TAS

TAS 2016 Akshay ThapliyalTata Motors

TAS

SANOFI AVENTIS

Case Background

Tap huge potential of BoP

Quality healthcare to low- income population

Create Knowledge Infrastructure

Create a socially sustainable model

Attracted Envy

Copycat initiatives

Revamp the strategy

Poaching of talent and educational content

INTENT REALITY

CHALLENGES

Achieve Economic Sustainability a challenge

Economic Sustainability

PRAYAS

TAS

• Fully integrated healthcare company • Improve the quality of healthcare • Bridge the gap between treatment and diagnosis • Better access to medicine for masses

• Tap huge potential for providing quality healthcare to the low income consumers

• Create intangible value by building social infrastructure

VISION

MISSION

GOALS

OBJECTIVES

PLANS

• Innovative business model for BoP• Value proposition for all stakeholders • Stimulate business for its products in BoP

• 1.5% to 2% share of India’s rural market by 2015• Leadership in masses• To be in top 10 slot

• Develop knowledge infrastructure• Reciprocal feeling of gratitude to meet business

objectives

Strategic Intent Behind Prayas

TAS Strategic Intent: Highlights From The Case

Going forward, however, rural markets were expected to emerge as the next frontier of growth.

With 72.2% of India's total population living in rural areas,6 there was a significant untapped opportunity at the bottom of pyramid for pharmaceutical companies to provide quality healthcare at affordable prices to low-income consumers in small towns and villages

Despite its significant market share in niche therapy areas, Sanofi-Aventis was not among the top 10 companies in the overall pharmaceutical market

During this process we realized that more than half of India’s mass still comprised of the rural population.

Post-evaluation, we concluded that we could never achieve leadership with an insignificant presence in rural markets.

Rural markets in India constituted around 40% of the total market by value and presented untapped opportunities for large pharmaceutical companies

For a player like Sanofi-Aventis, which predominantly operated in Tier I markets, the emerging set of consumers at the lower tier of the market opened up an altogether new business opportunity. The company anticipated acquiring a 1.5% to 2% share of India’s rural market by 2015.

The rural push in India is in line with the company’s global strategy of becoming a fully integrated healthcare company involving partnerships with other service providers such as clinicians, diagnostics services and even non-profit organizations for value-added services to improve the quality of healthcare by bridging the gap between treatment and diagnosis along with better access to medicine

TAS 5 Forces Analysis: Rural Pharma Market

• Poor distribution system & high distribution cost• Highly fragmented market• Low Product Differentiation• Low Per capita demand, less profit

Entrants

Moderate

• Strong Local Players• Cheap Generics & spurious drugs• Local Players offering huge margins• Making Generics for chronic segments

Competitive Rivalry

• Strong Distributers• Outsourced Manufacturing: Moderate• In-house manufacturing: Low

Suppliers

Moderate

• Cheaper Generic Variant• Spurious Drugs• Alternate Medications

Substitutes

High

• High Cost Sensitivity• Low Brand Consciousness• Low Switching Cost• Limited Buyer’s Knowledge• Low per capita demand

Buyers

High

Intense

TAS

• Government Health missions

• Industry tightly controlled by government

• High inflation and low affordability of BoP customer

• Copycat Initiatives

• Talent poaching

• Plagiarism

• Expiring patents

• Compulsory licensing under TRIPS agreement

• Strong reverse engineering skills of Indian companies

• New molecules development

• Divert patients to government hospitals

• Pressure to lower cost of drugs

• Difficulty in meeting commercial and social objectives simultaneously

• Affects buying behaviour

• BoP may go for cheaper drugs

• Economically unsustainable if target sales are not achieved

• Reduced market share

• Competitor’s sales increase with our investments

• Increased training budget

• Increased Threat from branded generics

• Local players to make more many life saving drugs at cheaper cost cutting Sanofi’s market share

• More generics at cheaper price

Issu

eB

usin

ess

Impa

ct

Political Competitors TechnologicalEconomic

Risks Associated With Prayas

Legal

TAS Value Propositions for Key Stakeholder

SUPER DISTRIBUTER Extra margins More money

KEY OPINION LEADERS Association with social

cause Self Actualisation need

3P MANUFACTURER More Business Capacity Utilisation More money

MENTORS Networking &

Collaboration Need for affiliation Social Satisfaction

SANOFI AVENTIS Increased Rural

sales Brand Positioning CSR Initiative

PATIENTS Better diagnostics & treatment Less disease reoccurrence Lesser side-effects Better Physical & Financial Health

MENTEES Great learning opportunity Networking & Collaboration More name and fame Better earning scope

VALUE PROPOSITION

SALES FORCE More salaries and

incentives Training needs

TAS Value Propositions: Highlights from The Case

SANOFI AVENTIS“With 72.2% of India's total population living in rural areas,6 there was a significant untapped opportunity at the bottom of pyramid for pharmaceutical companies to provide quality healthcare at affordable prices to low-income consumers in small towns and villages”

BoP PATIENTS“Prayas aimed at bridging the diagnosis-treatment gap through a knowledge-centric platform founded on the idea of providing continuing medical education (CME) to rural doctors and providing quality medicines at affordable rates to BoP patients.”

KOLs, MENTORS & MENTEES“For the KOLs, the attraction of Prayas was having their name associated with an initiative focused on the social objective of reaching beneficiaries through a broad platform. For the mentors, the motivation was the opportunity to network and collaborate with KOLs. For mentees, this program gave them a much-needed opportunity to upgrade their medical knowledge and practice. Thus, Prayas created a win-win situation for all involved.“

SUPER DISTRIBUTERS“Super distributor is a regular Sanofi-Aventis distributor, but for the additional Hoechst drugs that he supplies to the cluster stockists, we give him an additional margin of 5%.”

SALES FORCE“We decided to work significantly towards improving the efficiency of our sales force. Despite the fact that it was an outsourced external field force, we increased their salaries and incentives and also provided them with superior training on a timely basis from our end. With the increase in salary, greater training and the success ofPrayas, this sales team became more competent.”

TAS

2010 2011 2012 2013 2014 20155

10

15

20

25

30

7.57.1

25.2

13.417.1

22.2

1812

13.610.2 9.2

22.3

Indian Pharma MNC Pharma

2011 2012 2013 2014 2015579

11131517192119

1917

10

1318

14

20

15

11

Indian Pharma MNCs

Revenue FY 150

20000400006000080000

100000120000

98791

14517

Indian Pharma MNC Pharma

Avg Profit0

100200300400500600700800900 797

261

Indian Pharma MNC Pharma

Cipla’s Profit:1181 crs > Top 4 MNC players combined

Value Creation: MNCs Vs Indian Companies

Revenue Comparison: Top 50

Crs 83%

Market Share

CAGR Top 12

%

%

Profit Margins Top 12 Avg Profit: Top 12 players

Crs

TAS

Product Strategy

Consumer Strategy

New ProductIntroduction

Productivity

Bop Market Strategy

Differentiation Sales & Marketing Strategy

Value Creation: MNCs Vs Indian Companies

Prime focus on generics Strong chemical synthesis and reverse

engineering skills

Restricted to old mature brands Limited representation of parents

product

Effective products at cheap price Focus on majority of customers

Specialised products as higher price More focus on rich & urban customers

Aggressive new product introduction Rapidly introduction of high margin

specialty therapeutic in chronic segments

Slow new product introduction

Inherent cost competitiveness Frequent acquisitions Huge exports Vast Portfolio

Specialised products Target top of pyramid Low sales from exports

Increased capital investments in R&D New manufacturing facilities

Low R&D spend Low investments in mfg facilities

Tangible value creation Traditional distribution models Lower price Copying initiatives of MNCs

Intangible value creation Education and social awareness

Indian Pharma MNC Pharma

TAS Value Creation: Examples From The Case

Over a period of time, we decided to achieve leadership in chronic care drugs for diabetes, CNS, hypertension and oncology. Our domestic market growth is driven chiefly by volume growth and product mix and not by price.

MNCs initially largely targeted high-income and upper middle-income consumers. Only a few MNCs realized that consumers at the BoP could be a significant source of growth and profit.

The existing players integrated their profit and social responsibility goals by packaging product offerings in quantities that would be affordable for BoP consumers.

Here was an opportunity for major pharmaceutical companies to facilitate a platform for medical education

The company’s in-house manufacturing was not suitable for producing low-cost drugs in the acute care segment as it was geared towards producing expensive drugs in the chronic care segment for Tier I markets.

Many Indian pharmaceutical companies such as Lupin, Elder Pharmaceuticals, Ajanta Pharma, Himalaya Drug Company and Piramal Healthcare were aggressively targeting rural markets (see Exhibit 12) and beginning to generate revenues from these markets

Some chose to modify their product lines, some used smaller packs and others strengthened the reach of their distribution network.

Novo-Nordisk and Eli Lilly, Sanofi-Aventis’s major competitors in diabetes care, entered BoP markets with their well-established chronic care portfolio

MNCs

Indian MNCs

TAS

Demand for knowledge infra among medical practitioners

40% of total market by value

Primary Research

Highly price conscious customers but scope for quality medicines at slightly premium price 600000 villages, 20000

primary health care centres

Secondary Research

Usage low but frequent

Healthcare Penetration in India

Significant presence of players offering high variety, higher margins products. Small size SKUs being offered

Players getting engaged in unorthodox promotional practises

Omnipotent Status of doctors. Patients never questioned them.

Frequent misdiagnosis and in-appropriate treatment. Symptomatic treatment. Reoccurrence of disease. Greater economic burden.

Domination of acute care segment. Strong brand identity needed to secure doctors' participation

Detailed medical infrastructure analysis: Semi Urban and Rural Vs Metros and Tier 1

Patients often bypassing doctors and directly visiting chemists

Customer Insights: Addressing The Target Market

1

2

3

4

5

6

7

8

9

Poor healthcare, limited affordability, poor basic hygiene, extensive availability of spurious drugs 1

2

3

4

10

TAS Customer Insights: Examples From The CaseSanofi-Aventis commissioned a study to understand rural markets and consumers’ buying behaviour for pharmaceutical products.

After understanding various parameters at the grassroots level, what I observed was that there is a customer who can pay in these markets. Although his usage quantity was low, the frequency of purchase was much higher. Secondly, I observed that there are departmental stores flourishing in these markets and foreign consumer durable brands reaching these consumers. From the market study, I was able to conclude that even in these markets, there is scope for quality medicines at a slightly higher price.

Factors such as low government spend, poor healthcare infrastructure, limited affordability, poor basic hygiene and living conditions, and the extensive availability of spurious drugs were among the many hurdles facing companies interested in participating in these markets

Company executives visited a large number of doctors and chemists in rural areas. In addition, the company’s internal research group analysed market data and executive reports related to such markets. Useful insights about the physicians and medical practices in rural areas emerged from this exploration

The company’s exploratory efforts highlighted that a viable avenue for the education of rural physicians existed in the form of professional meetings among doctors in a territory at district level centres established by the Indian Medical Association (IMA).

Unfortunately, these doctors relied on traditional and often outdated medical knowledge and practices and were unaware of new developments in medicine. As a result, doctors often misdiagnosed medical problems and consequently recommended inappropriate treatment.

The research revealed that out of the total 1,963 million estimated prescriptions generated by doctors in low-tier markets, the majority were for ailments related to respiratory, gastrointestinal, infectious and nutritional diseases, showing the clear domination of the acute care segment among BoP patients

TAS Customer Insights: Application In Other Industries

Poor healthcare, limited affordability, poor basic hygiene

Consumer healthcare & hygiene products

FMCG: RB & JnJ

Usage low but frequent, Consumers buy in small quantity

Smaller Pack Quantity SKUs FMCG

Highly price conscious customers but scope for quality medicines at slightly premium price

Good brands can also complete with local products if they are slightly higher priced..

FMCGs: Wheel Vs NirmaConsumer Durables

Rural Market: 40% of total market by value

Huge sales opportunity FMCG, Consumers durables

Frequent misdiagnosis, in-appropriate treatment, symptomatic treatment, reoccurrence of disease, greater economic burden

Low cost Diagnosis for basic ailments

Pathology Labs offering cheap diagnosis for basic ailments

Demand for knowledge Infra among doctors

Creating Knowledge bank NGOs

Insights Opportunity Analysis Industry

TAS

BOP(72.2%)< 16000

Challenges Of Marketing To The BoPFragmented distribution system, Access Difficulties

Bargaining power of distributors

Widespread corruption, lack of basic infrastructure, extreme poverty

Spurious drugs

Low demand per capita, low population density

Cost Disadvantages, Growing Competition

Low internet and TV penetration. Less Brand Awareness

Low cost of switchingHigh-touch sales required to sustain in scattered market

Cost Sensitive Customers

TAS Innovative Approaches For Product, Sales, Marketing, And Distribution

Marketing: Blue Ocean Strategy Sales & Distribution:

New distribution ChannelProduct: Outsource Strategy

TASHow could businesses of Tata group companies apply these

learnings? Take any business and detail your proposal.

TCS Bancs can make financial and risk-management tools for microfinance

entrepreneurs

SCOPE FOR TCS BANCS IN RURAL MARKET

TAS Key Challenges: Sustenance of Prayas

Copycat

Initiatives

Maintaining Sales Momentum

Aggressive targeting of

rural market by major

competitors

ROI for

major

investments

Making Profits

Feasibility of

Geographical

Expansion

Plans

Retaining

sales

workforce

Retaining Associated Workforce

Retaining

doctors

TAS

Strengths

1. Unique Social Initiative: Blue Ocean 2. Intangible value creation3. Good geographical coverage4. Strong media attention5. 100% YOY growth

Weakness

1. Limited till doctors2. Huge Capital Investment3. Not churning Profits4. Limited Product Portfolio

Opportunities

1. Extending to Chemists & Patients 2. Tapping rural OTC market3. Introduce Chronic Care products4. Generics’ huge market5. Veterinary Segment

Threats

1. Copycat Initiatives2. Cheap Generics & Spurious drugs3. Financial Success4. Retaining major stakeholders

SWOT Analysis for Prayas

TAS Sanofi’s Distribution Model: 2011

SanofiDistributor

10%Wholesaler

8%Pharmacist

20%

100 110 118.8 142.5

• Profit Margin for Sanofi in 2010: 18%• Total Cost to Sanofi(Inclusive of everything): 84.7

SanofiSuper

Distributor15%

Cluster Stockist

0%

Pharmacist20%

103.26 118.75 142.5 142.5

84.7

76.23

• Additional expenses of Prayas Model to Prayas= Rs 56.65• Total Cost Price: Rs 128.65• Loss %: 24.58%

CP SP

Assumption: 10% cheaper because of outsourcing

Prayas’ Distribution Model

TAS Additional Costs Associated with Prayas

Total Revenue Generated from Prayas in 2011 20 crs

No of States in which it is operated 9

Revenue from Uttarakhand 2.22 crs

Total districts 13

~No of medical representatives 6

~no of headquarters 6

Area Managers 1

No of clusters 18

No of cluster stockists 18

~Salary expense for area manager 0.15 crs

~Salary expenses for medical representatives(CTC 5 lpa) 0.30 crs

~Salary expenses for cluster stocklists (3 lpa) 0.54 crs

Total Salary Expenses 1 Crs

Other overheads @ 10% 1.1 Crs

Equivalent expenditure for revenue of Rs 103 Rs 56.65

TAS Break-even Analysis for PrayasSelling Price of one SKU 103

Additional Exclusive manpower cost associated with Prayas 1.1 Crs

Total no of SKUs sold x

Variable Cost(for X units sold) 76.23x

Total revenue generated by selling x units 103x

x

₹

For achieving Break-even

103x= 76.23x+ 1.1X= 3518213

*Revenue required for Breakeven : 4.2 Crs*Revenue required for 15 % Profit: 9.4 Crs

• Financially Very Risky considering external threats

• Cost mainly because of manpower hiring and change in distribution model

103.26x

11000000+76.23x

Fixed Cost

Revenue

Expenditure

Variable Cost

*Additional exclusive Manpower cost associated with Prayas remains same

TAS Addressing The Challenges: Tweak the Model

PHASE 1Chemists, Doctors

PHASE 2NGOs &

Rural Awareness

PHASE 3Prayas

Like Initiative

• Test market: Western UP• Choose the largest

pharmacist in a village• Target doctors associated

with that pharmacist• Medical awareness by

quarterly magazine • Affiliate chemists with

maximum revenues• Variable margin model• Teach about side-effects

of cheap drugs• Enter into MOU with

chemists for owing the recalled stocks

• Health awareness about basic diseases

• Side-effects from spurious drugs

• Health insurance initiative by Government

• Be genuinely interested in their health

• Have free check-up health camps

• Make words Combiflam and Allegra synonymous with fever & Allergy

• Doctor’s education• Seminar for doctors• Emotional association

with them • Launch chronic products• Now when the model is

fool proof, replicate the model in other villages and other parts of India

The model involves lot of additional Manpower & Distribution costs which is responsible for losses incurred and thus this Model needs to be tweaked

TAS

Have to continuously try for making cheaper drugs by reducing operational & raw material cost

Addressing The Challenges

Target Urban poor

Acquire some Indian Company and increase generics business. They know Indian way of

doing business which might help.

Needs Detailed Study

TASCan Social Models Yield Profits Similar To Mainstream Models? How would you respond to such a dilemma?

Conventional Logic: NO

Focus on 20% which generates 80 %

HUL’s Project Shakti

ITC’s E-Chaupal

Mahindra’s Bolero

Product Strategy

Price Strategy

Distribution Strategy

Promotions

TAS

Thank You !

TAS Annexure 1Primary Research for getting more insights about Rural Pharmacists & Patients

• Do patients ask for cheaper variant of drugs in case of expensive drugs prescribed?

• How many times do poor patients blindly take medicines prescribed by docs?

• Are people concerned about brands?

• are rural people concerned about side-effects?

• What margins do you get in case of indian brands and mnc brands?

• Who have better promotional schemes?

• Spurious brands is how many % in your shop?

• Who makes them? Why do you buy it? How much margin? Side effects?

• If Sanofi tomorrow gives you medical knowledge will you prescribe their drugs?

• Are you interested in learning more about medicine?

• Are you b pharma?

• Which drugs do you normally prescribe? Local or mnc? Why?

• Are their side effect complaints from patients?

• Are demand for cardiac and diabetes and cancer increasing? What % is acute care and what % is chronic?

• How is Sanofi as a company? Hws the feedback for its products?

• Do doctors generally prescribe its products?

• What % of people take drugs directly from chemists?

TAS

Addressing Key Challenges: Sales Momentum

Now that competitors are aggressive and launching new products what different can we do to increase sales?

Question FindingsCan I stop my competitors for entering market? NOShould I launch new products? Try in a test marketIs there a scope for VAT? Growth rate 6%, not very profitableCan I create a unique brand? Like FMCG? Maybe Do I have something unique to offer in brand? Less side-effectsDoes it matter for rural customer if it is Combiflam of XYZ? Not reallyIs my product offering way better than competitors in acute segment? Almost sameCan I differentiate my product? Not reallyDo my products make brand recall in rural masses? Some whatHow can my sales increase? more chronic segments, cheaper

medicine, higher margins to chemists.

Brainstorming

Annexure 2

TAS

Making Profits

Now that competitors are aggressive and launching new products what different can we do to increase sales?

Question Findings

Is geographical expansion good idea now? NO, first pilot test

Are we making profits? No

With present growth can we breakeven in 3 yrs? No

How are competitors faring in other places? Don’t know. Conduct detailed study.

Can present model be tweaked? Yes it should be.

Can we extend model to pharmacists? Yes, but more value and intangible benefits

Cn I involve rural masses? Yes, Health awareness camps, making aware about OTC brands

Can I acquire Indian brands Can be a possibility but needs detailed research

Brainstorming

Annexure 2