CONFIRMED: Phonak says it will distribute hearing aids through Costco

CONFIRMED: Phonak says it will distribute hearing aids through Costco

On Sunday March 9th at noon we broke the story that Costco will be selling Phonak premium hearing aids for $1349 through their 500+ dispensing locations; and the next day we presented our Analysis on how it will negatively impact the revenue & profits of Sonova’s Advanced Bionics division. Yesterday, Jeff Newnham, president of Phonak LLC, confirmed that his company and Costco Wholesale Corporation have reached an agreement under which the giant retailer will start offering its customers a model of Phonak hearing aids, the Phonak Brio, at its approximately 500 hearing aid centers in North America.

Sonova Group’s Phonak will become the fourth of the “Big Six” hearing aid manufacturers to distribute its products through Costco. Currently, Siemens’ Rexton division, Wm Demant’s Bernafon division, and GN Stor Nord’s ReSound division sell hearing aid to Costco. Thus far, Widex and Starkey Hearing Technologies does not sell through Costco; however Starkey has aggressively tried to peddle their instruments through the 500+ store retail chain.

In the 5000+ member LinkedIn Hearing Aid Professionals group, some independent audiologists who carry Phonak hearing aids, have expressed alarm about how they may be affected if a nearby Costco store offers Phonak hearing aids for much less than they charge. Even though other manufacturers sell hearing aids through the Costco channel, Phonak’s decision to do so was particularly unpopular with many independent professionals, who expressed anger and and a sense of betrayal.

The Warrenville IL division of the Swiss giant was well aware that the decision to join three of its competitors in selling premium hearing aids through Costco would be upsetting to existing customers. Interviewed by Hearing Health Matters on Monday March 10, one day after our scoop, Newnham & their senior manager of communications & public relations Kimberly Rawn said that the company is reaching out to audiologists and hearing aid dispensers to reassure them. However at the Atlanta-based two-store dealership where your humble editor works, we have heard nothing from Illinois on this matter.

Newnham pointed out to HHM that the Costco centers offer a very different delivery model which appeals to a price-driven clientele different from the patients who go to a professional office that follows a medical model. He said that Phonak’s message to its independent customers is, “If you’ve been successful for years when there has been a Costco hearing aid center nearby, you have not been competing with them on price. You are selling the value of your service, your expertise, and the customized care you provide.” Therefore, said the division president, the professionals who have been successful until now should continue to be.

Rawn said that Phonak’s decision to work with Costco was consistent with its fundamental goal of providing more people with the hearing help they need. She said, “We want to help all hearing-impaired people, including consumers motivated by price.” However, she said, “The independent audiologist will continue to be our primary focus.”However, according to very angry and now-former Phonak dealer C Scot Frink, President & Audiologist at Salem Audiology Clinic in Oregon, raises the valid point that Phonak’s move is only to cannibalize Costco’s sales:

The source I spoke with at Phonak gave a lot of reasons for going into Costco that were not financially motivated, but it’s all B.S. According to the source, they did research and found that Costco buyers are, on average, younger than those that would come to my office, so their motivation was to help more people who have hearing loss at a younger age. Bull. Their motivation was to get a piece of that pie. If Costco was helping people find help at an earlier age, why not let ReSound and Rexton continue to fill that role? [Editor: Emphasis added]

By Phonak going into Costco, it doesn’t increase the number of people Costco is helping, it only changes the mix of what they’re selling. Costco only has so many people fitting hearing aids, and they only have so many hours in the day. Only Costco can change how many people they are helping, by increasing the number of outlets they have.

Phonak going into Costco does not increase the number of people being fit with hearing aids. It only takes business away from me. And my business away from them.

For more on this story, please see Phonak confirms that it will distribute hearing aids through Costco

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About the author

Dan Schwartz

Electrical Engineer, via Georgia Tech

2 Comments

  1. Scot Frink
    March 19, 2014 at 1:34 am

    How about this analogy, which you can really empathize with if you haven’t had dinner yet:

    Take that really big table that John was describing and break it down to only ten people. But this table is at a nice local restaurant.

    One person represents the VA, one represents Costco, one collectively represents various other chains, two represent the buying group CEOs, two represent practices that purchase through the buying groups, and the remaining three represent independent private practices. Oh yes, the restaurant represents all of the manufacturers.

    Dinner is ordered: Ten steaks with potatoes and all of the fixings. Wine (or soft drinks for those teetotalers). And a start with salads as well. Dessert is creme brulee (my favorite).

    When served, however, the VA gets three of the steaks, Costco one, the other chains one, the buying group CEOs three, and two for the independent private practices. What about the buying group members? Well, they end up sharing some of those from the three served to the buying groups–but only one of the three steaks.

    Later, the check comes. Now, since the VA ate the most steaks, it’s decided by the restaurant that he should pay the least–only $3.75 for all three steak meals. By contrast, Costco, which had a full meal to itself, is asked to pay a it more–$6.00–even though it at only 1/3 what the VA ate. The chains also pay the same–$6.00 for one steak meal–as Costco because collectively they ate the same and are kind of like the chief Big Box. Now the buying group CEOs also pay the a bit less since they’re buying three steaks, $5.00 each for a total of $15.00, but ask the buying group members to cover 2/3 of the bill even though they only got one steak. So the buying group CEOs ate two steaks and paid for one, the members ate one but paid for two.

    And what about those independent private practice owners? Well, they go their two steaks. But guess what? One gets to pay $15.00 and the other get’s to pay $20.00.

    Same steaks, different prices.

    Doesn’t this make sense to everyone? While the numbers I kind of made up as I went along, the concepts are pretty consistent about how illogical and inconsistent our industry is about product pricing.

    Thank you, manufacturers, for making this so easy for us to figure out. (???)


  2. Roy Binder
    May 15, 2014 at 9:53 pm

    The Solution is simple for the hearing aid providers.

    There appears to be four manufacturers selling hearing aids at Costco.
    Siemens under the Rexton label, Oticon under the Bernafon label, Sonova’s Phonak
    and Resound.

    There are two who still stand behind the independent hearing aid providers.
    who DO NOT SELL BIG BOX in the USA, they are Starkey and Widex.

    What needs to happen in my opinion, is for ALL hearing aid providers to coordinate, set a day and start a BOYCOTT against those who sell via BIG BOX. AND keep the BOYCOTT GOING until they back out of Big box stores.

    ONLY BUY FROM THE MANUFACTURERS WHO SUPPORT YOUR INDEPENDENT PRACTICES!

    If a message is not sent this BIG BOX model will continue to grow until the professional hearing aid providers are working for minimum wages

    If they get away with BIG BOX sales whats next?… direct sales to the public via Internet? Don’t kid yourself, if left unchecked this is next!


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