Monday, December 12, 2005

Same start different endings - Useful Frameworks

This Sunday we had a marathon case prep session with Rohit conducting four consecutive interviews. The interesting part about this session was that each of the interviews started with the same problem statement but ended up with four completely distinct solutions.

Problem Statement: Market Share Problem

Our client is a world leading Pharma company. They have launched their blockbuster product - Human Insulin - in India. Although the product is extremely successful all over the world, it doesnt seem to be picking up steam in India. What can you do to help?

Analysis 1

1. Doctors who were approached were very satisfied with the product and also recommended it willingly.
2. The stock was available at the drug store
3. C&F agents were satisfied
4. No incentive problem
5. Best medical reps were employed
6. Patients were happy with the product
7. Competitors were not posing a problem
8. Price was not an issue...

So.... what the hell was the problem? It turns out the problem was that this company had not employed sufficient number of sales reps and the distribution coverage was not sufficient.

Recommended Framework:
You could start off with a very broad framework - Internal vs. External forces. All outcomes are because of either some action taken by the company (internal forces) or because of some actions taken by the external entities (forces). Once you have isolated that there is nothing wrong with the external forces you should try enforcing a more specific framework. MarkStrat framework for market share is apt for this case. Market Share = Distribution Coverage x Purchase Intent x Awareness

You can quickly rule out Purchase Intent and Awareness by asking relevant questions. That leaves you with Distribution Coverage which is the right issue. It seems the company did not employ sufficient number of sales reps. So although those who were employed did a great job, not all doctors could be reached.

You must ask questions regarding the value chain in this case. It turns out that in the Pharma sector the doctor is the key stakeholder in making or breaking a product. So unless a company has that front covered, it is in deep trouble.

Analysis 2

1. Everything else is fine
2. Prices are high and hence customers are not buying sufficient quantities.
3. Client knows this but isnt doing anything about it. WHY?????
4. The costs are low enough to permit a price cut.
5. No issue of global leadership not being sensitive to local needs.
So, whats the problem here?

Hint: Think about how a customer purchases a medicine. Think about India and also US, which is a major market for our client. How is the purchase paid for?

If you are thinking Insurance in the US context, you are bang on target! Okaie... Insurance so what? Think! Think!.....

You see, the company simply converts $ into INR and sells the product in India. So if it charges $1 in US then it charges INR 45 in India, although it could charge INR 20. The reason behind the company doing this is that, if it were to reduce the price of its product in India then the US Insurance companies would feel that they are being ripped-off by this company in the US and hence would sue it. So the company cant reduce the price of its product in India.

First Principles - Some useful questions to ask:
Once you know that the company is aware of the problem but isnt taking any corrective action, you should think about why is Indian market not that significant for the company? So asking some information about the contribution of Indian market to the over all sale might be a good question. Secondly, once you have been told about the insurance funda, its good to ask the implications of pricing it lower in the US as well.
Notice that this case cannot be cracked by using a framework. You need to think logically and start from first principles.

Analysis 3

1. Same as analysis 1, except that prices were high compared to competitors.
2. The company knows this but still wants to increase the market share without reducing price. How can it do so? Scratch... Scratch... Scratch...

Recommended Framework:
To cut a long story short, you can once again use the internal vs. external forces analysis to determine that there are two issues here - supply side and demand side. First of all, will the customers buy such a costly product? It turns out they would because our product is of an extremely high quality and is a life saving drug. So to convince the customer you should do an EVC and then sell on some softer issues such as importance of the customer's life to his/her family and long term benefit etc. For the supply side issue, you got to go through the entire value chain to determine where exactly the bottle neck is. It turns out that the drug store owners are not ready to stock the product because it means high working capital investment. So only way to resolve this is to offer higher credit. You can afford to do this because you are earning very high margins.
Once you have covered these two bases, you are thru!

Analysis 4

1. All facts same as analysis 1
2. We have sufficient distribution coverage as well...
Now what?!

Recommended Framework:
Identify that the volumes sold depends on price, distribution coverage, segment size, purchase intent, awareness etc and rule them out quickly as likely suspects. Then you start looking for a bottleneck in the value chain. Turns out there is none!
So think think think....Then go to first principles and ask yourself where does all this demand come from? - you know its the doctors. If the doctors are responding favorably then the only issue could be that we are not targeting the right segment of doctors. It turns out that a huge proportion of Insulin sales arise out of family doctors/general practitioners. But intead of targeting these, our client is busy targeting the specialists, high profile doctors sitting in posh hospitals. Once you have got this... you are through :)

Long post, but it shows that there can be multiple endings to the same case. So stay alert!

-- Yash

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