Looking for a cash cow for ad specialties? Target the health care sector. According to State of the Industry research, the health care market is the number-one buyer of promotional products from industry distributors. In fact, it accounted for 12.4% of distributor revenues in 2013 – a $2.54 billion total, which marks the third consecutive year that the sector is the biggest purchaser of ad specialty items.

Further, the sector has grown in influence over the past few years. In 2010, it accounted for 10.4% of distributor revenues, so it has experienced a two-percentage-point jump in three years’ time. Those two points? They’re equal to nearly half a billion dollars in revenues for distributors.

The health care industry, in general, is also expanding at a rapid clip, making it an increasingly fruitful sector for promotional advertising. The health care arena – from hospitals to doctors’ offices to home health care companies and beyond – is expected to add more than 10 million jobs over the next decade, according to the Bureau of Labor Statistics.

And, if you ask Kevin Dovel, business in that marketplace just won’t stop rolling in. For five years now, Dovel, the president of Proforma Promographix (asi/300094), in Raleigh, NC, has been one of a handful of distributors servicing an ad specialties contract for a health care network that consists of 3,000 hospitals and 90,000 medical facilities. “Before that I had zero health care experience,” Dovel says, adding that he held the contract exclusively for the first three years.

“The health business is a booming business,” says Steve Wineburg, president of Bernard’s Custom Logo (asi/138173), a distributor based in Cortland, NY, who’s been in business for 40 years, and has retained health care clients for that long. How you decide to capitalize on the trend to grow your business depends on clients’ bureaucracies, the regulations they face and your client relationship.

The Right Prescription?

While the growth of the market is undeniable, some in the ad specialty market say that selling to and servicing clients in the health care sector can be as complicated as it is rewarding. Ultimately, it provides opportunities and challenges simultaneously, says Gregg Emmer, chief marketing officer for Kaeser & Blair (asi/238600), a Top 40 distributor based in Batavia, OH.

Starting about 30 years ago, Emmer explains, hospitals began to merge, leveraging services, skills and expertise to provide enhanced care, building multi-facility health care systems in the process. Once this “hub and spoke” system developed, he adds, suddenly the local hospital a distributor once called on was now part of a larger health network. As a result a distributor “may pick up six, eight, 10 hospitals in the group, whereas before you had to work with them individually,” Emmer says. On the other hand it might mean losing out on a greater book of business when a centralized purchasing department brings in a preferred vendor and stops all business with local merchants. “As with most mergers,” Emmer says, “there are benefits and there are pitfalls.”

In recent years, legislation restricting the quantity and value of gifts pharmaceutical companies could give to doctors drastically cut into that side of the premium marketplace for promotional product advertisement. And, recent changes brought on by the Affordable Health Care Act (ACA) created anxiety this year for some distributors with a heavy portion of their sales tied up in the health care marketplace. But so far it doesn’t seem to be having much effect on how health care companies buy ad specialties or how many they’re buying, industry insiders say. In fact, many experts expect that the ACA will increase health care opportunities as health care providers ramp up staff to accommodate the new legislation’s requirements.

Regardless, the health care marketplace is changing, offering distributors both challenges and opportunities as they pursue this increasingly lucrative, but morphing market segment. For companies like Promotional Partners Inc. (asi/397983), based in Apex, NC, health care is a gold mine, as long as it taps the right client pool. Hospitals, which frequently demand a “Walmart” model – “I want you to be the best but cheapest” – are less ideal, says Olivia Scott, the company’s president and owner. Instead she focuses her prospecting efforts on private practices – orthodontists, periodontists, dentists, pediatricians and others – Scott says, because many of them still operate on a more local, personal customer relationship.

“Anywhere that the decision makers are still on site or where the doctor is still making a lot of decisions,” Scott says, is a better sales target than a larger hospital chain that’s centralized purchasing and demanded increasingly lower prices on anything they order.

Smaller outfits also tend to pay their invoices faster (many times within net 30 as opposed to 45 or 90 days), Scott notes, and are more respectful and open to product ideas. She recalls a recent incident in which she walked by a hospital’s booth at a trade show only to see a product she’d pitched but lost out on in the bidding process. It can be a frustrating fact of life for distributors dealing with larger health care networks and hospitals, but ideas presented during a bidding process can often be fulfilled through competitors – or even through direct purchases that hospitals make with online vendors or overseas factories.

“I’ve had a few clients I’ve divorced for that reason,” Scott says.

But while hospitals may be tougher customers to court and keep, other health care entities are not. For Kathie Garcia, owner of Garcia’s Custom Embroidery (asi/201419), university health care customers are especially prolific, ordering a plethora of apparel items, like scrubs and lab coats, Garcia says.  And that’s “kind of opened the door” to other campus health related organizations, Garcia says, including the school’s nursing fraternity.

In fact, distributors say one of the biggest benefits of doing business with health care clients – and a tactical pitching strategy for distributors – is the fact that they offer many repeat orders and a rich referral network once your foot’s in the door. It’s the main reason, according to distributors, that the market has become the number-one target in recent years.