Amplifon: Hearing Aids Distribution | In Practise

Amplifon: Hearing Aids Distribution

Former CFO at Amplifon

Learning outcomes

  • The nature of the problem of mild hearing loss and the role of audiologists in delivering a solution
  • The hearing aid customer buying experience for treatment of mild hearing loss
  • How Amplifon buys product from OEMs
  • Amplifon COGS versus independent retailers
  • How Costco and OTC are driving up pricing pressure in the industry
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Executive Bio

Ugo Giorcelli

Former CFO at Amplifon

Ugo has over 12 years experience in the hearing aid industry. He joined Amplifon, the largest independent hearing aids retailer globally, in 2005 as CFO of their North American business. In 2007 Ugo was promoted to the role of global CFO of Amplifon, a role which he held for over 10 years until 2017. He is currently Chief Staff Officer of Italian fashion group Benetton, where he oversees finance and accounting, IT, HR, RE development and centralised purchasing. Read more

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Could you talk to us about the nature of the problem that hearing aid customers experience and what that means for the way in which hearing aid products are developed and sold?

Talking about hearing loss is a pretty broad subject because you can have a child born with genetic hearing problems, who is in a small minority, but it’s a very complex pathology to deal with, particularly with implants. The vast majority of hearing loss is age related and is where hearing aids come into play. Then in between that, some pathology might develop through exposure to accidental explosions. Even an airbag explosion can cause permanent problems, but again these are the minority.

When we talk about the hearing aid industry in big numbers, we are considering the pathology that normally starts from the 60s and then continues with ageing. It’s a gradual deterioration. You could even say the word ‘pathology’ isn’t accurate; it’s more a simple ageing process where, as you start using reading glasses and gaining grey hair, you also start at a certain point in life needing help with your hearing.

This is not accepted by the vast majority of people and the stigma of showing that they need to use a hearing aid has also shifted. That’s still something that needs to be overcome by the industry and by people in general, because they could be addressing this situation earlier with better results.

Ageing hearing loss can be very different because it could be a problem related with the cells in the cochlea, but it can also be a conductive hearing loss where the smaller bones are creating problems. It could even be the eardrum or a combination of these factors. In this situation, it’s fundamental to have an expert, an audiologist that is assessing the situation, understanding where the cause is and providing the appropriate hearing aid because depending on which part of your ear has the biggest problem, you will have a different technical solution.

Pretty much every person has a different profile of hearing loss. Human hearing is within a given range of frequencies and each frequency has a different profile of hearing loss. It’s never a straight-line decline on all frequencies so that you can just amplify, give more sound and you can hear again. You need to map the hearing loss and then give selective amplification of frequencies. All this needs to be done by a specialist, especially if you’re talking about more profound hearing loss. At the very beginning, you can live with solutions that are self-adjusted but, over time, it becomes more complex and you need to see the specialist about twice a year to have the constant tweaking and fine-tuning of the device. That’s it in a nutshell.

Let’s say I’ve recently been experiencing a form of mild hearing loss. Could you take me through a typical journey that I would go through to get that resolved? Let’s say I’m conscious of the aesthetic dimension and I want something reasonably discreet; how would I go about that process?

Basically, you have two alternatives. The first is you consider it to be a medical issue and go to see your doctor. Your doctor will tell you that you need to see an ENT specialist that will assess the situation with an audiogram. Then, in the vast majority of geographies, we’ll refer you to a specialised shop. I say the vast majority because, for example, in some states in the US you could get the hearing device also directly from the ENT clinic, but normally there is a clear distinction between assessment and buying the device.

The other alternative is that you go right away into a hearing aid shop and say, “I might have a problem, can you do something for me?” There you would be tested exactly in the same way by the audiologist in the hearing aid shop. In some geographies, you would have to go back to a doctor because you would need a prescription. In other geographies, you can continue the process directly with the audiologist.

This will imply discussing your lifestyle with the audiologist, whether you’re an active person, whether you care about aesthetic and would like a discreet device, or whether you care more about budget and would rather save money for a less discreet device. You have a number of alternatives depending on lifestyle. For example, if you’re active in watersports, you can get waterproof devices. If you’re technologically savvy you could get a hearing device with Bluetooth connectivity with your phone, computer or whatever device you want to connect. It’s a broad spectrum and also a broad budget difference. You can get away with something below €1,000 or you can go as high as €5,000 to €6,000 if you want a device that’s sophisticated, discreet and high performance.

Normally at that point, that is the end of your first visit. The device will be ordered by the audiologist to the manufacturer and supplier. You’ll come back in two or three days and get the device for a first trial. This trial will involve explaining to you the basics on how to use it and how you get adjusted to hearing again, because loss of hearing can sometimes be pleasant. Imagine you’re in a noisy environment and you’re protected by your hearing loss, being at the beach and not hearing children screaming and being able to read your book.

All of a sudden, with a hearing device, you can also get a lot of background noise. It’s not what you want to hear but it’s part of life. The audiologist will also have to explain that your brain will have to adjust again in being selective and not distracted by additional sound besides what you really want to hear. Depending on your starting point, it normally takes between a week to a few weeks before your brain is again adjusted to being able to distinguish what you want to hear and what you don’t want to hear and exclude.

After the second visit you would start your free trial period that can last between a week and a few weeks. Meanwhile, you will have some follow-up sessions. New technology allows you to have these follow-up sessions remotely, so with new technology you can connect over the phone with the audiologist, explain your situation and he will be able to do some fine-tuning, adjusting and saying everything is fine, continue and let’s talk in a couple of days.

Finally, once this process is hopefully completed successfully, you pay for the device. Included in the cost will be the free maintenance and free fine-tuning for the remainder of the life of the device which will be between three and five years, so you will not be paying for follow-up visits. That’s the approach that many players have, even though some players are also considering having lower up-front costs and then charge for follow-up visits. But I don’t think that’s a great service to the customer because the customer needs to feel free to have as many follow-up visits as he needs included in the lifelong support.

You will then be paying for batteries, unless you have bought a rechargeable device which is more often the case, so you will simply recharge the device without the ongoing cost of changing batteries. Finally, after three to five years you’ll probably be ready for a replacement device which normally has better technology and more power, in line with your increased hearing loss which will have materialized in that three to five-year period.

What relationship would I, as a customer, have with the different brands available and how is that mediated by the audiologist?

I would say that there is fairly limited consumer knowledge of the different manufacturers. Normally, they are much more familiar with the retailer name, for example Amplifon, KIND in Germany, Gaes in Spain or Oticon in France. All of these are, in fact names, of retailers and distributors. The consumer mindset is much more related to the audiologist or it could even be a small local professional known by the local community. Once you’re there, it will be the retailer who will lead you in choosing what is the best for you, taking into consideration the combination of style, budget and medical needs. It’s something where you need an expert to really guide you through the different technologies and alternatives.

Of course this situation is the traditional, standard situation of the industry. Now with the ongoing vertical integration and some manufacturers owning their own retail, you will most likely get a device from that given manufacturer. But there is always, even in manufacturer-controlled retail, some 10% to 20% of devices of competitive brands sold. So if you really need something that is not within the product range of a given manufacturer, you have a proper alternative provided, but most likely you will be offered the manufacturer device.

For a business like Amplifon, that’s producing own-label, could we talk about the history of Amplifon’s relationships with the major manufacturers and how those have evolved during your career and how that’s influenced the present-day strategy of the business?

Let’s start from the very beginning. When Amplifon was started over 70 years ago, it was a small, local player making a combination of self-made devices and devices bought from manufacturers. The buying power of Amplifon was the same as any other small independent. Amplifon managed, over many years, to become a very powerful player, first in Italy, and that allowed better pricing than other competitors. This extra profit coming from better cost of goods sold was reinvested in acquisition and growing the network, initially close to Italy in France and Spain, then across the globe.

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Amplifon: Hearing Aids Distribution

August 19, 2020

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