Dr Reddy's - Rural Marketing (i)

8/7/2019 Dr Reddy's - Rural Marketing (i)

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Savya Sachi

Senior Director

Dr Reddys Laboratories Limited

Rural Demand and Distribution

Need for Different Approach


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The census definition1) A habitation where population is less than 5,000;

2) Less than 75 per cent of male working population engaged in nonagriculturalpursuits; and3) Density of population less than 400 per sq. km. (1,000 per sq. mile).

The financial worlds definition

Tier 1 cities: Super metrosTier 2 cities: Other 1 million + Towns with population of 1,00,000 and somekey cities with population above 5 lakhsTier 3 cities: Class I towns (mostly state capitals with population above 1lakh)Rest as far as they are concerned is rural

Rural is what is NOT URBAN

Definitional conflicts

Defining Rural


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Census 2001 Population : 100 Crore

Urban : 17.1%

Extra-Urban : 9.6%

Rural : 73.3%

Rural India


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Understanding

Rural


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Attitudinal predispositions

The urban uninitiated tend to view rural with blinkers

Dominantly agrarian

Low literacy and exposure

High poverty

Low levels of infrastructure

Low demand for goods and services and low investment potential

Rural India


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Studies have time and again proved this to be a myth

Most people seem to be missing the woods for the trees

The rural transformation is real and so is its marketpotential

Reality Check


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The rather large pot of gold

Aggregate annual household savings in rural India is around USD45 billion

Incomes in rural India have increased by 16% during 2004 and 2007

While urban incomes are growing at 3.2 per cent per annum, ruralincomes are rising by 4.5 per cent a year

1995 2005 increase in spent disposable income from 2.8% to 6.2%

27 million house hold will move into middle income from lower income

Middle income group wil swell up to 59 Million house holds

33% of people receiving remittances in India are farmers

Reality Check


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The rather large pot of gold

Reality Check

Some of the estimates for rural India provided by recent studies by

NCAER and IIMS:The demand for life insurance in rural India is growing strongly and in2007, a further 12 million rural Indian workers were expecting to buy lifeInsurance

The rural market will account for 53 million buys of consumer durablesin the next one year

Almost 41% of the households that plan to buy a computer or a laptopare from rural areas, which convert to more than 1.1 million in numbers


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Reality Check

Rural India isnt a single homogenous block; it is heterogeneous

Rural India is not only about agriculture there are all kind ofoccupations.

Rural Indian are not unexposed to the developments around them,

Rural Indians have small and compact familiesAs per NCAER the average rural family has 5.08 persons;the average urban family, 4.81 persons.

Rural India has an average per capita income that is half that orurban India.21.7% of the rural population is below the poverty line,for urban populations, the incidence of poverty is 20.8%, not much lower.

Rural India harbors as many rich households as urban India.


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The dormant market?

Rural India is a major part of Indias domestic consumption story not just because it

has 70% of Indias population, but because it already has 56% of Indias income, 64%of expenditure and 33% Indias savings.

The rural share of popular consumer goods and durables ranges from 30% to 60%and sales to rural India are steadily growing.

Between 2005 and 2008, according to data from the Indian Revenue Service, colour

television sets penetration increased by 7% and packaged biscuits by 10%.

Aggressive categories such as shampoo even increased penetration by 37%.

Reality Check


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Emergent Rural India


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Emergent RuralIndia


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Emergent RuralIndia


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Emergent RuralIndia


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Rural India : A different terrain


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Demographic Challenges

Population : 750 Mn consumers

Villages : 6,38,365

Area : 3.2 Mn SqKm

23% of the total number of villages inndia have population less than 200.

21% have population between 200 and 500.

State No of towns - No of class No of class III No of Class IV No of class V No of class VI No of villages No of villages


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State No. of towns -Class I [>1lac]

No of classII towns-

[50k-1lac]

No. of class IIItowns -

[20k-50k]

No of Class IVTowns

[20k-10K ]

No. of class Vtowns

(5000 9999ersons

No. of class VItowns

(4999 -1000 ersons

No. of villages(500 - 999persons)

No. of villagesless than 500

persons

Andhra Pradesh 61 29 132 498 1,788 13,390 4,467 6,470

We st Bengal 58 19 127 354 1,527 15,311 8,933 11,830

Gujarat 44 37 192 153 807 9,769 4,262 3,075

Karnataka 33 11 153 131 703 10,402 7,367 8,878

Uttar Pradesh 30 14 97 296 2,266 43,791 25,614 25,975

Madhya Pradesh 24 27 155 19 362 13,985 16,277 21,474

Maharastra 20 6 20 262 1,018 17,432 12,074 10,309

Tamil Nadu 19 15 157 168 1,254 9,354 2,801 1,823

Haryana 19 1 24 97 504 4,106 1,205 852

Rajasthan 16 12 46 100 661 13,437 11,058 14,497

Kerala 16 16 92 1,072 207 79 0 6

Punjab 13 9 101 26 273 5,392 3,378 3,209

Orissa 12 4 25 5 180 9,218 11,428 26,698

Assam 10 5 51 19 185 7,934 6,233 10,753

Bihar 10 8 17 630 2,313 18,692 8,499 8,898

Delhi 10 10 39 24 26 89 9 10

Jharkhand 8 13 51 28 174 5,815 7,442 15,895

Chhattisgarh 8 8 55 6 80 5,449 6,465 7,744

Uttaranchal 5 4 28 13 69 1,102 1,890 12,687

Jammu & Kashmir 4 9 128 10 135 2,432 1,664 2,176

Pondicherry 3 21 2 20 63 7 0

Manipur 2 8 6 28 359 326 1,480

Himachal Pradesh 1 1 1 8 834 2094 14,558

Meghalaya 1 6 4 245 690 4,843

Goa 0 4 12 3 23 173 56 92

Tripura 28 106 558 99 67


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Non Demographic Challenges

Literacy RateTraditional outlook and limited exposure to print mediaResistance to changeBuying decision is low and delayed.

Agriculture dependence

Monsoon dependenceVariable buying - difficult to predict demand.


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Infrastructural Challenges

Roads In India*over 3.314 million km (second largest in world)47.5% of the total consists of paved roadsStill 40 percent of villages in India lack access to all-weather roads andremain isolated during the monsoon season

122,000 km of roads have been completed under PMGSY and work is inprogress in projects covering another 1,00,000 km

Limited company controlled distribution depth

Limited warehousing facilities

Limited transportation options

Lack of other infrastructure


21/50Indian Market Research Bureau

Rural Distribution Challenges

Large number of products and SKU - high inventory and investmentcost

Unorganized retailing and distribution

Credit sales and bad debts.

Poor supply chain network- Travel to feeder town / mandis to collectproducts additional cost of traveling.

Buying from whole sellers on Cash and Carry

Large number of small markets

Dispersed population and trade

Poor connectivity

Inadequate banking/ credit facilities

Poor product display and visibility

Poor communication of offers and schemes


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Market penetration challanges

Most market size data on rural India takes the aggregate households orhousehold spend for a predetermined geographical boundary

District boundary is the most used defining characteristic, though someof the more research savvy look at market sizes down to the block level,and almost no one looks at up-to-date village level data for their salesand market planning

Unlike in urban markets where demand is highly concentrated, ruralmarkets tend to be spread out .This dramatically increases the sales

efforts and costs

Consequently, though many rural markets look good on paper, in realitythey are quite costly to service


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Look-alikes- Spell-alikes & Duplicates

Prices range from MRP to 60 % of MRP

Margins range from 60 % to 500 %

Awareness Programs

Legal action

New Package Development

Other Challenges - Fake and Look-alikes


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Fakes: Some Examples


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Understanding the Rural Consumer

The rural consumer is very conscious about getting value for money.

He understands symbols and colors better

He doesn't like to pay extra for frills he cannot use.

He wants value to be added to him and not taken away from him.

Loss of man days are very critical Quick remedies work!


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Rural Healthcare and Pharmaceutical Industry


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Markets by Geographic Tiers by 2015 Absolute Demand Growth Contribution to total Growth

Metros: more than 1 million population, Class I towns: 0.1-1 mn, Class II-IV: 5k- 0.1 mn, Rural: less than 5k

Source: McKinsey India Pharmaceutical demand model

Indian Pharma market


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Disease Pattern In India Has Undergone A Shift :

Increasingly Stressful Lifestyles Leading ToSignificant Increase In The Incidence Of Chronic

DiseaseSpending On Healthcare Will Continue To Be Robust

Rise Of Indian Consumer Markets, Spending OnHealthcare, Will Witness The Highest Growth RateAmong All Spending Categories Over The Next 2Decades And To Grow By 14% Of AverageHousehold Income By 2015 From 7% In 2005

140 Million Indians Will Move Above The Poverty LineIn The Next Decade

Increasing Affordability, Shifting Disease Patterns& Modest Healthcare Reforms.India


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6 InfluencingTrends. India Doubling Of Disposable Incomes & The Number Of Middle-

Class Households

Expansion Of Medical Infrastructure

Greater Penetration Of Health Insurance

Rising Prevalence Of Chronic Diseases

Adoption Of Product Patents And

Aggressive Market Penetration Driven By RelativelySmaller Co.s

20 Billion $ By 2015


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Expansion of Medical Infrastructure Greater penetration of Health Insurance Rising prevalence of Chronic Diseases Adoption Of Product Patents

Aggressive market penetration driven by relatively smaller Co.s Per Capita disposable incomes of Middle class will double by 2015 No. of Hospital beds & Physician to be doubled by 2015 Health Insurance to be doubled by 2015 to cover 220 Million Indians Drug regulatory environment in India- In Transition.. A healthy sign Enabling research infrastructure with 450 institutes/colleges and

departments imparting pharmacy education- with more that 25,000Pharmacy graduates pass out every year from these institutes Rising confidence of the Global Pharma Co.s in the Indian Market Strategic partnerships on the Rise

Indian Pharma To Move In Top 10Pharma Markets In The World.


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Anti-Infective segment-Cephalosporin's, Penicillin's &Quinolones to constitute 39% of the total market

Anti-Peptic Ulcerants to be the fastest growing therapeutic

segments under alimentary & metabolism therapeuticcategories to constitute 11% of the total market

Total acute therapy to constitute 78% of the totalrevenues

Oral anti-diabetics and Cardiac to be the 3rd largesttherapeutic categories

Total Chronic therapy to constitute 22% of the totalrevenues

Anti-Invectives & Gastro-Intestinal DrugsWill Comprise Half Of The Market..


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Expansion of healthcare facilities in Rural & far flung areas hasenhanced accessibility

Increased Govt. spending on roads, telecommunication & healthinfrastructure has facilitated the foray of Pharma Co.s into relativelydistant pockets of the Indian Market

With sales revenue of US$1.4 billion the Indian Pharma market ofRural areas witnessed a growth of 39% this year as compared tothe overall domestic market in 2010 has outstripped the growthacross most of the therapeutic categories in both value and volumeterms

There has been accelerated investment from the private sector in

Healthcare facilities across Tier-II & III cities in the country Life style diseases are on the rise in Rural areas Rural market, Tier II,III and IV market to contribute half of the

Pharmaceutical growth by 2015 Sales force coverage & deployment are on the rise in these

markets to capture the market potential

Tier-2 Markets ( Rural ) will Account ForHalf Of The Growth Potential..


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Industry focus continues to be on Driver 4 and 5


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Penetration in Rural India!


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Rural Markets and Tier 2 Markets . 2015

Shift focus from market share capture to market creation

Adopt new and differentiated business models

Strengthen sales and marketing capabilities towards creating

newer markets and adopting different business strategies


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Who are the customers ?

Doctors

Chemists

Para Medics

Patients

Professional Associations

Trade Bodies and Channels

Panchayat


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Reach vacuum !

More than 7 lakh doctors registered with MCIBetween 1986 2002 , 2.6 lakh doctors have been added inMCI listThis excludes the BAMS / BHMS doctors practicing allopathy

Pharmaceutical Industry covers 1.25 to 1.35 lakh doctors

CHEMISTS

5 Lacs Retail chemists50 thousand Whole sellers

Only 2% organized retail

Presence of Medical Infrastructure in Rural


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ImportantStates

Allopathic

Hospital

Allopathic

Dispensary

Health

Centers

Primary

HealthCentre

Primary

Health SubCentre

T.B.

Clinics

Nursing

Homes

Medical

Practioners(MBBS andNon MBBS

UP 2242 2726 1469 1796 3335 51 360 33541

Maharastra 1273 3774 558 1712 5439 1566 693 23681

Kerela 1024 939 401 874 1253 26 719 5097

Bihar 943 1808 472 1200 3363 52 192 16395

Tamilnadu 444 482 317 1617 5022 65 189 10606

Jharkhand 433 479 238 467 1444 21 25 1430

MP 412 722 356 1180 6179 30 52 15502

Gujrat 411 788 325 1047 6239 267 268 14582

AP 393 515 527 1725 9757 39 788 15857

Karanataka 230 1757 313 1621 6742 77 349 10457West Bengal 171 5608 593 1127 5043 89 220 25096

Chattisgarh 148 365 99 503 2105 18 10 5541

Punjab 136 2459 526 785 1191 69 188 7234

Rajasthan 46 791 1224 1522 6336 41 122 8580

Harayana 14 98 194 402 2256 21 115 4924

All INDIA 8320 23311 7612 17578 65704 2432 4290 205320Census 2001

Presence of Medical Infrastructure in Rural


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HT2005 7.2 Cr

HT PREVALANCE

PATIENTS ON ANTIHYPERTENSIVES

1.5 Cr

+ Government Supply

GAP

CVD prevalence from the Report of the National Commission of Macroeconomics and Health, 2005

Treatment estimates from IMS 2007

Tier Two markets contribute to around 7 Cr of Hypertensive population out of which 55lac patients are treated currently

Huge patients Capital


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Awareness

Accessibility Acceptability

Affordability

Four As for rural

penetration


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Product Promotion - Pharma

Push strategy sales force and trade promotion

Pull strategy

Disease awareness and diagnosis

Advertising and Multi Media

Four As for rural

penetration


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Promotion- Adaptations for Rural

Markets

Conventional Non- Conventional

Personal communication Haat , Mela and Mandi

Direct Mailer Multmedia, Electronic

Media

Medical Camps Video Van and tele

medicine

Awareness Programs

Doctors, Trade and

Patients

Word of mouth

Advertising Health Worker

Four As for rural

penetration


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Levels of Distribution - Pharma

Level Partner Location

1Company Depot/ C & FA National/ State level

2 Distributor/ Van Operator/Super Stockist

District level

3Sub Distributor/ retail

Stockist/ sub stockist/star

seller

Tehsil HQ and towns

4 Retailer/ Resellers Feeder towns, large villages,haats

Four As for rural

penetration


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Distribution Adaption

Hub and Spoke Model, Example: Coca Cola

Use of Affinity groups, Example: Project Shakti

Haat Activation, Example: Colgate Syndicated distribution, Example: Cavin Care &

Amrutanjan

Use of marketing co-operatives, Example:Warna Bazaar in Rural Areas

Mobile traders, Example: FMCG companies

Four As for rural

penetration


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Packaging

Affordability - Unit Price

Size & convenience

Consumer recognition

Product protection

Packaging material

Aesthetics

Four As for rural

penetration


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Pricing

Internal & external factors

Selecting pricing methods

Pricing adaptations Technology & Innovation

Low price points Simple packaging

Four As for rural

penetration


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Price Adaptations

Product sharing services, Example: Tractors

Product Bundle pricing, Example: HUL Operation

Bharat

Free gifts may sometimes not work in rural

areas

Special event pricing- Hero Honda Rs. 500

campaign

Four As for rural

penetration


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Conclusions !

Rural Strategies cannot be a replica ofurban modelsRural in each state is different !

Rural consumer needs better technology toget better value for money

We need to add Fortune to the bottom of

Pyramid before we look at Fortune at the bottomof Pyramid


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Thanks


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GRIPel

[email protected]

Dr Reddy's - Rural Marketing (i)

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