PBM Apollo
3
Case Analysis: Apollo Health and Lifestyle Limited: Retail Franchising in the Healthcare Industry Case Analysis 1: Dr. Piyush Sinha This case deals with the concepts and issues that the franchisees are facing. The main difference between the franchisee and dealership lies in focus of process against product. The first issue of decision of entry in a franchisee is characterized by the thumb rule of 2 + 3. In the beginning, the company must run 2 of the outlets on its own before franchising 3 of its new outlets to demonstrate a good quality service delivery. Another issue comes when we determine the market potential and size. However, there are so many potholes when it comes to estimate potential using classical methods. The unprecedented growth rate of Indian market as well as level of detailed information available for trading areas is always miscalculated. Several attitudinal, both affective and cognitive, factors create a gap between intention and actual purchase. It is commonly perceived that in highly potent markets, companies tend to take a leap based on only demographic information and ignore the lifestyle and attitudinal factors. Issue that the company will sustain or not in the long run can be sorted out with timely and consistent deliveries of the promises made in the clinics. After market estimation, it needs to have the proper resources, processes and systems for harnessing the potential. In the case study, Apollo doesn’t have finance related issues, but the knowledge of running a hospital maybe tricky in running a clinic as the target customer base is entirely different. In such a case, Apollo should understand that franchising is a bottom up business and macro strategy may not work here. They should rather focus on clinic per clinic operations and determine customer value-based market segments and then devise delivery mechanism accordingly. Case Analysis 2: R C Natarajan Mr Natarajan analyses the case on the basis of feasibility of Apollo’s foray into the primary and preventive healthcare. As Apollo is a chain of super specialty hospitals, the cost of expansion is quite high. There is a need in the country for more outlets for primary and preventive healthcare, which will enhance the life expectancy as well as lessen the burden off the tertiary healthcare sector. This will also enhance the brand image of Apollo and make it the first choice in the secondary and tertiary sectors. Although there will be a little cannibalization of OPD patients of Apollo hospitals, other players wont match with AHLL due to its economies of scale and economics of scope, in the long run. The growth model is AHLL is through the increased volumes (customers), rather than increased margins and thus it is getting difficult for it to breakeven early. The gestation period of 4 years is huge for a franchisee. It has to assume its initial losses as investment for popularizing AHLL in the local market and keep its focus on long- term returns. Two more aspects affection the franchisee agreement is the initial license fee and the royalty. The license fee of Rs 20 lakh seems to be on a much higher side while the royalty of 55 irrespective of the profitability of the firm seems to spoil the relationship. The technical support by visits of doctors from Apollo Hospitals seems more of a monitoring work rather than a support in functioning. On a similar note, the marketing communication front is equally non-effective so far. AHLL strives to position itself as a one stop value-for-money
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Apollo Hospitals
Transcript of PBM Apollo
CaseAnalysis:ApolloHealthandLifestyleLimited:RetailFranchisingintheHealthcareIndustry
CaseAnalysis1:Dr.PiyushSinhaThiscasedealswiththeconceptsandissuesthatthefranchiseesarefacing.Themaindifferencebetweenthefranchiseeanddealershipliesinfocusofprocessagainstproduct.Thefirstissueofdecisionofentryinafranchiseeischaracterizedbythethumbruleof2+3.Inthebeginning,thecompanymustrun2oftheoutletsonitsownbeforefranchising3ofitsnewoutletstodemonstrateagoodqualityservicedelivery.Anotherissuecomeswhenwedeterminethemarketpotentialandsize.However,therearesomanypotholeswhenitcomestoestimatepotentialusingclassicalmethods.TheunprecedentedgrowthrateofIndianmarketaswellaslevelofdetailedinformationavailablefortradingareasisalwaysmiscalculated.Severalattitudinal,bothaffectiveandcognitive,factorscreateagapbetweenintentionandactualpurchase.Itiscommonlyperceivedthatinhighlypotentmarkets,companiestendtotakealeapbasedononlydemographicinformationandignorethelifestyleandattitudinalfactors.Issuethatthecompanywillsustainornotinthelongruncanbesortedoutwithtimelyandconsistentdeliveriesofthepromisesmadeintheclinics.Aftermarketestimation,itneedstohavetheproperresources,processesandsystemsforharnessingthepotential.Inthecasestudy,Apollodoesn’thavefinancerelatedissues,buttheknowledgeofrunningahospitalmaybetrickyinrunningaclinicasthetargetcustomerbaseisentirelydifferent.Insuchacase,Apolloshouldunderstandthatfranchisingisabottomupbusinessandmacrostrategymaynotworkhere.Theyshouldratherfocusonclinicperclinicoperationsanddeterminecustomervalue-basedmarketsegmentsandthendevisedeliverymechanismaccordingly.
CaseAnalysis2:RCNatarajanMrNatarajananalysesthecaseonthebasisoffeasibilityofApollo’sforayintotheprimaryandpreventivehealthcare.AsApolloisachainofsuperspecialtyhospitals,thecostofexpansionisquitehigh.Thereisaneedinthecountryformoreoutletsforprimaryandpreventivehealthcare,whichwillenhancethelifeexpectancyaswellaslessentheburdenoffthetertiaryhealthcaresector.ThiswillalsoenhancethebrandimageofApolloandmakeitthefirstchoiceinthesecondaryandtertiarysectors.AlthoughtherewillbealittlecannibalizationofOPDpatientsofApollohospitals,otherplayerswontmatchwithAHLLduetoitseconomiesofscaleandeconomicsofscope,inthelongrun.ThegrowthmodelisAHLListhroughtheincreasedvolumes(customers),ratherthanincreasedmarginsandthusitisgettingdifficultforittobreakevenearly.Thegestationperiodof4yearsishugeforafranchisee.IthastoassumeitsinitiallossesasinvestmentforpopularizingAHLLinthelocalmarketandkeepitsfocusonlong-termreturns.Twomoreaspectsaffectionthefranchiseeagreementistheinitiallicensefeeandtheroyalty.ThelicensefeeofRs20lakhseemstobeonamuchhighersidewhiletheroyaltyof55irrespectiveoftheprofitabilityofthefirmseemstospoiltherelationship.ThetechnicalsupportbyvisitsofdoctorsfromApolloHospitalsseemsmoreofamonitoringworkratherthanasupportinfunctioning.Onasimilarnote,themarketingcommunicationfrontisequallynon-effectivesofar.AHLLstrivestopositionitselfasaonestopvalue-for-money
primaryhealthcarefacility.But,bothitscoreadcampaigns,“Lifemustbegood”and“Andyouthoughtwe’reexpensive”failtoenhancethecoremessageofthecompanyandseemprettyordinaryamidsttheplethoraofadvertisementsoflifestyleproducts.Rightnow,anumberofthingsneedtobemodified.TheinitiallicensefeeshouldbereducedtoRs10lakhandtheroyaltyshouldbepeggedtoPBTandnottothegrossincome,anditshouldbeintherangeof20-30percent.Itshouldalsodeputetheirdoctorstotheclinicsfortimelycheckup.
CaseAnalysis3:MNTripathyHere,theproblemisofmisinterpretationofthemeaningoftheword“franchisee”,whichledtoaexecutablebusinessideafailingmiserably.ThosedisappointmentofthefranchiseeplanstemsstartingwiththecenterComprehensionfromclaiming‘branding’Also‘brandquality.’SomeplaceAnbefuddleaboutdesiresbetweenAHLLandthefranchiseesoveruponwhatamountofthebrandisworthwillbeirritatingthecost-benefitmathematicalstatementtobothofthem.AHLLclearlysupposesthatthoseApollofacilitymarkmaybeworthRs20lakhSimilarlyasAnone-timeauthorizingexpenseandacknowledgesthe5%chargeaheadincomeLikewiseantwelve-monthfee,payablequarterly,Similarlyasreasonable.ThefranchiseeshopethattheApollobrandnamemightnaturallygetthosepatientsinFurthermoretheymighthavethecapacitywithrunaprofitableoperationgoodfromthebegin.Unfortunately,intheadministrationindustry,agreateramountalongtheselinesinthesocialinsuranceindustry,itmaybenotenoughshouldneedahighestpointclassproduct;itmustachancetobedependablysupportedbyahighestpointpopulationadministration.Amoresensiblepicturecouldbegivenwithsomewhatmorepreservationistevaluationsofrevenueandaprojectionofamisfortunefortheinitialtwoyearsbeforebenefitsaremade.Thiswouldtemperdownthedesiresofthefranchiseeandmaybeadditionallydiminishthequantityofutilizationsforestablishments,withconcomitantsparingoftimeforshort-postingtheimminentcandidates.Therefore,sometransformsrequirewithbeconstructed.Secureanothermarktothose‘ApolloClinic,’disassociatingitselfstartingwiththoseApollolineage,yetmaintainingtheaggregationcharacterfurthermoreitspropositionshouldbeAn‘value’markforyearningwhitecollarclassclients.
CaseAnalysis4:NarsimhanRajkumarMrRajkumarassertsthatservicemanagemententailsthreeintricatelylinkedissues:serviceoperationsmanagement;servicemarketingmanagement,andserviceprovidermanagement.Thecoreofalltheseissuesistheheterogeneitywhichmeansboththeemployeesandthecustomersareinvolvedintheservicequality.Ononehand,variabilityintheservicewillleadtohighcustomersatisfaction,ontheotherhandthiswillbrandthefranchiseeinitsownuniquewaymakingitsomewhatbiggerthanthebranditself.TheproblemApollofacesisingivingadifferentbrandimagetobothApolloHospitalsandAHLL.Anyservicecanbeseenontwoparameters—Divergence(theamountoffreedomallowedtotheserviceprovider)andComplexity(thenumberofpredefinedstepstakentoprovidetheservice).Therefore,onewaytoresolveitscurrentissueswouldbetoreducethenumberoffrontsitisfocusingonlikeconsultancy.One
morewouldbetoinvestheavilyinITinfrastructure,whichwouldhelptheprovidingvaluetopatientsaswellasinprocessstandardarisation.
CaseAnalysis5:SanalKumarVelayudhanTherevenuefromroyaltyforAHLLis48percentoftheprojectedrevenueofRs7.89crore.Asroyaltypaidisafixedpercentageoffranchiseerevenue,therevenueofthefranchiseealsodiminishesandsodotheinterestlevelofexistingfranchiseesandthewillingnesstoinvestbybusinessmen.Thus,educatingcustomersisnecessaryforthesefranchiseestomakemoreprofit.
Communicationshouldrelyonsomewhatpaidadvertisingalso,apartfromthewordofmouthpublicity.Thereachintier2and3citiesandtownsshouldbeincreasedleveragingthefranchiseemodel.Personalsellingeffortisrequiredparticularlyintheinitialstage.AHLLneedstoputresourcesintobrandbuildingforpickingupcon-fidenceofthefranchisees.Thefranchiseeonbuildupingthebusinesshasfaithfulclientsfulfilledbythenatureofadministration.Hemightthenunderstandthatthefranchisorisnotgivingqualitytotheeminencepaidonarepeatringpremise.
