4.1. The global hearing aids market focuses on high-income markets and is consolidated around five major manufacturers who control the value chain.
The global market for hearing aids is valued at U.S.$6 billion with more than 16 million hearing aids sold annually.47 The market expects unit growth of 3% to 5% every year with 70% of units sold in Europe and North America.48
The five largest manufacturers control more than 90% of the market. Leading global players, henceforth referred to as the ‘Big 5’, are: Sonova (Switzerland), W.S. Audiology (Singapore), William Demant (Denmark), G.N. Resound (Denmark), and Starkey (U.S.A.). Annual statements of two leading manufacturers suggest that these companies have earnings (before interest and taxes) margins of around 25% and gross margins of around 70-80%. Sales and marketing is the biggest cost driver and typically accounts for 40% of the cost. Acquisitions of smaller promising companies by the Big 5 keeps the market consolidated. The Big 5 players have multiple brands and subsidiaries whose products differ in features and price (anywhere from ~$600 to over $3000 per unit for high-end models), allowing them to capture different market segments. These holdings are the result of both in-house product development and acquisitions.
In H.I.C.s, products and services are often bundled to the end user. The Big 5 hold considerable control over the value chain in H.I.C.s in order to maximise returns to the company and protect market shares. They do this via:
- EXCLUSIVE CONTRACTS WITH AUDIOLOGISTS. The Big 5 have strong bargaining power with audiologists and can leverage exclusive contracts with them in exchange for discounted pricing.
- TECHNICAL HURDLES TO SWITCHING MANUFACTURERS. Each supplier has its own proprietary fitting software, complicating the learning process for audiologists when they to shift to another supplier.
In the United States and other H.I.C.s, hearing aids are sold wholesale to retailers and audiologists for around U.S.$300-600. The retailers and audiologists then add a service price between U.S.$1,900-2,100 per hearing aid, which includes professional fitting and after-care services. Bundled prices to users in H.I.C.s — which includes the hearing aids, clinical and product service, and warranty – average about U.S.$2,400 per standard hearing aid or U.S.$4,800 for two hearing aids, making hearing aids the third largest purchase for many after a house and a car. This bundled pricing strategy reduces the transparency of services provided and may have stipulations that limit the user's choice. For instance, some hearing aids can only be serviced by the original dispenser, which limits the ability of the user to change service providers if they are dissatisfied.
TABLE 5: VALUE CHAIN IN THE PRIVATE SECTOR
| COMPONENT SUPPLIERS | HEARING AID MANUFACTURERS | RETAILERS/AUDIOLOGISTS | COST TO PAYERS | |
| Percentage of value chain |
|
|
|
|
| U.S.$ Value | U.S.$20-30 | + U.S.$300-600 | + U.S.$1,900-2,100 | Total = ~U.S.$2,400 |
| Role in Value Chain |
|
|
|
N.A. |