Marketing Case Analysis Kalyan Pharma Ltd.

GROUP H:
ARVIND SHARMA
JATIN VIRDI
RAVI CHAND
SIDDHARTH SHAH
SHAILAV PRAKASH
ULLAS ANAND

CONTENT

Introduction ...........................................................................................3
Importance of distribution channel ........................................................................................ 3
History of Pharma Industry in India ....................................................................................... 4
DPCO Act .............................................................................................................................. 4
The importance of Distribution in Pharma ............................................................................. 5

Kalyan Pharma ......................................................................................6

Introduction ............................................................................................................................ 6
Evaluation of distribution system ........................................................................................... 6
1.

The Initial Strategy ( Pre -1972): ................................................................................ 6

2.

Realization of importance of Marketing (1972-1979): ............................................... 7

3.

Effects of DPCO (1979): ............................................................................................. 7

4.

Introduction of KRD: .................................................................................................. 7

5.

Marketing Channel Flows and Strategy ...................................................................... 8

6.

Introduction of Distributors(Post 1991) ...................................................................... 9

Indian Pharmaceutical Scenario: .......................................................................................... 10

Future implications ..............................................................................11

Push vs Pull strategy ............................................................................................................ 11
More wholesalers or not? ..................................................................................................... 12
Strategic decisions in terms of cost - The Value-Adds vs. Costs of Different Channels ..... 13
Objective of Any Distribution Channel ............................................................................... 14

IT Adoption .........................................................................................14
The Future of Indias Distribution Systems ........................................15
Conclusion ...........................................................................................16
References: ..........................................................................................17

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Introduction
Importance of distribution channel
In the Marketing Mix there are 4 Ps- Product, Price, Promotion and Place.
The Distribution channel helps in the Place aspect of the marketing mix.
Place refers to providing the product at a place which is convenient for consumers to access.
Place is synonymous with distribution. Various strategies such as intensive distribution,
selective distribution, exclusive distribution and franchising can be used by the marketer to
complement the other aspects of the marketing mix.
In the new convention Place is replaced by Convenience. With the rise of Internet and
hybrid models of purchasing, Place is becoming less relevant. Convenience takes into
account the ease of buying the product, finding the product, finding information about the
product, and several other factors.
The need for distribution channel is felt because of following reasons.
Complimenting the other 4 Ps in the marketing.
Because producers cannot reach all their consumers directly.
Multiply reach and provide efficiency to the marketing processes.
Gathering and distributing information (Marketing Research and intelligence
information)
Communication to the consumer regarding product information and offers through
advertising and promotion.
Provide contact, experience, specialization and scale of operation.
The activities which are taken care in the channel are wide and varied but they revolve
around these general tasks:

Ordering

Handling and shipping

Storage

Display

Promotion

Selling

Information feedback
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History of Pharma Industry in India

Pharmaceutical industry has been one sector that has been consistently in India. In terms of
capital investment, the industry has seen a growth of almost 1300% between 1962 and
1989.In terms of sales the growth rate posts an impressive figure of 4800% between 1960 and
1988-1989. Initialy the sector was involved in the processing of bulk imported
drugs.However, the second and third five year plan encouraged the development of new
plants resulting in establishment of various new manufacturing units. The third five year plan
kick started an era of growt and development of this sector because of government's policy of
liberalization of licenses andloans and encouragement to local entrepreneurs. Government
also restricted imports and foreign investments during this time.
There are four categories in the industry

Public sector
Foreign sector
Indian (private) sector
Small scale sector

As of 1990, there are a total of 8000 firms out of which 200 are major players constituting
40% of market share.
The pharmaceutical sector is a highly regulated sector with the introduction of DPCO act in
1962.
DPCO Act
The Drugs Price Control Order (DPCO) is an order issued by the Government of India under
Section 3 of the Essential Commodities Act to regulate the prices of drugs. The main
objectives of the DPCO act is ensure availability of essential and life saving, at reasonable
prices.
The various DPCO act since its inception are
DEPCO Act
DEPCO, 1962

DEPCO, 1963

Regulations
-Manufacturers, Importers, Distributors are
required to publish price lists of their products..
- Chemists were required to display lists in their
premises.
- Freezing drug prices as obtained on April 1,
1963.
-Require prior approval to increase price before
June 30 ,1966
- Price of new drugs to be approved by
Government.
- Price of loose drug to be regulated too.
- Manufactures required to print Retail sale
price on the container

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Financial Implications
- Contained the inflation of the drug
prices that was expected due to
Indo-China war
- No price control on raw material
price
impacted
long
term
profitability.
- No voluntary price reduction from
the manufacturer side.

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DEPCO, 1970

- Reduce price of essential drugs which were

used in high frequency
- Provide incentive to the industry
- To develop research facility and expansion in a
planned manner.
- To provide better entrepreneurship
opportunity for Indian personnel for the growth
of the Industry.
- Curb excessive profit.

- Categorization of bulk drugs into

Essentials and Other.
- New price for 17 essential drugs
were announced
- Sales price of other bulk drug were
frozen to prevailing rate.

DEPCO, 1979

- Bulk drug divided into three categories

- Maximum sales price of selected drug were
fixed.
- Allowed reasonable return on net worth
- Return fixed at 14% post tax on net worth for
Category I and II drugs and 12% on Category III
drugs.

- The mark-up allowed on Category I

and Category II drugs are below
breakeven
point,
hence
no
incentives to produce such drugs
- Delay in government approval of
revised price will eat into the
profitability
- Does not accommodate provision
to revise selling price in case of
variation in manufacturing

DEPCO, 1987

- Three categories reduced to two.

- Category I (Essential drugs) 27
- Category II (Other drugs) 139
- Maximum sale price was fixed

- No consideration of actual
increases in costs of inputs
- Only 50% of the recommended
increase on drug prices was given.
- Cost updating was not periodical
but, manufacturing cost was. So
many companies were opting out of
producing essential drugs

The importance of Distribution in Pharma

India is a geographically diverse country with extreme climates that make careful
climate control for medicine a critical function. (The infra for cold chain is still
developing )

The long channel of distribution and high incidence of brand substitution makes it
mandatory for a company to make all its stock keeping units (SKUs) available at all
levels at all times. (In India, most brands have generic versions of drugs and retailers
can usually obtain higher margins with generics than for branded products. To reduce
risks of substitution, innovator companies must make sure their products are made
available to the stockists and retail shops. )

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The companies, which have spent as much as one-third of their revenues toward
financing their supply-chain operations, recognize that the cost of logistics is very
high in India. Taking into consideration the poor infrastructure and extreme
geographic conditions, it is difficult to curtail the cost involved in SCM.

Alternative distribution have faced severe resistance by the lobbies of traders involve
in channel for example Cipla tried to bypass the SCM by providing home service for
its products. It faced strong resistance from traders lobby which stopped stocking
Ciplas product. Ultimately Cipla had to withdraw the scheme.

Kalyan Pharma
Introduction
This case deals with the distribution network of Kalyan Pharma Limited (KPL). KPL was a
venture started with a capital of around 5lacs in 1905, that manufactured products in five
different categories glass, pesticides and chemicals, pharmaceuticals, veterinary products and
polypropylene fibre. Glass and Pesticides and chemicals have since been made a separate
entity while, some part of pharmaceuticals are being promoted as a separate entity called
megacare since 1988-89.
As of now KPL manufactures 60 different products. Its distribution network consists of 16
KPL regional depots called the KRDs, 24 branch offices, 40 distributors located in various
states including the 7 sister states, Goa, Kerela etc. , about 2,000 stockists and wholesalers
and have tie ups with around one lac retailers.

Since pre 1972 till 1991 we can say that KPL was constantly trying to find the balance
between its distribution network and its marketing/promotion strategies.

Evaluation of distribution system

The flow of events has to be looked upon in its entirety to have a better understanding of the
company strategy over the years.
1. The Initial Strategy ( Pre -1972):
KPL in the starting did not enter into the distribution system for its products and instead
focussed on marketing. It is safe to assume that pre-1972 KPL might not have sufficient
resources and infrastructure to fully have it s own distributive network. Thus, it chose an
exclusive agent responsible for taking the products from the factories to 30 braches. These
branches further circulated the product in 10,000 wholesale chemists.

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2.

Realization of importance of Marketing (1972-1979):

a. As the company grew it obviously wanted to have more control over its margins
and distribution channel. Thus it moved away from the exclusive agent and itself
took the responsibility of stocking and movement of the goods.
b. In this phase the company realised the important of marketing thus it opened four
marketing companies across nation to promote the goods to doctors. The company
distribution system now was as below:
CompanyBranch Retailers
c.

The flip side of now taking the Distribution system in its own hands was that the
wide network was difficult to control leading to decreasing profits and market
share.

3. Effects of DPCO (1979):

a. DPCO(1979) lead to narrowing of retailers margin from 25% to 15 %.Pharmacist
recommendations about drugs and their alternatives seem to be based on
profitability and on relationships with representatives of various companies.
b. The company thereby decided to stop giving direct supply to the retailers and
introduced wholesalers back into the system. The disadvantage of this was that
wholesalers were neither equipped nor willing to promote the product resulting in
higher book debts and cost of distribution.
4.

Introduction of KRD:
a. Shutting of 21 branches & introduction of KRDs
b. Distribution networks both in rural and urban India.
c. Managers at branch level busy with distribution and collections, thereby
neglecting sales promotion

In any distribution channel we need to focus on two issues:

1. Ensuring the availability of the products at the retail outlets and at the same time,
2. Ensuring that there are no excess stock inventories.
In Indian Pharma we have seen that at the month end the products are pushed from the
distributors to the wholesalers/ stockist. This situation may thus lead to the pile of the
inventories, forcing distributors to discount stock. Further, retailers in anticipation of the
lowest price may defer their purchases in anticipation leading to more losses due to issues of
availability.

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DISTRIBUTION CHANNEL PRE 1991:

5. Marketing Channel Flows and Strategy

As we can see in the diagram above its not only the goods that flow through a marketing
channel, it can be title flow, payment flow, Information flow or promotion flow. Physical
flow of the goods is generally governed by the various cost considerations, time to
delivery etc.
Title flow is in the case where the dealers take ownership of the product itself like in case
of franchises. Payment flow is always in the reverse direction and follows a linear path.
Information flow is complex and multiple decisions are made by the intermediaries also.
Promotion flow represents how a company wants to promote its product. As we can see,
post 1991 the distribution channel design of Kalyan Pharma reflects the separation of

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information flow channel and physical flow channel due to which it was able to solve
the problem of overburdening that the managers at its branches used to face.
6. Introduction of Distributors(Post 1991)

Distributors introduced for better service to customers & improving sales

Branches no longer link in the physical flow.
The channel now included 40 distributors in different states.
Bringing in the distributer lead to increase in the customer service. More is the
number of visits by the stockist to retailers the better it is for the entire flow of the
system.

DISTRIBUTION CHANNEL POST-1991:

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Indian Pharmaceutical Scenario:

The above diagram shows that as we move from metros to the rural areas the sales losses
increases. This being due to less number of stockiest in the rural areas . Thus ,the number of
visits of the stockist to the retailers decreases thereby resulting in losses due to :
Non availability of the product
Excess inventories

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Future implications
The main motives of Kalyan pharmas Distribution system are:

Improve customer service

Reduce cost of distribution
Reduce order processing time
Reduce inventory at various levels of distribution

Push vs Pull strategy

Until now, Kalyan Pharma has used only push strategy as they have tried to sell the drugs
mainly through wholesalers and retailers or by targeting physicians. In the contemporary
times, it has to Adopt a PULL strategy with direct-to-consumer marketing.
Considering the Indian scenario, the awareness of Indians is increasing at a phenomenal pace
with the influx of mobiles and internet access reaching even the bottom of the pyramid. It is
not long before the Indian consumers will start visiting doctors not just with symptoms of the
medicine but also with drug cure just like their counterparts in the US. Also, considering the
already large Indian market which is growing rapidly, it reflects that there is a much bigger
market to capture and currently there are many untapped opportunities. Hence it makes
perfect sense that Kalyan Pharma go after educating the customer and promoting its products
directly.

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Also, looking at the competition, a variety of promotional strategies have been used to
stimulate sales of pharmaceutical drugs. Traditionally, push techniques have been the
predominant means used to encourage physicians to prescribe drugs and thus increase sales.
Recently, the traditional push strategy has been supplemented by a pull strategy. Direct-toconsumer advertising is increasingly used to encourage consumers to request advertised
drugs from their physicians.
However, due care must be taken in case of implementing pull strategy because customers
(patients) must have proper knowledge of when to use the exact medicine as illness and
severity of illness are at times not classified into categories.

More wholesalers or not?

A manufacturer usually goes for wholesalers because they specialize in

Selling and promoting

Buying and assortment handling
Bulk breaking
Warehousing
Transportation
Financing
Risk bearing
Market information
Management services and counselling

In the current scenario, where outsourcing has become the norm of the day and businesses are
operating at paper-thin margins, a company will go out of the business if it makes costineffective decisions. Hence it will be a better approach to form an efficient network of
wholesalers and retailers. E.g. Today Ciplas distribution network in India consists of a field
force of around 5,100 employees and 42 exclusive and dedicated sales depots, as well as
approximately 2,300 stockists and 160,000 chemists. Cipla is currently the No. 2 drug maker
by market share in India.
Marketing channels must not just serve markets, they must also make markets.
If the intermediaries are more efficient than the manufacturer, the prices to consumers should
be lower. If consumers perform some functions themselves, they should enjoy still lower
prices. In general, changes in channel institutions tend to reflect the discovery of more
efficient ways to combine or separate the economic functions that provide assortments of
products to target customers

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Strategic decisions in terms of cost - The Value-Adds vs. Costs of

Different Channels

It is imperative for Kalyan Pharma to choose its marketing channels wisely as there are
significant trade-offs related with each link in the channel as depicted by the diagram above.
Currently, they are using retail stores, distributors and their own Salesforce. As Internet is
comparatively a very low-cost channel, it can certainly leverage the power of Internet but not
rely completely on it due to the less value added by it. Moreover, it will bot be wise to go
with the idea of increasing the Salesforce.

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Objective of Any Distribution Channel

IT Adoption
IT adoption in healthcare has grown drastically. Pharmaceutical companies have
realized the need for integrated solutions in SCM to keep inventories at optimum
levels, to improve distribution, to provide for liquidation of stock, and to streamline
interconnectivity between manufacturing facilities, warehouses, and CFAs in
different states.
The use of software like SAP and SAS, apart from other customized software, is
increasing. Newer technologies such as RFID would help in keeping track of products
along the entire chain and would limit counterfeit drugs to enter into the system.
However, the adoption of technologies such as radio-frequency identification (RFID)
has been slow.

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 An online order system for Retailers or Premium retailers with significant revenue
(as compared to a normal retailer) can place the order online whose information
directly goes to the Finished Goods Store (FGS).
The inventory level can be reduced by supplying goods directly from FGS to the
distributors. The distribution staff at KPL can be utilized to organize the inventory as
per distributors at FGS and online IT system implemented will help achieve this task
easier and faster. Hence, KRDs can be eliminated from the current Distribution
System.
Not only these but also Kalyan Pharma needs to go for IT integrated solutions in
order improve Sales and operations planning process. It also keeps inventories at
optimum levels by inventory level control system and inventory turns across the
network. It will help to improve the demand accuracy and accordingly improving the
distribution system.
The distributor on receiving the goods can directly provide goods to the
retailers thereby, eliminating wholesalers margins. KPLs: medical representatives
force of 600 can be used to target this segment for online ordering.
Normal retailers can also place orders online; however, they receive their
goods still through wholesalers.

The Future of Indias Distribution Systems

Organized Retail - Subiksha Retail, The Medicine Shoppe,
Powders, Reliance Wellness

Health & Glow, Pills &

International Competitiveness and Cold-Chain Management Indian pharmaceutical

companies are increasingly seeking opportunities to supply drugs to the world market.
More developed cold-chain management practices will be required to achieve this goal.
This is one of the major challenges faced by the industry if they are to retain product
quality during shipment. Companies like Eli Lilly in India have implemented initiatives
such as having their own vehicles equipped with cold-chain management systems.
Other companies such as World Courier have developed cold-chain management models
to help pharmaceutical companies maintain the cold chain

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Conclusion
The important points that are highlighted in this case are
Pharmaceutical is one of the fastest growing sector in India and has been so
for quite some time.
Pharmaceutical industry in India is highly regulated. Hence it is important to
a have a distribution system that can contribute to profitability.
As producers cannot reach all their consumers directly so there is a need to
develop robust and flexible distribution network.
An inefficient distribution system can eat up the profitability of the company
and can also impact sales promotions.
There is a huge potential for Information Technology to contribute in to
developing an efficient distribution system

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References:
1. http://aery-group.com/push_pull.htm
2. http://www.medcrunch.net/pull-push-pharma-marketing/
3. http://www.marcleshay.com/2010/08/marketing-strategy-flaws-push-vs-pull-marketing/
4. http://www.thehindu.com/business/companies/cipla-slashes-generic-price-of-bayerscancer-drug-nexavar/article3381049.ece

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