How to Succeed in Indian Rural Pharma Market ?

Updated version 2.0

Rajesh Kumar malepatirk@yahoo.com

Market Potential of Rural India

1% increase in rural income

Buying Power ofRs.10,000 Crore

~ Two-third of Middle-income

households

Live in ruralIndia

~ 50% India’sBuying Potential

Lies in Villages

ZENITH International Journal of Multidisciplinary Research Vol.1 Issue 6, October 2011, ISSN 2231 5780

Growing rural market presents a good growth lever for players

• 73% of population lives in rural India ~ 720 million customers

• Rural population accounts for 12% of the world's population – as large as the market of USA or Russia

• 25% of all villages account for 65% of the total rural population

• 60% of India's US$15 billion annual consumption of gold and gold jewelry is from rural and semi-urban areas

• India rural market is growing at a rate than largest emerging markets: rural spend increased to $ 69 billion from 2009 to 2012

• $12 billion consumer goods market (2014) is expected to hit $100 billion by 2025

Reference: Unlocking the Wealth in Rural Markets, HBR , June 2014

Economic indicators suggests sustainability of higher growth rate of rural market

• Rural Consumption is growing at 1.5 times the rate in urban areas

• Branded & Expensive products are replacing entry- level version in “Consideration Set”

• Per Capita GDP Growth of rural market is higher than urban market

•Government initiatives and schemes•Infrastructure development•Industry projects in rural India•Emphasis on local-employability

Growth Propellers

Reference: Unlocking the Wealth in Rural Markets, HBR , June 2014

Disposable household income levels set to rise significantly in rural markets

Source: Mckinsey Global Institute- The Bird of Gold: The Rise of India’s Consumer Market

Disposable Income = The amount of money that

households have available for spending and saving after

income taxes have been accounted for.

Rural markets contribute to one fourth of pharmaceutical market

Improving Socio-economic profile provides further impetus for the growing market

2

3 3.4 3.94.4

5.4

2.3

2.72.8

3.2

MAT 04/2006 MAT 04/2007 MAT 04/2008 MAT 04/2009 MAT 04/2010

Metro + Class I ($ bn) Class II to VI and Rural ($ bn)

(16%)

(4%)

(15%)

*Source : ORG ims SSA Audit MAT April 2010

(17%)

( ) value growth for Class II to

VI and Rural

1 USD : 49.5 INR

Market with a size of > $ 3 BillionExtra urban = Tier 2 + Rural Rural Market

Apr MAT 2011:

18.8%

Accessibility: A growth driver growth for extra-urban market

Source: McKinsey Global Institute-The Bird of Gold: The Rise of India’s Consumer Market

Extra urban = Tier 2 + Rural

* Based on share of wallet spend on healthcare in each income class and average

spend of 16% on Pharma within healthcare across classes

+ The empanelled list includes Private hospitals

Company % Contribution in Sales

Asian Paints 60%Dabur 40%Videocon 40%Colgate 50%HLL > 50%

FMCGs have successfully captured the rural market potential

What differentiates Rural market from Urban market?

1.Reach2.Living Standards 3.Economic gap 4.Product awareness5.Education6.Channel of Communication7.Channel of distribution8.High importance to “Value for money” than Brand9.Heterogenic market nature

Players have adopted varied strategies to leverage the rural opportunity

Products, Pricing and Packaging

Re-Engineering

1. Godrej has introduced Chotukool refrigerator

2. Vortex has launched low cost ATMs

3. Nokia has developed Life tools - a mobile application that provides access to agricultural, educational and entertainment

content.

SBI deployed 545 ATMs across semi-urban and rural India

Sold by Village girls For Rs.150/- margin

Reported user base1.5 million

Players have adopted varied strategies to leverage the rural opportunity

Communication and distribution channels

1. Tata Tea's 'Gaon Chalo'

2. HUL's Project Shakti

3. ITC e-choupal

In One year added 20,000 retailers, 500 new rural distributors in 10,000 villages in UP

Rural Women became direct-to-consumer sales distributors for Hindustan Lever’s soaps and shampoos. More than 45 000 Shakti entrepreneurs covering 3 million homes in 100 000 villages in 15 states .

Re-Engineering

Strategy must address the differences between urban and rural market to succeed

Aspect Urban Rural

1 PhilosophyMarketing & Social

Concept

Development &

Relationship marketing

2 Competition Organized Sector Unorganized Sector

3 Literacy High Low

4 Income High Low

5 Adoption Faster Slow

6 Quality Good Moderate

7 Transportation Good Average

8 AdvertisingPrint, audio visual,

outdoors.

TV, Radio, print media in

many languages

P+A : Formula for Success in Rural market

4 AAWARENESSACCEPTABILITYAVAILABILITY AFFORDABILITY

4 PPRODUCTPACKINGPLACEPRICE

Rural

Markets

Players must address “rural market Challenges” to gain from growing market

Reference: Unlocking the Wealth in Rural Markets, HBR , June 2014

Dispersed Customers

Undeveloped transportation infrastructure

Unreliable Telecommunications

and electricity services

Inadequate distribution networks

Lack of reliable partners for sales & service networks

Scale & Profitability of rural operations are inversely proportional to Length of ‘Convergence Curve’

16

Pla

yer Rural

PhysicianSales

Representative

diagnostic services

Patient

Wholesaler

Semi-Wholesaler

RuralWholesaler

RuralPharmacy

Rx

Length of Convergence

17

Thank you

DISCLAIMER:The author is currently working for a leading global pharmaceutical player. This presentation is developed as a guidance to executives/ students to understand the basics of rural market dynamics . The views expressed in this presentation does not necessarily reflect the opinion of the employer.