German Homecare Market - an Insiders Perspective - Adrian Thyssen

From outside and far away the German homecare market seems to be very attractive. Biggest country in EU, strong economic basis and a long time established and accepted social system. As a result of this view nearly all producers of homecare products are trying to in the one way or the other to get a part of the cake.

But the results are quite sobering for the most of the companies including those who are German. So what could be the reasons for this disappointment?

At first, Germany is not one market. It consists in some respect of 16-30 markets. You say that platitude is true for every market? Yes, but here are the facts:

180 public health insurances using 4 different ways of buying and if they use the same way the use different prices, equipment or added services. Where in the world a wheelchair can be bought, leased, or only paid for use by the public health insurance? Where in the world would you find that there are > 25 contractual prices for one incontinence products by public health insurances? And where would you find >15 contractually defined standards for the equipment of one type of wheelchair?

There is another way in which the German market is not one market. Standard products (about “standard” see above) are facing a constant decrease in pricing (e.g. power chairs by 25% in 3 years). There are other parts of the market like wheelchairs for paraplegics, kids´ chairs or craftsman work (real or not) where you find nearly stable prices and opulent supplying. Ok, even here the volumes came down but the way of saving by the insurances is more not to approve but putting pressure on the cost. At the courts the patient will get what he wants at the latest. The reduction is by far not that significant as in the standard area.

Three other facts should not be ignored:

1. The culture of paying privately for homecare products is not much developed. It is just starting for smaller products.
2. Craftsmanship is seen as a typical German strength. In fact we love and admire it. This gives a politically strong position to the dealers who are mostly more craftsman than “deal”ers.
3. Germany has one of the most complicated, bureaucratic and long lasting registration systems in Europe. Nevertheless, you find here more important companies which are well known as importers from Asia (beside the big players like Sunrise or Invacare which are Asian producers) as in any other EU-country.

Given these facts, how can one survive or - even better - earn money and grow sales? The answer is again intellectually simple: Reduce complexity! What does it mean in such a complex environment?

Offer volume products through a different channel (sales and handling) than specific or more personalized products. Invacare is doing the first steps here by splitting the channel for products with and without options. It is just a start but they did not leave completely the one-stop-shopping-concept (ossc). Sunrise is doing it in the logistic area but not in sales. Meyra, the biggest national player, follows firmly the ossc.

This leaves enough room for small companies with a clear goal. On the one hand you have the pure importing companies which offer cheap, quick deals. If they are good they have a good logistic chain management from Asia to the German shops and a sales force which is excellent in deal making. On the other hand you have niche providers in areas as adaptive chairs (look at the very successful PRO ACTIVE) or like our little company VASSILLI for wheelchairs with verticalisation. If we are good they react closely to the wishes of the customer base (includes shops and or patients/insurances). The sales force is more relationship oriented because more complicated products need trust as a basis. Logistic skills are important but not too much decisive. The key factor in our times in which even high end products are under price pressure and the private market is in its infancy is to offer simple and economic solutions even for complicated handicaps. This needs an excellent engineering basis as well. It takes time to get into the latter part of the market but it is more stable and hard to attack by big companies even if they buy a niche company. The most famous example how difficult it is shows Otto Bock. It is the biggest conglomerate of niche providers in rehab-business in Germany but rehab is too small to be more than a hobby for the market leader in orthopaedics worldwide.

The example Otto Bock shows also a dilemma of bigger companies. Niches are economically interesting but the sales never reach the critical mass to reach importance and focus inside the group. There may be a chance in cooperation of good small companies (like the ones mentioned above) and the big players. It does not yet exist in rehab business but you find it in other markets like pharmaceuticals or in the car industry. In the future the big companies like Invacare, Sunrise ecc. could concentrate on the mass market. Thereby, they will improve their logistic and supply chain management skills. In order to cover interesting niches as well they could use companies with engineering skills to develop niche products or produce specials. In order to open the market and get experience without damaging the brand they could use specialized sales force providers. By this they will reach total cost leadership leave only the very small local or national niches to competitors. It could also be a good long term strategy for Europe of which Germany seems to be the small edition.