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MarkeTrak VI:

Hearing Aid Industry MarketTracking Survey 1984-2000

Sergei Kochkin, Ph.D.

Knowles Electronics, Inc.February 27, 2002

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Method National family opinion panel

80,000 households Balanced to key census variables

HIA survey in 1984 used NFO

AllMarkeTrak surveys Screening Question Phase I (November 2000)

Does anyone in your household have a hearingdifficulty in one or both ears without the use of a

hearing aid? Physician screening for hearing loss during last

physical within last six months.

Self, Spouse, Other, Child (Under age 18)

15,800 hearing-impaired individuals

72% response rate

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Method

Hearing Aid Owner Survey - Phase II Detailed questionnaire 3,000 hearing aid

owners based on Phase I response.

Response rate 87%

Topics: Customer satisfaction (more than 50 areas)

Hearing aid usage (e.g. hours worn)

Use of ALDs

First time user influences Brand selection

Factors impacting choice of audiologist/dispenser

Suggestions for improving hearing aids

Perceived quality of life changes

Use of computers in hearing healthcare

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Hearing AidMarket Penetration has

Historically been low (1 in 5).

23.8

22.9 22.6

21.3

20.4

22.2

18

19

20

21

22

23

24

25

1984 1989 1991 1994 1997 2000

%

P

ao

Recent advances due

to VA and Direct mail

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Hearing-impaired User &

Non-user Population

0.8 0.7 1 0.9 0.7

4.9 5.1 4.6 4.75.6

1920 20.6

21.7 22.3

0

5

10

15

20

25

1989 1991 1994 1997 2000

Millions

Non-users Users Non-owners

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Hearing Loss Population by Age Group

Owners versus Non-owners (2000)

0 1 2 3 4 5 6

Millions

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Clinton Announcement Spurred Baby

Boomer PotentialMarket Growth

3

3.5

4

4.5

5

5.5

6

6.5

Millio

35-44

45-54

45-64

65-74

75+

1994

1997

2000

Clinton news release10/97.

M5 Survey taken 11/97.

Age 45-54 hearing lossgrowth =23%

$60k growth =35%

Some college growth =30%

Growth continues.

But penetration among

Boomers unchanged.

Huge Baby

Boomer wave

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Little Change inMarket

Penetration by Age Since 1989

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Physician Screening for Hearing Loss

During Physical Exam

15.116.3

18.8 1816.6 16.6

14

20.2

0

5

10

15

20

25

May-89 Nov-89 May-90 Nov-90 Jan-92 Dec-94 Dec-97 Dec-00

Percentscreened

HIATargeting with PhysiciansHIA Targeting ceases

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Binaural Penetration Trend

22

37

51 52

6064

25

47

6165 65

74

70

79 79

85

0

10

2030

40

50

60

70

80

90

1984 1989 1991 1994 1997 2000

Total Ow

Total Ow C t

Bilateralloss s C rrent

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Hearing Instrument Fittings by

Perceived Profession

22

4.8

66.4

6.9

65

2.1

28.8

4.1

0

10

20

30

40

50

60

70

Audiologist Physician H.I.S Other

%F

ittings

1984

1991

1994

1997

2000

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Hearing Instrument Fittings by

Source of Distribution

0 10 20 30 40

Audi l gy ffice

e ri g idst re

EN ffice

A

Home

F mily Dr

ther

Hospit l

Dep rtme t store

li ic

ilit ry

M il

purch ses

2000

1997

Mail Order has

grown 91% since 1997;124,000 hearing aid

users.

VA has grown 83%

since 1997; 411,000hearing aid users.

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Current Hearing Aid Owners by

Source of DistributionAudiologist's Office

45.6

Hearing Aid Store23.2

ar Doctor's Office

8.6

et. Admin.

6.5

Home

3.6

Clinic

2.8

Department Store

2.4

Other

2.4

Mail order

2.0Hospital

1.8

Military

1.0

amily Doctor's Office

0.3

Total Users =

6 35 million

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Factors Impacting Choice of

Dispensing Practice (n=2,251)(Importance scores =4-5 on 5 point scale)

77

64

6363

59

52

51

50

46

41

31

Professional staff

Convenient location

Convenient hoursPrice

Free hrg screening

Range of hearing aids

Physician referral

Live demonstration

Insurance coverage

Previous purchase

Friend recommended

0 10 20 30 40 50 60 70 80 90 100

% highly important

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Third-party Payment Trend

20.4 22.2 21.116.2

23

27.5 28.6

0

5

10

15

20

25

30

35

1984 1984 1989 1991 1994 1997 2000

%o

fsales

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Average Retail Price Paid by Consumer(includes free, directmail hearing aids, &

third-party discounts)

0

100

200300

400

500

600

700

800

900

1000

Total BTE ITC ITE

Dollars

1989

1991

1994

1997

2000

+67% +61% +70% +53%

Price increase % since 1994

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Age of Hearing Instrument

0

5

10

15

20

25

30

3540

45

50

%

ofsales

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First Time User Rate

53.4

40.5

29

39

31.6

0

10

20

30

40

50

60

P

ercentofsale

1989 1991 1994 1997 2000

FDA/FTC

Issues

Beltones

Eddie

Albert Ads

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Factors Influencing New

First Time Users to Purchase

Factors less than

10 mentions: Ad-magazine (3 )

HL Literature (2 )

Boss/co-worker (5 )

ewspaper (6 ) Direct mail (5 )

Ad - TV (2 )

Ad radio (0 )

Telemarketing (0 )

ewuser

68.5

45.2

40.5

22.1

17.4

12.1

11.6

11.6

0 10 20 30 40 50 60 70 80

H.L. worse

Family

Audiologist

ENT

H.I.S.

HA Owner

Family Doctor

Free HA

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Physician

Recommendation Trends

0

5

10

15

20

25

30

%o

fnewusers

9 91 94 97 20

F mi y

NT

1989 - HIA advertising

to physician. Currentinitiatives: AAABest Practice

BHI Referral program

Trends + , butnot

enough. Familydoctor single

mostimportantinfluencer ofhearing aidpurchase.

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Factors Influencing New

First Time Users to Purchase

Notable changes since last MarkeTrak:

Audiologist in luence increased to 40.5 - up

rom 26 in 1997.

ENT in luence increased to 22.1 - up rom10.8 in 1997.

Free hearing aid in luence nearly doubled.

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Factors Considered Helpful or Reliable When

Choosing Brand of Hearing Aid (n=2,273)(Helpfulness/reliability scores =4-5 on 5 point scale)

766160

55

4946

3736

262524

2220

1615

1110

Medical doctor recommendationAARP recommendation

Manufacturer websitesH.I.S. recommendation

Other hearing aid owner recommendationAudiologist recommendation

Consumer reportsScientific papers

Magazine articlesBooks on hearing aids

Newpaper articles

HHP websitesFamily members recommendation

TV adsManufacturer brochures

Internet chat sitesNewspaper ads

0 10 20 30 40 50 60 70 80 90 100

% helpful/reliable

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Average Age of New Users

66

68.

67.8

66.

68.8

64.

65

65.5

66

66.5

67

67.568

68.5

69

Aver

e

e

989 1991 1994 1997 2000

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New UserMean

Household Income

$30,500$35,300

$30,800

$40,100

$46,300

$0

$5,000

$10,000$15,000

$20,000

$25,000

$30,000

$35,000$40,000

$45,000

$50,000

1989 1991 1994 1997 2000

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U.S. Customer Satisfaction Trends

No significant differences (H.A.

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U.S. Customer Satisfaction Trends

New Hearing Aids (< 1 year)

66 71 63 62.9

12 7 10 14.7

0

10

20

30

40

50

60

70

80

1991 1994 1997 2000

%Satisfaction

Positive

Negative

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Hearing Aids In the Drawer

13.5

12

17.9

16.2

11.7

0

2

4

6

8

10

1214

16

18

%

er

s

r

er

1984 1991 1994 1997 2000

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Hearing Aid Improvements Sought by Current

Hearing Aid Owners (n=2,428)(Highly desirable scores =4-5 on 5 point scale)

95

88

85

8483

82

82

81

81

79

77

74

73

Speech in noise

Better sound quality

Less whistle/buzzing

Lower priceMore soft sounds

Longer lasting batteries

Work better on telephone

Loud sounds less painful

Speech in quiet

Better fit & comfort

Should have VC

Longer money back guarantee

Less costly to repair

0 10 20 30 40 50 60 70 80 90 100

% highly desirable

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Hearing Aid Improvements Sought by

Current Hearing Aid Owners (n=2,428)(Desirable scores =4-5 on 5 point scale)

72

71

66

63

62

56

52

48

34

32

28

21

15

Easier to regulate volume

Mask tinnitus

Easier to clean

Work better on cell phone

Better sound to music

Should not break down as much

Less visibility

Easier battery change

2-5 year payment plan

Should have remote

More fashionable

Color

Lease hearing aid

0 10 20 30 40 50 60 70 80 90 100

% highly desirable

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Non-owner Demography

The Opportunity

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The Non-Owner Opportunities

Self-admitted Hearing Loss

Gender (Millions)

13.4

8.9

Mal F mal

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The Non-Owner Opportunities by

Age Classification

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Household Income

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Level of Education

Some E em.

2

HighSchool

28

HS-some

28

Elemen ar

7

Post-graduate

10

College-some

9

College16

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Employment Status

Full t e

49

et re

29

artt e

10 Une loye

12

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Metro-size

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The Hearing-ImpairedMarket by State:

Self-admitted Hearing Loss

Top 10 states

California

Texas

New York

Florida

Pennsylvania

Illinois

Ohio Michigan

Georgia

North Carolina

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Conclusions Hearing-impaired population > to 28.6 million.

Major increases in Baby Boomer and 75+ agebrackets.

Penetration increased to 22.2%: Free and direct mail impact

Physician screenings declined to 14%.

Overall customer satisfaction unchanged. New hearing aid satisfaction on decline

Hearing aids in the drawer improved to 11.7%.

Audiologist influence in dispensing continues to

grow.

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Conclusions New user rate has dropped to 31.6%.

Average age increase to 69

Household income increase to $46.3k Binaural rate is at an all time high of 84.5% for

bilateral loss consumers.

Third-party payments continue to increase.

Out-of-pocket retail price to consumer increased67% since 1994.

Baby-boomer age wave continues to grow withno indication that industry has tapped this segment.

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Conclusions The top hearing aid improvements sought by

current hearing aid owners:

Hearing in noise Better sound quality

Less whistling & feedback

Lower price

More soft sounds

Least important improvements: Leasing a hearing aid

Color of hearing aid

More fashionable hearing aids

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Conclusions

Top factors in choosing dispenser: Professionalism

Convenient location

Convenient hours

Price

Top factors considered to be helpful and reliablewhen choosing a hearing aid brand:

Medical doctor recommendation AARP recommendation

Manufacturer website

Hearing instrument specialist recommendation

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Key Findings from Knowles

Market Development Studies

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The Decision To Purchase a Hearing Aid is

Very Complex and Little UnderstoodInternal stigma

Influentialothers

Physicianattitudes

Productperceptions

Attitudestowards HA

Specific impactors

General moderators

Physicalimpairment

Stages of denial

Perceived loss ofcommunicationperformance &need

Attitude towardGetting hearingsolutions

Behavior intent/HA purchase

Predisposition

PriceCommunication

situations

Perceived age

Alternativesolutions

Socialcomparisons

Socioeconomicstatus

PersonalitySocialnetwork

HealthLifestyle &

activity level

Psychological

health

External stigma

Change & emo-tional reaction

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The Relationship Between Ad Expenditures &

Hearing Aid Sales is WeakEstimate (regression) that $25 million = 6% growth

1316

1308

1473

1514 1

617

1672

1555

146

3 1580

1662

11.1

13.4

9 11.6

21

37.6

9.8

23.7

14

23.9

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Calendar year

1000

1100

1200

1300

1400

1500

1600

1700

H

earing

aid

sales

0

10

20

30

40

Adexpense($Mil)

Hearing aids

Ad Expense ($Mil)

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The Issue of Price & Value

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Customer Satisfaction with

Value = Price/performanceHearing aids 1-5 years of age

5349

54 54

2117 16 17

0

10

20

30

40

50

60

1991 1994 1997 2000

Percent

S ti fied

Di ti fied

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Satisfaction Highly Related to HowMuch $$ the

Consumer Pays to Solve Their Problem

40

50

60

70

80

90

100

5 25 45 65 85 105 200+

$Spent r 1% andicap Reducti n

PercentSatisa

ctin

Note: Handicap reduction measured by APHAB

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Stigma & Price Are Not the Only

Barriers toMarket Growth

I cr si I isi l I ric ( )

r

rc

s

i

t

t(

)

.I. rs

rs

Only 35 o non-o ners o l

take a " ree" invisible earing

instr ment.

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The Issue of Stigma

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Invisible Hearing Aids Have Greater

Consumer Acceptance

Cosmeti s/sti ma

Attracti e

Not embarrassi

Ol age imageVisible

Product features

Reliable

Comfortable

NuisanceSound qualit

Natural sound

Safe

High-tech0 20 40 60 80 100

% ositi e image

BTE

Empt ear

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Consumer Acceptance

Economics

Affordable

Worth expenseExpense to maintain

Utility & value

Benefit

ValueNoisy situations

Quiet situations

Large group situations0 10 20 30 40 50 60 70

% positive image

BTE

Empty ear

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Consumer Acceptance

3 3. 4 4. . 6

Cosmetics comfort ( eans)

4.25

4.35

4.45

4.55

4.65

4. 5

4.85

4. 5

Pe

rf

orm

ance

alu

e(

eans

)

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Can Positive RoleModels Help

Consumers Overcome Stigma?

Only Two examples I am aware of in our industry:

President Reagan 1983 (associated with 20% growth) Eddie Albert in Beltone commercials 1989

Apparent Clinton effect in Fall of 1997

Probable impact on admission of hearing loss by male

baby-boomers

No impact on sales to date

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What is The ViableMarket for

Hearing Aids?

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Market Penetration is Highly Related to

Recognition of Hearing Loss Handicap

0

10

20

30

40

50

60

70

80

90

1-4 5-9 10-

14

15-

19

20-

24

25-

29

30-

34

35-

39

40-

44

45-

49

50-

54

55-

59

60-

64

65-

69

70-

74

75-

79

80-

84

85-

89

90-

94

95-

99

APHAB ided e

P

erentPenetrtin

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Discriminant Function Probability of Non-owner

Resembling Current HA Owner Based on

Multiple Subjective Hearing LossMeasures.

0

510

15

20

25

30

35

40

1-9 10-19 20-29 30-39 40-49 50-59 60-69 70-79 80-89 90-99

D scr nant Funct on ro a l t

e

rcentoMare

tNon-owners

HAowners

Probabilities 1-39% =

71% of non-owner market

14% of the owner market.

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FourMethods ofMeasuring Viable US

Hearing AidMarket Based totally on hearing loss measures the

additional possible market growth is: Gallaudet Scores (est. dB Loss Better ear) = 125%

Hearing Handicap Inventory (HHIE) = 154%

APHAB = 127%

Discriminant FunctionModeling = 102%

Clear that the current market could easily doublebased totally on hearing handicap.

And, even more based on situational need.

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Why Buy Hearing Aids?

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Attitudes Per Se are Important, But

Relationship to Hearing Aid Purchase Intent is

PerhapsMore Important

Sample of 2,753 non-owners

Measured their attitudes on 76 issues.

Measured their hearing aid purchase intent in thenext five years.

Categorized them as a high or low purchaseintenders.

Took ratio of high/low purchase intenders for eachattitude item.

Ranked ratios

First present their attitudes in key categories.

On following charts view red (negative) as barrier to growth.

Hearing Impaired Non owner

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Hearing-Impaired Non-owner

Attitudes Towards Hearing Aids

Factor = Distribution

0 10 20 30 40 50 60 70 80 90 100

Tr t t r

r t HA

Tr t HA r

HA r r t r f r r t

HA r t t f

Tr t rt

tr

Tr t t

Percent ofhearing-i pairednon-o ners

Negati e

Ne tra

Positi e


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Factor = Hearing Health Professional Influence

0 10 20 30 40 50 60 70 80 90 100

Dispenser

A iologist

F ily doctor

NT

Percent ofhearing-i pairednon-owners

egati e

e tra

Positi e


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Factor =Hearing Loss

0 10 20 30 40 50 60 70 80 90 100

Loss too mil

HAforu ilateral loss

Loss severe e ou h

HA hel erve eaf ess

HA hel ti itus

Nee sur er

Hearwell most situations

HA hel hi h frequenc loss

Percent ofhearing-i pairednon-o ners

Negati e

Ne tra

Positi e


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Factor =Knowledge Level

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

SomeHA utomati

Knowwhere to o fortesting

Awareof invisibleai s

Knowledgeableabout HA

Audiologist vsH S

Where toget hearingaids

Perce tof eari g-i paire on-owners

Negative

Ne tra

Positive


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Factor =Lifestyle

0 10 20 30 40 50 60 70 80 90 100

Loss disru ive to

life

Would like to hear

soft sounds

Can afford HA

More serious

priorities

P rc n ofh aring-impair non-o n rs

gativ

N tral

Positiv


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Factor =Hearing Aid Performance

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Use on telephone

Perform as promised

Use in large crowds

Work in multiple listening situations

Tried HA - don't work

They work well

Eliminate background noise

Effective in most situations

Background noise

Stop hearing loss decline

Make only certain sounds louder

Use in noisy situations

Percent of hearing-impaired non-owners

Negative

Neutral

Positive


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Factor =Hearing Aid Characteristics

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Battery change

Physical fit

Seldom breakdown

Warranty reasonable

Natural sounding

Ease in handling

Differences in brand

Comfort

Hassle

Whistling & feedback

Needs constant adjustments

Durability of HA

Percent of hearing-impaired non-ownersNegativeNeutralPositive


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Factor =Social Influence

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Children

Hearing aid owner

Friends

Spouse

Percent of hearing-impaired non-owners

Negative

Neutral

Positive


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Factor =Stigma & Cosmetics

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Old age image

Make you look mentally slow

People make fun of you

Difficult to admit loss

Embarrassed to wear

Noticeable

Too proud to wear HA

Make you look disabled

Make you look weak/feeble

Treated differently when HA worn

Perce f e r - mp re - w er

Ne ve

Ne r

Positive


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Factor =Value of Hearing Aids

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Too expensive

Worth what you pay

Use less expensive device

Worth the expense

Restore hearing to normalMaintenance expense

Good value

Perceived benefit

Perce t ofhe ring-imp ire non-owners

Negative

Ne tral

Positive

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Lowest Correlates of Hearing

Aid Purchase Intent Brand

HA make only certainsounds louder

Too expensive

HA sellers take advantageof you

Can afford hearing aids

Need surgery Know where to go for

hearing tests

Know where to buy

hearing aids

Old image of hearing aids

Use lower expense

product

Customer orientation of

dispensers

HA warranty

Knowledge of hearing

aids

Documents

MarkeTrak6 1984-2000