Interview with Mike Jones President, Phonak Inc.
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AO/Beck: Hi Mike, thanks for spending some time with me tonight. I'd like to start by learning a little bit about you. Where did you get your start and how long have you been with Phonak?
Jones: I started in the industry fresh out of college with my degree in Business Administration in 1972. I went on to earn my MBA at USC about ten years ago.
AO/Beck: How long have you been the president of Phonak?
Jones: Five years.
AO/Beck: Where were you before you joined Phonak?
Jones: I was with Starkey Labs for twenty years and one of my primary areas of responsibility had to do with setting up their international business.
AO/Beck: Tell me how Phonak fits into the hearing health care industry?
Jones: Well, we're probably the 3rd or 4th largest hearing aid manufacturer. However, we see ourselves as a supplier of communication equipment. Not necessarily just hearing aids, but complete communication systems, The communication system may include FM or remote controls and other integral parts beyond the hearing aid itself. In other words, we view our products as more than just hearing aids.
AO/Beck: Speaking of FM systems, I have used the MicroLink system and I am very impressed by it. What can you tell me about the MicroLink System?
Jones: The MicroLink system took some eight years to develop. It has the world's smallest FM receiver and was one of the first to use the 216 Mhz. Frequency Band which reduced interference. Certainly the size is a big advantage in making it part of the complete communication system.
AO/Beck: I understand MicroLink can be used with other BTEs, beyond the Phonak line. Is that correct?
Jones: Yes. We built the MicroLink to be useful with a variety of BTEs. There are quite a few manufacturers who make compatible FM boots and accessories and they can take advantage of the MicroLink FM system.
AO/Beck: How large is the MicroLink business? That is, how many FM systems does Phonak sell each year?
Jones: We probably sell some 30 to 40 thousand MicroLink systems annually. About 80 percent of the total are used by children and the remainder are used by adults.
AO/Beck: What can you tell me about the recent merger?
Jones: As you know, we recently merged with Unitron. Of course, Lori and Argosy are part of the Unitron group effective 1-1-2001. Each of those groups will maintain their own names and products We will also maintain the Phonak name and again, each group will maintain their own marketing identity.
AO/Beck: Why are all of these mergers and acquisitions happening now? What is the rationale behind the 'merger-mania' we've seen in the hearing aid manufacturing industries?
Jones: I think we're just tracking other industries. For instance, Ford owns Jaguar, and they own Volvo and they are a big share-holder of Mazda. If you look at banking and at airlines you see the same thing there too. The idea is globalization. We all have to be able to compete across the globe - not just in North America. I think that's probably the key to the consolidation. More often than not, we're trying to appeal to the customer with a broader offering at a variety of prices.
AO/Beck: So it has to do with being in different markets with different products at different prices to capture the largest possible market share?
Jones: Yes that's a large part of it. Once you have the production ability and the skill and ability to produce a product, the bigger win is in the larger distribution path.
AO/Beck: Do you think we'll have less choices if there are just a handful of hearing aid manufacturers in 3 to 5 years?
Jones: I think the industry will maintain a healthy mix of players and products but I think there will be some sort of market domination by three or four key groups at the manufacturing level. In fact, I think you'll see more manufacturers going into retail distribution.
AO/Beck: Are you referring to the vertical integration model?
Jones: Yes, there are actually horizontal and vertical models out there and others being developed. Suppliers are buying other suppliers and manufacturers are buying other manufacturers, so it is actually getting more competitive in some respects as larger groups form with more resources and more offerings.
AO/Beck: At what point in time do you think we'll actually see the price of hearing aids drop, as far as the end-user/patient is concerned?
Jones:I think there are currently a vast array of price points for the patients. They can buy disposables or analogs at a very low price, digitally programmables at a medium prices and of course, digitals are available, and they are relatively expensive. Twenty years ago, the separation between the wholesale price between the highest and the lowest price per unit, was probably about 50 dollars. Today, there might be a wholesale difference of a thousand dollars or more. I think this another issue you'll see across many industries. Brand new cars start at about $7000.00 and they go well over $100,000. So the key here, and in many other industries is to offer the consumer many choices, many products, and to have them available across many price points.
AO/Beck: Do you see Phonak offering a disposable in the near future?
Jones: Not really, not at this time. I can't see a business model that makes economic sense for disposables. I don't mean that disposables aren't a good idea. Maybe they are. However, with the cost of the components and the cost of the personnel and other manufacturing/production costs, I can't see it as the future for us or the industry or the patients. Of course, the patient is the ultimate decision maker, and they may flock to it, but over the long run, it seems the patient is spending as much, or more for disposables as they are for custom made products. So then, if the price isn't the advantage, what is? On the other hand, I do see a future for instant fit devices. I think we need to be able to quickly supply the patient with 'starter' products, and I think instant fits may address that need. The reading glass for your ear!
AO/Beck: Mike, How can we do a better job in marketing our products and services to the hearing impaired end-user?
Jones: I think key elements are often overlooked. Price is part of it and access to hearing health care is part of it. Remember, ReSound introduced the AVANCE a year or two ago as a low cost unit through the hearing health care professionals. Are we reaching more patients because of the AVANCE? No. It appears that our market is not expanding despite the availability of an excellent low priced product. We need to examine the products from the consumer's viewpoint Basically, we need to find the key that incorporates an excellent product at a reasonable price, and make it available to the masses to fill their needs. However, this brings up the issue that if patients do not perceive they have a need for hearing instruments, despite their apparent hearing loss, the question becomes - are those non-interested people really part of the market? My opinion is that consumers do not seek help unless they have a communication problem.
AO/Beck: So in terms of the 25 to 30 million hearing impaired people in the USA, you're saying that the pool is probably smaller because many hearing impaired people do not consider themselves to have communication problems.
Jones: Yes, that's correct. Although the hearing impaired person may indeed recognize the hearing impairment as a problem, they may not recognize a need to fix the problem. Basically, I think the market is bigger than what we as an industry have previously or currently penetrated, but I doubt it's as large as the 25 to 30 million people we all talk about.
AO/Beck: So what can we do to improve market penetration?
Jones: Improve the hearing performance of the hearing instrument. This is being addressed and the future looks more promising. I think that if you stand back and examine it from the consumer's viewpoint you have to admit that the price of hearing aids is a barrier to some. From the professionals perspective , you also have to admit that the product requires a tremendous amount of service. Ultimately, we have to have products that require less service. The average dispensing practice sells about 17 units per month, to about ten patients. That's not very many. We're looking at 2.5 patients per week on the average.
AO/Beck: If you could predict the dispensing model which will be used five years from now, will it be essentially the same, or very different?
Jones: I don't think the dispensing model will change dramatically in the next three to five years. I think our industry and the hearing health care profession will become more efficient in the next few years and that will help as far as product quality and price per unit. Technology will allow better efficiencies and we'll reach optimal fittings more quickly. I think we'll soon overcome cerumen and perspiration susceptibility problems in the products and that will make an enormous difference too. So basically, in five years, I see many efficiency and technical improvements, but I think the dispensing model will be essentially the same or similar.
AO/Beck: What about the impact of the Au.D on hearing aid market penetration?
Jones: I think the Au.D. will have a tremendous and beneficial impact. First of all, from the patient's perspective, it is important to be treated by doctors. Patients expect and desire doctors to manage their health care needs. Secondly, the amount of knowledge and training involved to produce a competent practitioner continues to increase. The Au.D. allows professionals to spend enough time learning about their profession, in terms of services and products, to become excellent practitioners. The bottom line is we need more knowledge. The Au.D. programs provide advanced knowledge and recognition for that knowledge. Audiology is moving towards a model similar to physicians whereby the maintenance and acquisition of new and current knowledge will occupy more and more of your time, and it will come at a cost to the consumer/patient. But the bottom line is, we'll have better practitioners, better products and better patient care.
AO/Beck: Thanks Mike, I appreciate your time and insight. I wish you a happy and healthy holiday season.
Jones: Thanks Doug. Best regards to you and Audiology Online for 2001.
For more information on Phonak click here.
Click here to visit the Phonak website.
Jones: I started in the industry fresh out of college with my degree in Business Administration in 1972. I went on to earn my MBA at USC about ten years ago.
AO/Beck: How long have you been the president of Phonak?
Jones: Five years.
AO/Beck: Where were you before you joined Phonak?
Jones: I was with Starkey Labs for twenty years and one of my primary areas of responsibility had to do with setting up their international business.
AO/Beck: Tell me how Phonak fits into the hearing health care industry?
Jones: Well, we're probably the 3rd or 4th largest hearing aid manufacturer. However, we see ourselves as a supplier of communication equipment. Not necessarily just hearing aids, but complete communication systems, The communication system may include FM or remote controls and other integral parts beyond the hearing aid itself. In other words, we view our products as more than just hearing aids.
AO/Beck: Speaking of FM systems, I have used the MicroLink system and I am very impressed by it. What can you tell me about the MicroLink System?
Jones: The MicroLink system took some eight years to develop. It has the world's smallest FM receiver and was one of the first to use the 216 Mhz. Frequency Band which reduced interference. Certainly the size is a big advantage in making it part of the complete communication system.
AO/Beck: I understand MicroLink can be used with other BTEs, beyond the Phonak line. Is that correct?
Jones: Yes. We built the MicroLink to be useful with a variety of BTEs. There are quite a few manufacturers who make compatible FM boots and accessories and they can take advantage of the MicroLink FM system.
AO/Beck: How large is the MicroLink business? That is, how many FM systems does Phonak sell each year?
Jones: We probably sell some 30 to 40 thousand MicroLink systems annually. About 80 percent of the total are used by children and the remainder are used by adults.
AO/Beck: What can you tell me about the recent merger?
Jones: As you know, we recently merged with Unitron. Of course, Lori and Argosy are part of the Unitron group effective 1-1-2001. Each of those groups will maintain their own names and products We will also maintain the Phonak name and again, each group will maintain their own marketing identity.
AO/Beck: Why are all of these mergers and acquisitions happening now? What is the rationale behind the 'merger-mania' we've seen in the hearing aid manufacturing industries?
Jones: I think we're just tracking other industries. For instance, Ford owns Jaguar, and they own Volvo and they are a big share-holder of Mazda. If you look at banking and at airlines you see the same thing there too. The idea is globalization. We all have to be able to compete across the globe - not just in North America. I think that's probably the key to the consolidation. More often than not, we're trying to appeal to the customer with a broader offering at a variety of prices.
AO/Beck: So it has to do with being in different markets with different products at different prices to capture the largest possible market share?
Jones: Yes that's a large part of it. Once you have the production ability and the skill and ability to produce a product, the bigger win is in the larger distribution path.
AO/Beck: Do you think we'll have less choices if there are just a handful of hearing aid manufacturers in 3 to 5 years?
Jones: I think the industry will maintain a healthy mix of players and products but I think there will be some sort of market domination by three or four key groups at the manufacturing level. In fact, I think you'll see more manufacturers going into retail distribution.
AO/Beck: Are you referring to the vertical integration model?
Jones: Yes, there are actually horizontal and vertical models out there and others being developed. Suppliers are buying other suppliers and manufacturers are buying other manufacturers, so it is actually getting more competitive in some respects as larger groups form with more resources and more offerings.
AO/Beck: At what point in time do you think we'll actually see the price of hearing aids drop, as far as the end-user/patient is concerned?
Jones:I think there are currently a vast array of price points for the patients. They can buy disposables or analogs at a very low price, digitally programmables at a medium prices and of course, digitals are available, and they are relatively expensive. Twenty years ago, the separation between the wholesale price between the highest and the lowest price per unit, was probably about 50 dollars. Today, there might be a wholesale difference of a thousand dollars or more. I think this another issue you'll see across many industries. Brand new cars start at about $7000.00 and they go well over $100,000. So the key here, and in many other industries is to offer the consumer many choices, many products, and to have them available across many price points.
AO/Beck: Do you see Phonak offering a disposable in the near future?
Jones: Not really, not at this time. I can't see a business model that makes economic sense for disposables. I don't mean that disposables aren't a good idea. Maybe they are. However, with the cost of the components and the cost of the personnel and other manufacturing/production costs, I can't see it as the future for us or the industry or the patients. Of course, the patient is the ultimate decision maker, and they may flock to it, but over the long run, it seems the patient is spending as much, or more for disposables as they are for custom made products. So then, if the price isn't the advantage, what is? On the other hand, I do see a future for instant fit devices. I think we need to be able to quickly supply the patient with 'starter' products, and I think instant fits may address that need. The reading glass for your ear!
AO/Beck: Mike, How can we do a better job in marketing our products and services to the hearing impaired end-user?
Jones: I think key elements are often overlooked. Price is part of it and access to hearing health care is part of it. Remember, ReSound introduced the AVANCE a year or two ago as a low cost unit through the hearing health care professionals. Are we reaching more patients because of the AVANCE? No. It appears that our market is not expanding despite the availability of an excellent low priced product. We need to examine the products from the consumer's viewpoint Basically, we need to find the key that incorporates an excellent product at a reasonable price, and make it available to the masses to fill their needs. However, this brings up the issue that if patients do not perceive they have a need for hearing instruments, despite their apparent hearing loss, the question becomes - are those non-interested people really part of the market? My opinion is that consumers do not seek help unless they have a communication problem.
AO/Beck: So in terms of the 25 to 30 million hearing impaired people in the USA, you're saying that the pool is probably smaller because many hearing impaired people do not consider themselves to have communication problems.
Jones: Yes, that's correct. Although the hearing impaired person may indeed recognize the hearing impairment as a problem, they may not recognize a need to fix the problem. Basically, I think the market is bigger than what we as an industry have previously or currently penetrated, but I doubt it's as large as the 25 to 30 million people we all talk about.
AO/Beck: So what can we do to improve market penetration?
Jones: Improve the hearing performance of the hearing instrument. This is being addressed and the future looks more promising. I think that if you stand back and examine it from the consumer's viewpoint you have to admit that the price of hearing aids is a barrier to some. From the professionals perspective , you also have to admit that the product requires a tremendous amount of service. Ultimately, we have to have products that require less service. The average dispensing practice sells about 17 units per month, to about ten patients. That's not very many. We're looking at 2.5 patients per week on the average.
AO/Beck: If you could predict the dispensing model which will be used five years from now, will it be essentially the same, or very different?
Jones: I don't think the dispensing model will change dramatically in the next three to five years. I think our industry and the hearing health care profession will become more efficient in the next few years and that will help as far as product quality and price per unit. Technology will allow better efficiencies and we'll reach optimal fittings more quickly. I think we'll soon overcome cerumen and perspiration susceptibility problems in the products and that will make an enormous difference too. So basically, in five years, I see many efficiency and technical improvements, but I think the dispensing model will be essentially the same or similar.
AO/Beck: What about the impact of the Au.D on hearing aid market penetration?
Jones: I think the Au.D. will have a tremendous and beneficial impact. First of all, from the patient's perspective, it is important to be treated by doctors. Patients expect and desire doctors to manage their health care needs. Secondly, the amount of knowledge and training involved to produce a competent practitioner continues to increase. The Au.D. allows professionals to spend enough time learning about their profession, in terms of services and products, to become excellent practitioners. The bottom line is we need more knowledge. The Au.D. programs provide advanced knowledge and recognition for that knowledge. Audiology is moving towards a model similar to physicians whereby the maintenance and acquisition of new and current knowledge will occupy more and more of your time, and it will come at a cost to the consumer/patient. But the bottom line is, we'll have better practitioners, better products and better patient care.
AO/Beck: Thanks Mike, I appreciate your time and insight. I wish you a happy and healthy holiday season.
Jones: Thanks Doug. Best regards to you and Audiology Online for 2001.
For more information on Phonak click here.
Click here to visit the Phonak website.
