This caused the fracturing of the traditional franchise system – resulting in many dealers becoming “multi-line.” Manufacturers contributed to this multi-line movement by visiting and impressing upon clinics the desirability of having some of their products that fit certain customer needs (cosmetic, power, special function, etc.), and asking the audiologists for names of dealers to whom they recommended their fittings. If that dealer was willing to fit the company products, they would arrange for the dealer to be able to purchase the product. This usually ended up with the industry representative visiting the dealer following the clinic visit, and mentioning that the clinic would be interested in recommending the product if the dealer was willing to sell it. This is what I refer to as “forced distribution” – the dealer is “forced” to add the product line because the audiologist is interested in fitting their hearing aids. And, the dealer was interested in the referral.
A Manufacturer Problem is Created
This movement to “multi-line” dealerships ended up shifting the financial contributions for clinic hearing aids from the dealers to the manufacturers. If the manufacturer wanted their hearing aids to be used for the clinic evaluations, then it seemed justified that the manufacturer would fund the placement of the aids. There was little reason for the dealer to want to make additional financial investments by purchasing or renting additional clinic hearing aids. He/she was already getting the referrals. This multi-line action created a win-win situation for the dealers (getting referrals but not having to fund the placement of clinic hearing aids), but not a good move by the manufacturers because they ended up with many hundreds of hearing aids in clinics – some of which were never used in a clinical evaluation (boxes unopened, trim pots never adjusted as confirmed using microscopes to look for screwdriver markings). While the actual number of clinic hearing aids was not known, it would be reasonable to suggest that they totaled close to 10,000 units in hearing clinics in the US. Some clinics had as many as 30 hearing aids from a single manufacturer, and might have as many as 5 to 15 manufacturers’ (or more) hearing aids available for hearing aid evaluations. A manufacturer could have as much as $500,000 tied up in clinic inventory, at the manufacturers’ production, not wholesale cost.
Another Adjustment for Hearing Aid Manufacturers
As some audiologists started to sell hearing aids resulting from the ASHA ethics change in 1974, hearing aid manufacturers had to now develop policies that allowed audiologists to sell their products that did not conflict with existing dealer policies. What made this difficult is that the traditional hearing aid dispenser understood the financial requirements and accepted their responsibilities and consequences, whereas audiologists, for the most part, understood none of this. Historically, audiologists had hearing aids “given” to them for hearing aid evaluation use. In other words, they had no “skin” in the game. But now, as a “customer,” they needed to become involved in the practice, but had no idea how to do this, and even worse, most had no money or experience to contribute to the opening of a practice. Because of this, many started their hearing aid sales in the employ of an Ear, Nose, and Throat practice that essentially funded the business. It was understandable that traditional dealers reacted unfavorably to “considerations” given to these new competitors by some manufacturers, identified as Professional Service Accounts.