CUSTOMER PROBLEMS

1. Why Moore Medicals customer churn rate so high? How it can be improved?
In 1947 , H L Moore founded the Moore drug cooperation and initially started with
selling brand name pharmaceuticals , also sold vitamins and cold medicines to
pharmacies through the mail. So in the beginning Moores customer base was the
pharmacies.
In 1970, the company was renamed to Moore Medical cooperation , followed by the
increase in the base of pharmacy customers , did extensive mailing of catalogs and
other product information , and added professional practitioners such as doctors and
other medical service providers to its customer base.
In 1980, Moore Medical saw significant sales growth and also acquired other
companies. By 1997, The main focus of Moores strategy was to focus on Medical
practitioners as independent pharmacies was shrinking and drugstore chain
expanded significantly.
Moore sought to differentiate itself by its dedication to service , ease of ordering and
knowledgeable, friendly operators , as well as its ability to provide one-stop
shopping.
Moore divided the customer base into six groups:
i) Physicians (general and speciality)
ii) Podiatrists
iii) Emergency Medical services
iv) Public sector (schools, municipalities, correction facilities, federal and state
facilities)
v) Industrial (on-site occasional health facilities)
vi)Dealers (resellers)
Key issue Moore Medical corporation is facing is its churn rate i.e percentage of
customers that stopped placing orders over the course of a year which was 30%
ranging as high as 35% in some of the segments on the other hand industry average
was about 25%. Customer churn rate has a high impact on the lifetime value of the
customers if the company is planning to grow as is the case of moore medical
corporation.
Reasons for the high churn rate:
-

Customer loyalty is low.

Customers are price sensitive and will go wherever they find the prices the
lowest.
Moores product family is also narrow.
Penetration rate and share of wallet is also low and different across its customer
segment.
Moore has a ERP system in place but it is not sufficient to forecast the demand
as ERP is reactive to market demand.
The ERP system was cumbersome for the customers in creating bids and quotes
and related information regarding the same.
The ERP system was also not flexible according to the Moores flexible pricing
method.

To improve the churn rate Moore corp, needs to focus on its customer services as
most of the orders are through telephone calls and fax, averaging about 2000 orders
per day but as forecasted that by 2001 the sources of order will also be internet ,
outbound telemarketing, mail, bid/quotes. Also,
-

Reduce the average processing time of new order request which is currently
about 4.5 hrs at present.
Reduce the average turnaround time for new item requests which is 1-4 weeks
at present.
Increase the product line including capital goods such as x-rays and whirlpools
and also all categories of medical and surgical supplies to make it a one-stop
shop.
Implantation of new IT system such as CRM which will lead to better services for
the customers.
Optimize distribution of the perfect order identified by adequate stock of all items
at the closest distribution centre to be shipped and delivered on time and
damage free.
Focus more on customer retention then customer acquisition.
Retaining customers in turn will lead to higher profits.
Customer feedback is an important way of determining what the actual problems
customers are facing and their needs can be identified.

By improving the services factor Moore Medical Corporation can improve their churn
rate which is very high according to the industry average.

PRODUCT MIX

2. Should MMC consider expanding its portfolio of offerings to include medical

equipments? Why or why not?
According to the case Moore Medical corporation exited the wholesale
pharmaceuticals business which accounted for 60% of its revenues due to fierce
competition from the larger players who were investing a lot in the new technology
and 70% of the market belonged to them. And because of this intense competition
these firms cut drug prices and margins, Moore realised it could no longer profitably
distribute drugs to the pharmacies, so it decided to focus on the practitioner
customers including general physician, podiatrists, rescue squad, and emergency
medical technicians, industrial sites , schools/universities, government facilities and
correctional facilities. Although practitioners typically placed small orders but they
were ready to pay higher prices, gross margins were around 30% for practitioners
orders vs. approximately 5% for those placed by pharmacies.
Since Moore Medical corporation was the first to adopt this unattractive market
because of small orders it has first mover advantage and has build relationship for a
long time now so expanding its portfolio of offerings to include medical equipments
will be in its interest.
Also, the medical industry is facing challenges to implement measures to control
costs, and because of this public hospitals are operating on tighter budgets and
private facilities are receiving lower reimbursements triggering a transformation for
the purchasing process creating a demand for products that are good enough and
competitively priced.
Benefits of adding medical equipment to its portfolio:
-

Penetration rate in podiatry is high about 75% but share of wallet is low as
medical equipments which are considered as capital goods are not sold. Moore
can benefit from the high penetration rate in the podiatry by adding medical
equipments.
Physician accounted for most of the sales so by adding medical equipment we
can provide a platform with a wide range of product portfolio and thereby
increasing the penetration rate by investing in marketing.
Moores product line is not broad enough to be considered as a one-stop shop,
by including medical equipment it can cater to a larger market and benefit by
taking advantage of its existing relationships with the customers.
Increasing product portfolio will reduce the churn rate which is 30% and goes
as high as 35% compared to the industry average of 25%.
The gross margins on the medical equipments are very high, including them in
the portfolio will improve the low share of wallet problem.
Currently Moore has a product line of 8,500 and it does not cater to the needs of
all the customers as some products are available and some not. Moore needs
to increase its product line so that customers will get everything at one place
and do not switch to the competitors with better product portfolio.