Assignment 5 – Prayas by Sanofi-Aventis in India

1. Why have the BOP markets in developing countries such as India emerged as
important markets for large pharmaceutical companies such as Sanofi-Aventis?
Markets are categorized in two aspects i.e. Blue ocean or Red ocean based on the
competitiveness experienced in the market (Kim and Mauborgne, 2005). For majority of their
venture in developing countries large pharmaceuticals had been targeting urban region to sell
their products at the premium price but as the competition has begun accelerating in these
regions companies have been forced to consider other alternatives. In the developing countries
the otherwise considered BOP (bottom off the pyramid) markets have appeared as the potential
market alternatives because of their Blue ocean characteristics.

In case of India, it is one of the fastest growing pharmaceutical company worldwide. In an

extremely contested market in 2010 the valuation of Indian Pharmaceutical market was USD 12
billion and the growth rate was 21% and the market was forecasted to grow at the compounded
growth rate of 12.3% into the future. Staying true to the prediction the market grew to reach the
valuation of USD 55 billion in 2020 and has become second largest market in term of the
volumes after the United States. Thus making India a very lucrative market for multinational
company eyeing a global expansion strategy.

While the growth rate projection for India is significant and enticing, the proportion of growth
distribution within India is disproportionate. In 2010 the teri1 metro contributed to 45%, urban
contributed to 38% and the rural area contributed to 17% of the total industry distribution but as
the wave of progress has started sweeping across India the rate has become disproportionate at
the opposite end of the spectrum. Rural market has now become the untapped region with higher
growth prospect as 72.2% of the Indian population has been residing in rural areas. Some of the
Opportunistic factors leading to the growth of rural area as a prominent market in India are:

 Growing patient base.

 Rising Income level.
 Improving healthcare infrastructure.
 Wider health insurance coverage.

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Usually rural and BOP markets were considered unattractive and cost incurring investment and
left to the government and social sectors to cater to. But with the growth in urban market
stagnating and the rural market growing to 40% in terms of total value in India has created a
necessity for Pharmaceuticals MNC’s to shift their priority in their expansionary plans. However,
the rise of BOP regions is not without challenges/threats as some of the hurdles faced by the
companies attempting to enter these markets are:

 Low government spend.

 Poor healthcare infrastructure.
 Lack of knowledge and awareness.
 Extensive availability of spurious drugs.
 Low usage quantity.

Although there are significant challenges posed by BOP market the frequency of pharmaceutical
product purchase in this market is high. Further there is rise in the number of department stores
in the region along with high reach of customer durable brands in the market thus chowing the
change in lifestyle of the customers. Thus with the evolution of rural market it can be concluded
that there is a scope for quality medicines at a slightly higher price even if the medical
infrastructure is not ideal the market presents a situation of clear demand for pharmaceutical
products.

Hence, BOP markets in developing country like India has become an important market for large
pharmaceutical companies such as Sanofi Aventis.

2. Why did the company develop and leverage an innovative business model (Prayas)
for its foray into the rural market?

Sanofi Aventis a pharmaceutical company with premium brand enjoyed a competitive presence
in the robust Tier 1 market across the country. But despite having significant presence in these
upper class niche market in India the company had failed to be among the top 10 companies in
the pharmaceutical industry and none of its high profile brands were able to crack the top 20
selling brands in the market. Conscious about the weak competitive positioning in booming
Indian market Sanofi Aventis looked at geographical expansion by serving markets other than
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Tier 1 markets and targeting Bottom of the pyramid market constituting of middle and lower tier
customers which formed large portion of the population demanding pharmaceutical products.

Vete the senior director also echoed the sentiment quoting that that,” mass of the Indian
population still resided in rural areas and without targeting them the company could never
establish itself in the pharmaceutical industry of India as a major player”. But venturing into the
rural market was difficult and far more complex than the traditional urban tier 1 market because
of the higher margin offered by the competitors and the irregularity and inefficiency of the
retailers and distributors.

Thus, it was the necessity for Sanofi Aventis to develop an innovative business model that was
conducive to the rural market so that they can capitalize on the value provided by the market.
The model developed by the business had to address following key issues:

 Cost disadvantage.
 Growing Competition.
 Access difficulties.
 Challenge of Developing a unique value proposition.

The conceptualization of the innovative Prayas Business model was based upon the research
conducted by the company on the doctors and chemist of the rural area. The research showed
that unlike physicians in the urban region those of the rural areas lacked cutting edge knowledge
and tools to treat the existing and new disease identified in the market. There was thus a major
knowledge gap between physician in the urban and rural region. However, despite this gap the
power the physicians in rural area had over their patient was godlike as they use to accept the
doctor’s diagnosis and prescription without question.

Thus Sanofi Aventis discovered a business model that would enable the company to start a social
initiative of educating the rural level doctors while developing an avenue for boosting sales of
their products. As the company believe that if the doctors were provided training that would
enhance their skills and knowledge coupled with lucrative margin they would prescribe the
medicine of the company thus boosting the sales of the company.

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The initiative named Prayas by the company was designed as an initiative to make health care
assessable to the BOP population by bridging the diagnosis treatment gap through a knowledge
centric platform founded with the intention of providing medical education to the rural doctors
and quality yet affordable medicine to the patient.

Under this initiative the company will first gather doctors specializing in different therapy areas
who are known as Key opinion leaders. These KOL will train expert doctors from tier 1 and
make them mentors. These mentors are then tasked to teach the rural doctors known as mentees
who will receive certificate of participation recognized by American college of Physicians.

The reason Sanofi Aventis used an innovative approach such as Prayas to foray into the rural
market of India was because it used the localization of strategy to fit the approach with the
market (Goerzen, Asmussen and Nielsen,2013). It realized that its brands were premium and
relatively unknown to the rural patients, further, the company also faced distribution problem
and given the geographical size of India it was difficult to access the customers effectively.

Hence, the company identified that rural doctors were considered gods by the patient and their
word of mouth was respected thus cashing on the credibility of the doctors by building bond with
them through the initiative the company wanted to market their products in the rural India. Word
of mouth marketing coupled with localization strategy Sanofi Aventis wanted to build credibility
and awareness of their brand that would help them establish themselves in the untapped yet log
ignored growing populated rural market.

3. Should Sanofi-Aventis re-evaluate its product mix for rural markets? For the next
few years, should the company remain focused on the acute care segment in low-tier
markets, consolidate its position and gain a firm footing in that segment, or should it
expand its product portfolio by adding chronic care drugs for balanced growth?

Initially Sanofi Aventis entered the rural market with acute care products but with the rise of the
chronic care drugs in the rural market along with the intensive competition in the rural market
with the prospect of established new entrant in the market the company has been forced to
analyze the prospect of Chronic care drugs in the rural market and if it would deliver balanced
growth. Thus to evaluate this prospect SWOT analysis of Chronic care drugs in rural region of
India is Conducted.
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 SWOT Analysis.

 Strength.
 Sanofi Aventis is top 4 major player in Chronic care drug category.
 The company generated a turnover of 200 million dollars which showed the viability of
the Prayas initiative model in rural region.
 Strong network of doctors and chemist in rural region.
 Relies on Third party manufacturers for cost efficiencies.
 Has sub channels of cluster stockists which is tasked to supply products to retailers in
BOP market and these sub channels are not under the supervision of distributors
association.
 Weakness.
 The 100% growth rate of the business is not sustainable and the initiative has been failing
to bring about prescription.
 The company had to compete with other business units within Sanofi Aventis for capital
to fund its initiative and expansion.
 Apart from the sub channel the distribution from regular channel resulted into irregular
supply to the retailers, thus causing scarcity of products.
 Opportunities.
 Chronic care is one of the fastest growing therapeutic segment in India as anti-diabetic
category increased by 29% and nervous system disorder drugs increased by 22% in 2010.
 The population above age 60 who are in need of the chronic care drugs are on the rise as
199 million people are expected to be of the age by 2028.
 Rapid economic growth, changing life style and superior diagnosis has made chronic care
a prominent segment in even rural India.
 Rise in income level of BOP market customers.
 Threats.
 Companies such as Lupin, Elder Pharmaceuticals, Ajanta Pharma, Himalaya Drug
Company and Piramal Healthcare are aggressively pursuing rural market.

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  Switzerland-based Novartis has entered the low tier market with Arogya Parivar Initiative
mimicking the tactics of Sanofi Aventis.
 Novo-Nordisk and Eli Lilly has entered the rural market with well-established chronic
care product.
 The competition is poaching the KOL and mentors of Sanofi Aventis.
 Competitor such as Novo-Nordisk has been entering the rural market with specialization
in their core products such as diabetics.

Thus by analyzing the SWOT for Sanofi Aventis based on its prospect for Chronic Care
drugs in Rural BOP market we have identified that the company already has an expertise in
manufacturing the chronic care drugs further with the adoption of third party manufacturing
the company can realize cost benefit by outsourcing production duty to experienced company
and realize economies scale that would enable them to sell once perceived as an expensive
product in Chronic care drugs at affordable amount.

The company also has a good distribution network with its cluster stocklist and also has a
dedicated doctor who are certified through the training program of the company that can put
in positive word of mouth for the company. Thus strength wise the company can utilize its
experience and network of doctors to introduce chronic care products and establish itself as a
prominent player in the rural market.

The company however could be withheld by its certain short comings such as the struggle for
company to gather capital for further expansion into the rural market along with the regular
channels that are under the purview of distributors association failing to regularly supply
products to rural areas could cause hindrance into introducing a new product in the market.
Further, the company doubtful in its ability to sustain its growth rate of 100% in rural area
further signifies the inability to innovate once entering the market.

The company is also threatened by the competitors who are as reputed as Sanofi Aventis and
are imitating the Prayas model of the company to establish their supremacy in the rural
market. These competitors apart from being expert in chronic care, unlike Sanofi are only
prioritizing on chronic care which are its core business offering and not tweaking its product

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 offering to provide the products of acute care. Thus targeted competition is a major threat for
the company in BOP market.

Despite the hurdles and threat there is opportunity for Sanofi Aventis if it decides to venture
into BOP rural market with Chronic care product and that is the prospect of capturing the
segment within the rural market that is rapidly growing and with increase in income and
awareness is demanding for Chronic care products. Thus for a company looking to expand it
is important to cater to the rising chronic care segment.

In case of Sanofi Aventis, it is identified that the company is not able to achieve desired
growth by simply catering to the Acute care segment but the company has already made
investment to establish its presence in the rural market of India so in order to recover that
investment it is mandatory for the company to adjust its product mix and provide the chronic
care product that is ever increasing in demand.

Moreover, the company already has an expertise in chronic care products and it would be
waste to let the competitors who are using flanking technique to address the chronic care
demand in rural region take the first mover advantage and establish itself as a prominent
brand in the rural BOP market in India. (Ries and Trout, 1986)

Ultimately, one reality of strategic management is in a highly competitive environment to

stay relevant a company must follow its competitor. In the pharmaceutical industry of rural
India failure to stay in the pace with the market and the competitor can result in permanent
set back from the industry to the point of no return thus to consolidate its position and earn
sufficient return from Prayas initiative to balance the earning of the company it would be
wise for Sanofi Aventis to introduce Chronic care product in it product mix while stably
increasing the scope of its Acute product.

In the name of expansion, it would be unwise for the company to completely discard the
Acute Sector as Sanofi Aventis is struggling to find a firm position for these products in the
rural market so while consolidating its current position a simultaneous yet phase out method
of introducing Chronic Care product would position the company to yield dual return rather
than being confined to return from one particular product. The challenge for the company
would be to introduce a new product while stabilizing the existing one.
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The company can thus use Product development strategy of introducing a new product i.e.
Chronic product in the existing market i.e. the Rural BOP market to expand its product mix for
rural market and achieve integrated growth. (MacCormack, Crandall, Henderson and Toft,
2012).

References:

Goerzen, A., Asmussen, C. G., & Nielsen, B. B. (2013). Global cities and multinational
enterprise location strategy. Journal of international business studies, 44(5), 427-450.

Kim, W. C., & Mauborgne, R. (2005). Value innovation: a leap into the blue ocean. Journal of
business strategy.

MacCormack, A., Crandall, W., Henderson, P., & Toft, P. (2012). Do you need a new product-
development strategy?. Research-Technology Management, 55(1), 34-43.

Ries, A., & Trout, J. (1986). Marketing warfare. Journal of Consumer Marketing.

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