Saturday, February 6, 2010

Sales, margins and control

I GOT THE ABOVE IMAGE FROM HERE (one of my all time favorite business mags of India).

At the end of the day or rather at the end of the month after the "sales closing" the pharma game for pharma companies is about sales, margins and control. In the past many big Indian pharma companies pushed in a lot of monies towards drug discovery research only to be disappointed. In fact, there is a lot of soul searching going on now on this matter. Businessworld has highlighted this pharma R & D dilemma, in its 29th Jan 2010 issue. A patented molecule remains the elusive panacea of pharma marketers. So once again, it is all about sales, margins and control.

The holy grail is sales, margins and control!

It is no doubt that pharma biggies in India had thought that the holy grail in pharma is to come out with a new drug that becomes a standard for disease management. However, reality has rudely awoken them - the reality being that the pharma game is about SALES, MARGINS, AND CONTROL.

The pharma market complexities are many

Having a super - duper patented drug holds a promise but will not necessarily provide super duper sales, margins and control. This is because of the sheer market complexities! These market complexities are not mirrored in ORG IMS reports, but they have a lot of impact on company performance at the ground level. You can see the intensity of such market complexities by reading below:

Recently I had a very interesting conversation with a gift supplier. This person is an "old hand" at supplying gifts to pharma companies and as we are aware, pharma companies in turn provide them as Rx and sales boosters to doctors and chemists. The gift supplier was saying that in the recent past (say about 3 to 5 years), there is an explosion of tiny pharma companies. Let alone regional pharma companies who operate in a few states of India, there are pharma market operators who work only in just a few districts (or one district) and are doing good business. In fact, this old Jain gentleman made a very vital observation in his typical trader Hindi accent, "those pharma companies who take a lot of loan and run their business will be in trouble, those who have less loan and overheads - they will find the going easier!!"

Based on the above conversation I dipped in to some market grapevine conversations about these very small (tiny or subregional) companies:

a) I hear there is a MOON PHARMA (c'mon if we can have Sun Pharma why can't we have Moon Pharma?!) in Tumkur started by a guy who came back after studying MBA at London. Today, operating Moon Pharma only in Tumkur and may be another district, he is having a very tidy take-home income! b) There is a very old medical retail shop at Tumkur by name Gandhi Medicals, owned by a Jain gentleman. When I was with Themis I have gone to this pharmacy too on work. I am given to understand that this gentleman has started a pharma company (again on PCD ie., propaganda cum distribution lines) called OCEAN PHARMA. And the grapevine says he has a monthly turnover of Rs. 40 lakhs in Tumkur alone!! OK may be it is slightly exaggerated, however, it is very indicative of the trends at the ground level in pharma India.

And all these tiny and regional pharma companies are making life very difficult for big pharma companies. It reminds me of the Romans versus Gauls!!

Another senior pharma executive I know of, remarked that he himself knows about a dozen senior MRs (his compatriots) who did not bother to take promotions and they are in to this tiny pharma business - they are all doing exceedingly well! Period!!! I couldn't help recollecting a small to regional pharma company which had started in the mid 1990s, the company being TPRL (Tumkur Pharmaceutical Research Laboratories). One of the distributors had started this company. And this pharma company (TPRL) is still there going on quite fine!!

The best remark came from another pharma executive - there is still place for more!!

So understandably pharma is now more a game of streetsmart sales, margins and control. There is little room and time for philosophy and may be expensive R & D, because sales, margins and control are under a lot of stress.

What will happen next?

Pharma will get in to a round of consolidations. Pharma companies who are under pressure and cannot maintain healthy margins due to overheads and cost of sale, will starting merging or selling out. Big pharma companies will also try to buy out the regional and tiny pharma companies. They will also use their influence with regulators and other agencies to put obstacles to the tiny and regional sort of companies. However, it will not work. In India, malls have to learn to live with the small traders. Big fish eat up small fish. This is the traditional rule of businesses in the West. However, it cannot happen in India. The reason is simple:

People in India do not have this sell out culture. Many companies abroad sell out and the sellers chill out! However, in India one cannot afford to do that. After selling out what??!! The sellers (if at all) will certainly not chill out or cannot afford to do so in India!! Mainly because Indians are working for their families, their children, rather than for personal careers. So big and medium pharma companies need to work out strategies to live with the small fish (regional and tiny pharma market operators) and succeed despite their presence.

Pharma marketing is not just about promo inputs, price, and technology

Pharma marketing success is well known to depend on power of promotional inputs, price and technology, however, there is another very vital ether of pharma marketing ie., relationships. The MR to doctor, PCD seller to doctor, Company to doctor or chemist relationships matter a lot. This factor cannot be quantified successfully, however it is a very important criterion of pharma success.

When a now leading Hyderabad based pharma company launched operations they were said to be innovators in targeted gifting to big doctors (the key doctors were said to have been given Standard 2000 cars as gifts, a luxury car during those days). However, the times have changed. Small companies have taken a leaf from this very company and small companies are doing targeted gifting!!

I still remember one of my first field work calls in Mumbai, in 1992, where a leading physician jokingly said to our company MR, "I can't prescribe your brand of atenolol, because when I put on the AC, only company T's products flow out of my pen"!! Today, the regional and tiny companies are all giving it in the same coin to the big companies!!

The net result is that sales, margins and control processes in companies are under severe pressure in all established pharma companies particularly those who have a lot of overheads, such as R & D. So R & D downsizing has occurred!! DEATH OF A DREAM (click here!).

SO WHAT NEXT ? ! Obviously shakeouts, mergers, buyouts, downsizing and other facets of consolidation will take place.

What does it mean for marketing?

Marketing and sales unlike in nonpharma companies are intimately linked in pharma companies. Normally, in nonpharma companies, marketing and sales are slightly divorced, they have a somewhat tug-of-war relationship. However, in Indian pharma companies, marketing and sales are very closely related functions. Unless, this happens, pharma sales cannot occur!

Pharma marketing guys need market picture inputs from the sales team, and conversely sales personnel want material and nonmaterial inputs (campaigns, strategies, training etc) from marketers. This is not because of any philosophy, it is simply because both require each other for day-to-day functioning. It is a symbiotic relationship.

Overall, pharma marketers do long range things, try to be one-step ahead so that selling gets facilitated. And for this pharma marketing guys need to be closely in touch with sales guys to provide timely and relevant inputs. Planning is significant in marketing. Sales is about real-time action.

Inevitably customer centric

Today, most pharma companies are inevitably doctor, chemist and patient centric mainly from the point of view of the sales personnel; all other organizational employees too need to have this customer centric approach. Unless the image of an unsatisfied customer haunts the distribution, QC, and manufacturing guys, customer centric organizations cannot be created.

Let us see a simple analogy. Who are the most 'concerned' employees of any organization? They are inevitably the frontline personnel who are in constant touch with customers (customers: the people who need to be delighted and from whom monies are collected!!). So the waitresses at Cafe Coffee Day, the waiters at hotels, the receptionists, and such other people who are most liable to get the stick or bouquet from customers directly are the most 'concerned' of the employees of any organization. However, when all organizational members share this intense concern for customers (typically seen in the frontline personnel) it is only then that the organization gets customer centric. In fact, regional and tiny pharma companies are hugely successful because of customer intimacy and lesser overheads.

So the era of a rededication to sales, margins and control starts in Indian pharma!! Thanks for reading this blogpost, please scroll down, click on older posts, please do read all other posts and encourage your acquaintances to read this blog!!

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