Seeding Rural Markets

While metros and cities account for the majority share of the Indian pharmaceutical market, it is evident that the rural pharma market share is increasing significantly year on year. Sushmi Dey finds out how pharma companies are planning to capture this tempting pie…

Most rural markets, which were unviable even a few years back, have now become a do able and profitable proposition. Even if they have yet to become revenue generators, pharmaceutical companies are thinking beyond larger cities and plugging into rural sectors, purely to ramp up volumes. Although urban markets are still more lucrative and will continue to be the focus for the industry, the untapped potential of Indian rural markets is now seen as the next volume driver.

Indian pharma market is regarded as one of the fastest growing pharma markets in the world. In 2006-07, this market was valued at over $ 7 billion. Interestingly, as per industry estimates, the rural segment is a remarkable share of this market. Metros and cities remain major revenue generators, accounting for approximately 60 percent of the Indian pharma market. However, driven by factors such as rising rural incomes and a strong distribution network, India's rural pharma market is also experiencing strong growth. Estimates say that while small towns contribute 20 percent to the country's pharma market, rural areas account for 21 percent. In 2006-07, the rural Indian pharma market was estimated at around $1.4 billion. According to a Ranbaxy spokesperson, as a percentage to the total market, the rural market in India has evolved from 18 percent in 2005 to 21 percent in 2007.

It is expected that although driven by a huge patient base, increasing incomes, improving healthcare infrastructure and strong penetration of health insurance in the rural areas of India, the pharma market in villages and small towns will double in size in the next five years. McKinsey report published in 2007, Indian Pharma 2015—prescribed growth, states that compared to 2005, by 2015, millions more will suffer from chronic, costly- to- treat diseases such as diabetes, asthma and cancer. This will have a major impact on growth rates of these markets since they are dominated by acute ailments. According to the McKinsey report, upcoming small cities and rural centers will contribute almost as much to pharma growth as metros and top- tier towns.

Growing opportunities

"Nearly 70 percent of India's total population lives in rural areas where healthcare infrastructure is significantly low as compared to urban areas. Only 20 percent of India's total healthcare infrastructure is in rural areas" - Hitesh Gajaria Sector Leader-Pharmaceuticals KPMG India

According to experts, there is a huge gap between population residing in villages and quality treatment and medicines reaching these villages. "Nearly 70 percent of India's total population lives in rural areas where healthcare infrastructure is significantly low as compared to urban areas. Only 20 percent of India's total healthcare infrastructure is in rural areas," says Hitesh Gajaria, Sector Leader-Pharmaceuticals, KPMG India. While Indian pharma market comprises predominantly of urban areas, the reason for rural markets lagging behind can mostly be attributed to lack of facilities and experts in rural areas. Hence, this gap represents a huge opportunity for pharma companies.

Although the rural markets are still more or less dominated by acute ailments, of late they have started showing interest in lifestyle related treatment as well. The increasing penetration of lifestyle-related diseases is expected to fuel growth of drugs targeting chronic diseases. According to industry sources, chronic therapies now comprise nearly a quarter or 24 percent of the entire market, both rural and urban. "At an overall level, like more developed markets, India too is gradually shifting to lifestyle disorders. This trend is likely to dictate the fortunes of various therapeutic categories in the future," says Utkarsh Palnitkar, Partner-Transaction Advisory Services and Leader - Policy and Investment Advisory Services, Ernst & Young. Besides, infectious diseases such as respiratory infections, skin infections, and pelvic inflammatory diseases are still very dominant in these areas. Deficiencies in micro-nutrients aggravate the situation as they make villagers more prone to disease. There are also many ill treated/ ignored health problems in mothers and children.

"The increase in rural income has also further enhanced the propensity to spend on medicines. According to estimates of the Planning Commission, village dwellers have started spending 12 percent of their household income on healthcare" - Shakti P Chakraborty President, India Region Lupin

Until recently the rural market was a neglected story, however many big pharma companies have lately realised the importance of this large enough share of rural markets. Given affordability and accessibility, the rural consumer will have a lot more disposable income than his counterpart a decade ago. The simple rationale behind this argument is that food, shelter and primary education are virtually free in rural areas, whereas a substantial chunk of the income in urban areas is spent on these necessities.

Therefore, spending on healthcare in rural India is also increasing. "The increase in rural income has also further enhanced the propensity to spend on medicines. According to estimates of the planning commission, village dwellers have started spending 12 percent of their household income on healthcare," informs Shakti P Chakraborty, President, India Region, Lupin.

"As there is no mass media reach in these areas, communication needs to rely on a direct, person-to-person or person-to-group communication, in local languages, using visual presentation supports" - Ranjit Shahani, Vice Chairman and Managing Director Novartis

No wonder, pharma companies want to be present in these markets before their competitors. Wooing this new target audience would also mean capturing a large and significant share of domestic market. Revenues earned from this segment will in turn cushion these players from fluctuating foreign exchange rates on their exports. "Rural markets have evolved very fast in the last few years. Consumer brands have grown remarkably; cellular phones have become widespread, aspirations for better health has risen. For these reasons, demand has increased and it has become relatively easier to serve this market. However, the purchasing power is often low, distances are great, and qualified doctors are sometimes few and far between. Therefore, we see rural areas becoming an increasingly important market in a durable way," opines Ranjit Shahani, Vice Chairman and Managing Director, Novartis. However he warns pharma companies with high standards of quality and ethics to not expect rural markets to be a ‘lucrative’ market for many more years.

Business formula

However, the fact remains that Tier two markets (Class II, III & IV towns and rural areas) are driving the Indian growth story. According to Gajaria, the rural pharma market has grown at about 40 percent in 2006-07 as against 21 percent and nine percent in the previous years. While pharma companies have noticed this tremendous growth, they are now more open to target and reach the rural consumer than ever before. "The growth of the GP-driven segment outstripped the growth of specialist-driven segments," adds Gajaria.

Most pharma companies have chalked out specific business and marketing plans to capture the goose. "Pharma companies catering to rural markets are setting up focused distribution channels and developing locally trained sales personnel. They also focus on regularly updating rural physicians on their product portfolios and on any other developments in specific therapeutic segments," explains Gajaria. Pharma companies also feel that there is a sheer lack of skill sets, expertise and experience to reach these unexplored territories. Communication is also, therefore, a major fallout. "As there is no mass media reach in these areas, communication needs to rely on a direct, person-to-person or person-to-group communication, in local languages, using visual presentation supports," opines Shahani. Therefore, pharma companies generally opt for the community-welfare route to educate rural consumers about a particular disease segment and make them aware of treatments available.

For instance, Novartis has chosen to approach rural markets in a way similar to FMCG companies. Their marketing strategy is based on a four 'A' approach. The company works by creating 'Awareness' at different levels, improving 'Affordability' and 'Attractiveness' (e.g. usability) of products, making them 'Available' close to the patient. The company has also begun a pilot project on a model somewhat similar to the model of e-Choupal by ITC in India or of Danone-Grameen in Bangladesh "We intend to make our presence in rural markets durable and beneficial to the community," says Shahani. Besides making people aware, the company also offers drugs targeting serious ailments like tuberculosis. "We look at medicines focused on therapeutic areas. For example, as leader in TB through our generics arm Sandoz, TB is one of our areas of focus, for patients who have elected to be treated by a private specialist doctor," informs Shahani.

Experts say that rural areas are also susceptible to counterfeit and spurious drugs and hence there is a huge space for quality medicines. Companies like Lupin are working with this in mind. "Our marketing strategy in the rural areas is to provide patients with quality medicines at competitive prices. We follow a four point strategy of product, people, price and promotion," informs Chakraborty. The company aims at reaching out to uncovered medical practitioners in these markets. The four 'P' strategy of the company works to supply the right set of medicines (product) by recruiting, training and developing local persons (people) as 'Medi-Pracharaks', who are best equipped to service the needs of local community and doctors. The company also ensures that quality drugs are made available at an affordable price. As part of its promotional program, the company organises various knowledge campaigns like 'Arogya Jagriti Mela', 'Swastha Mela'.

Distributing drugs

In spite of the growth rate, increasing interest of pharma companies and efforts made to target rural markets, the sales and distribution system which plays a critical role in catering to these markets remain almost unfazed. The significant share of Tier two markets can be credited to a large extent to the strong wholesale distribution system. According to Gajaria, rural markets are complex and sales infrastructure has always been an area of concern not only to pharma companies but for consumer goods companies as well. Affirms Palnitkar. "The rising importance of Tier two markets has an important implication for pharma companies. Sales infrastructure deployed in Tier two markets does not match the current revenue share or the future market potential of these markets," avers Palnitkar. As per information in the public domain, in an average mass product sales division, only 20 to 30 percent of the sales force is deployed in Tier two markets. The number is even lower for specialty products divisions. "Demand pulls generated by medical representatives and sales force has to be met by adequate supply of pharma products in a timely and cost effective manner. At present the rural distribution models are complex and sub-optimal," opines Gajaria.

However, Indian companies are devising their own strategies to increase rural penetration. For instance, Lupin has a strong brand franchise in anti-infective, pain management, and gastrointestinal and these segments accounts for 40 percent of domestic formulations sales. The company has a dedicated rural field force of more than 300 people and is rapidly expanding it. Presently, they are operating in ten states includeing Andhra Pradesh, Tamil Nadu, Madhya Pradesh, Chattisgarh, Bihar, Uttar Pradesh, Punjab, Haryana and Rajasthan and catering to 35,000 rural medical practitioners. The company is also planning to expand its operations to the remaining states in its next phase of expansion, said Chakraborty.

Nicholas Piramal India Limited (NPIL) has also announced a new initiative to target the mass market, focused on general practitioners, to cater to rural markets. This with a field-force of approximately 800 people. In a recent development, the domestic pharma industry has proposed that the government utilize post office space across the country to sell Over the Counter (OTC) drugs. The initiative is led by Novartis' Vice Chairman and MD Ranjit Shahani who is also the ex-president of Organisation of Pharmaceutical Producers of India (OPPI). "The post office is a dynamic organization that has already entered a number of new commercial activities. Novartis has already started an awareness campaign using their services and selling products through them may come next, provided there is government support," says Shahani. The move besides increasing the reach would also substantially increase the market.

While companies like Ranbaxy and Ajanta Pharma already have a major presence in rural markets, GSK is also reportedly planning to enter these markets in a big way. However, going forward, the emergence of organised pharma retailing, improvement in infrastructure and growth in third party logistics players will not only lead to more profitable and efficient distribution system but will also increase the overall profitability of companies focused on these markets .

Challenges

Although rural markets are high growth markets, there are challenges galore to hinder the entry of pharma companies. Some of the major challenges include lack of communication, language barriers, high penetration of spuriousf drugs, lack of adequate infrastructure such as marketing and distribution channels for niche therapeutic segments in particular, poor storage facilities, and insufficient sales personnel deployment.

Keeping in mind the sheer size and vast population of India, distribution is one of the major problems that pharma companies face. According to Chakraborty, the biggest hurdle in the entire process is supply chain management since regular stockists do not supply to interior areas. Developing a permanent rural field force takes time and effort, even for ambitious companies. "It is difficult to reach many parts of the country, either because of inadequate transportation or insurgency in some places. There are many places where business becomes arduous and the patients may not benefit as quickly from access to medicines as compared to other regions," says Shahani.

Besides, as rural markets are still dominated by the acute and infective therapy segment and some of the prominent disease segments prevalent in the rural markets are pain or analgesics, anti-infective and respiratory, pharma companies still choose to market their product range which has a low-risk involvement. Rural marketing activities of many pharma companies have been traditionally restricted to markets with stocks of the concerned product. Most of the products that are being advertised and marketed aggressively are the low risk-low involvement products like pain balms, lozenges, and cough and cold syrups. The high risk-high involvement products like cardiac or cancer products are not advertised or marketed through media as regulatory guidelines prevent this. Whereas, companies have often only taken the community-welfare route to educate the rural consumers about a particular disease segment and make them aware of the treatments available. "The challenge lies in ensuring medicines reach the rural areas rather than concept-selling of drugs. Companies are conducting healthcare workshops in the rural areas by tapping the doctors there. Such programs offer mutual advantages to both the parties concerned," says Palnitkar. Hence, the challenge before Indian companies will be to focus on not just ensuring product access, and building robust sales and marketing capabilities but also creating new markets and crafting differentiated business strategies to service these markets.

Promising future

According to Chakraborty, the Indian rural pharma market is estimated to be growing ahead of the overall pharma market by five to eight percent. Undoubtedly, the road to the village is full of promises for pharma companies willing to invest. "Going forward, rural markets will have a meaningful share of the Indian pharma market," believes Gajaria. While the rise in rural healthcare expenditure, emerging rural middle class and improving infrastructure facilities are encouraging pharma companies to invest in these markets, government is also implementing several programs to facilitate basic healthcare amenities in these areas. This will help ensure strong growth of these markets.

sushmi.dey@expressindia.com