Partnership In Promotion

Home Diagnostics Inc. employs a savvy co-branding strategy to compete against the Goliaths of the home diabetes testing business.

Home Diagnostics Inc. CEO J. Richard Damron Jr. admits that his firm doesn't have the marketing dollars of its big-name competitors, such as Johnson & Johnson. That hasn't stopped the Fort Lauderdale, Fla.-based manufacturer of the TrueTrack Smart System blood glucose monitoring system from gaining the attention of pharmacies, wholesalers and mail-order houses, all of which have helped the firm reach some 40,000 distribution points. The firm, with about 440 employees, has grabbed its share of the market by "co-branding" with partners, which lets retailers such as Walgreens or CVS slap their store brand on the TrueTrack product portfolio. IW: How does co-branding make a smaller firm able to operate successfully in the same market as national brands? Why not go straight private label? Damron: It allows us to establish the TrueTrack Smart System and it gives our customers a unique opportunity to build their own brand. They put their name on the product, and it creates some ownership for them. For the pharmacy, the diabetic patient is a very important patient. They make more trips to the pharmacy than non-diabetic patients. Not to buy their testing supplies, per se, but the number of times they visit the pharmacy is eight times more frequent than the average customer. And obviously they're spending more money in the pharmacy than non-diabetic patients. So, for the retailers and the customers that we deal with to establish their brand as a brand that those patients want to come back to is very important. For us to be able to co-brand, with their store name on the product as well as the TrueTrack name, one of the things that definitely does for us is that it facilitates movement into the managed care world where they are very concerned in having nationwide availability of the product in order to get on the formulary. If we were only a private-label company. . . it would be very complex, very detailed and probably not even possible. IW: You say that with the co-branding strategy, your price points are about 30% less than the national brands. How you can afford to be the value producer without moving production offshore? Damron: We have invested a lot of money in the automation of our manufacturing process. We have basically reduced the amount of labor involved in the production of our test strips significantly, and the cost of automation is nearly the same whether it's being done in the United States or outside the United States. We like the idea of making the test strips right here in the United States. We have better control over this process. All of our research and development and all of our manufacturing engineering is located here as well. Historically the test meters are produced outside of the United States. Originally they were purchased from a third party. That manufacturing facility was acquired by Home Diagnostics in 1999. We do all of the engineering of the meters here in Fort Lauderdale, and we have the group in Taiwan do the assembly work or some assembly work of the meters. The automation has really been the driver because it gives us tremendous flexibility to increase manufacturing output very quickly without the hiring of additional personnel. IW: Research and development frequently is a significant activity in your field. How would you describe your own R&D activities? Damron: It's been a huge focus for the last four years. We've doubled the number of employees who work for us in the R&D area, although we typically describe ourselves as more of a "D" company than an "R" company. The big pharma companies that have R&D spending budgets . . . there is a huge amount spent on pure research. We don't have the wherewithal or the need to really do true research. What we do is work with proven technology and adapt it to our product area. Our position is that of being a close follower of what's happening in the industry and what's happening in technology.

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