26/02/2016

RetailinginPharma:Opportunities&Challenges

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RetailinginPharma:Opportunities&Challenges
By

PunitKumarDwivedi
Asst.Professor
BankatlalBadrukaCollegeforInformationTechnology
Hyderabad

C.ChandraShekarReddy
Asst.Professor
BadrukaCollegePGCentre
Hyderabad

INTRODUCTION
Inthecurrentglobalizedretaileraitisverytoughtasktofightandsurviveintheglobalaswellaslocal
market.ThePharmasectorisoneamongsectorswhichisfacinghardcompetitioninisindustry.By
introductionofretailmallsthecustomersaregettingallthedailyusecommoditiesunderasingleroof.
Theyaregettingeachandeverythingwhicharebasicaswellassecondaryrequirementforahigh,
middleandlowerclasssegmentofglobalsociety.Nowthequestionariseswhatwillbethefutureof
smallretailerinpharmaindustry?Theanswerisconsideringthatpharmaretailingisclubbedwithfast
movingconsumergoodsretailinginmostcases.Theconsumerisgettingeverythinginairconditioned
environmentfruits,garments,healthcarearticlesaswellasfulfillingotheressentialrequirements.So
wecansayitis"startingend"ofsmallpharmaretailersorwewilluseahindiphrase"Swagatkehi
saathvidakihotidekhitayyari".
THEVALUECHAINANALYSIS
ThetermValueChainisusedforaddingsomeextrautilitiesintheproductandthensupply/saleittothe
enduser.Thevaluechainactivitystartsatthetimeofproductionandendsnotaftersellingbut
continuestilltheconsumptionbythecustomer.Itincludesdifferentservicesprovidedbyretailer/whole
sellerormanufacturertotheendusercustomer.Thevaluechainofapharmaceuticalcompanyalso
consistsofallphysicalandtechnologicaldistinctactivitieswithintheorganizationthataddvaluetothe
consumersexperience.Foralltypesofproductionorganizationstheirmustbesome
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1)PrimaryActivities&
2)SupportingActivities
Theprimaryactivityofasamplevaluechainare
1.Inboundlogistics
2.Operations
3.Outboundlogistics
4.Sales&marketing
5.Services
Theeachandeveryproductincaseofanyorganizationwillhavetopassthroughalltheprimary
activitiesthenonlyproductcaneasilyfacethecompetitionandprovesuperiority.Retailingcomesunder
salesandmarketingandservicessegment.Thetermslogisticsmeanstheartofstationingandmoving.
Inboundlogisticsdealswithhowthecompanyisgettingitsrawmaterialandsourcestomanufacturea
certainproduct.Whereoperationisaprocessorprocedureorstagesofproductdevelopmentbyusing
rawmaterials,chemicalsandmachineryandknowhowandotheressentialrequirementsforoperational
activity.Thenextstageisoutboundlogisticswhichdealswithpackagingofgoodsorcommodity.Agood
packingisgoodmarketmaking.Ittotallydependsuponthesizeofcommodity.Itisonlymanagement
controlactivitytoensurethetypeofpackagingbythinkingaboutthecustomer'sconveyanceaswellas
safetyofproduct.Fortheorganizationalwelfarethisisanothermanagementcontrolactivityto"think
aboutthecost"packing".
Thenextstepaftertheoutboundlogisticsisdeliveryofproducti.e.sales&marketing.Byusingdifferent
salespromotionactivitieslikeadvertisingthroughdifferentmediaswecansellourproductandalsowe
canincreaseourturnover.Atthisstagethemanagementhastothinkabouttheadvertisingcostaswell
asothersalespromotionactivitiesandtransportationcosttodelivertheproducttothevariousstockists,
wholesellers,retailersanddistributors.
The last step of primary activity of a value chain is services. In business terminology we can say
"Service to customer is service to God" because customer is King in the market and concerns are
entertainer to the king. Here we have to face lot of competition with our competitors. The customer
satisfaction is only 100% which encourage the products to do something new which results in growth of
entrepreneurship.
Thesupportingactivitiesareframeworksorstructureunderwhichallthebasic/primaryactivitiesfulfills
theirbest.Wecantaketheexampleoffewveryimportantsupportingactivities.
*Organizationalstructure
*Organizationalinfrastructure
*Humanresourcemanagement
*TechnologyUpgradationand
*Procurement.
Withthehelpoftheseabovesupportingactivitiestheconcernachievesitsgreatsuccessbyproducing
goodqualityproductwhichhasgooddemandinthemarketandwhichhelpsincapturingmarketand
creatingthemonopolysituation.
India is now considered as a fastest developing economy in the world. India is developing in every area
of economy i.e in education, technology, agriculture, power generation, Information technology, space
technology, development in roads, railways and airways etc. We consider trade and commerce are the
coreareasofanycountry,hereweconsiderretailinghastobegivenmoreemphasisasitisthesubject
ofeverycommonmaninIndiatoday.InPharmaRetailingtherearetwotypesofsectors:
1.OrganisedPharmaSector:PharmachainslikeApolloPharmacy,Medplus,Subhiksha,HeteroEtc.
2.UnorganisedPharmaSector:UnknownandSmallretailoutlets.
TheorganizedpharmachainsaregenerallyownedbylargeandEstablishedbusinesshouseswhichhave
decadesofexperienceinhandlinglargeIndustries,organizedbusinessesetc.Theyhaveexpertisein
TradingvariousDrugs,ManufacturingDrugs,Processing,Packaging,LogisticsHandling,Inventory
Management,coldstoragesetc.
These players are high end and deal in bulk quantities of rawmaterials, Processing of raw materials to
finisheddrugformulations.Brandingthefinishedproductsthenpackagingandlabelingthedrugsandthey
haveexpertiseinusingalltoolsofmarketingmixi.e
1.Product
2.Price
3.Place
4.Promotion
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5.Serviceetc.
AdvantagestoOrganisedPharmaSectors/Pharmachains
1.Economiesofscale:ThelargeplayersinpharmaretailsectorbuyRawmaterialinbulkquantity,
processinbulkquantity,packageinbiglots,usehightechnologyinprocessing,packagingand
transporting,sotheygetthefinisheddrugsatthelowestpossibleprices.
2.Technologydriven:Theselargeplayersusemodern,latestandautomatedmachineryin
manufacturingDrugs,inInventorymanagement,supplychainmanagement,useoflatestdisplaytools,
freesamplestoDoctorsandhospitalsetc.
3.Retailingtheirownpharmabrands/genericbrandsalongwithcompetitorsbrands:Ithelpsin
promotingtheirownbrands/genericbrandswhichcanfetchmoreprofitsusingpushstrategythrough
doctorsandhospitalsbyprovidingfreesamples,sponsoringfreetreatmenttopatients.
4.Passingadvantagestopatientsandconsumers:Withtheoptimumuseofavailableresourcesand
technology,someprice.Advantagescanbepassedovertopatients
5.Increaseinmarketshareandprofits:Withalltheadvantagesfrompoints1to4abovethepharma
chainscanachievehighermarketshareandprofits.
6.Discountparameter:Accordingtothelatestselfstudywehavefoundthatupto10%discountis
offeredbyretailpharmacychainslikeApollo,Hetero,SubhikshaandMedPlus.
Thesecondtypeofpharmaretailersaretheindividualoutletsi.esmallretailmedicalshops
DISADVANTAGESTOSMALLRETAILERS
1.Noeconomiesofscaletosmallmedicalstores:Thesesmallstoresbuyinsmallquantitiesfrom
drugdistributorswithhigherpriceswithnoschemestherebyitreducesprofitmargins
2.Smallgeographicarea:Thesesmallretailmedicalshopsoperatefromsmalllanesandbylanes
whereitcouldcatertolimitedrangeofpatientswhobelongtothatsurroundingsonly.Thisresultsin
lowerturnoverofsalesresultinginlowerprofits.
3.Nohomedeliveryservices:Thesesmallmedicalshopsgenerallyrunonlowmanpowerorsome
timesrunasafamilybusinessandthereforecannotefforttohirepersonsforhomedeliveryof
medicines.
4.Windingupofmedicalshops:Notwithstandingthebusinessthreatsfromlargepharmachainstores
mostofthesestoresclosetheirstoresbysustaininghugeloses.
5.Lossesfromexpiryofmedicines:Newformulasarefrequentlylaunchedintothemarketand
doctorsalwayswanttotrynewformulasonpatientstherebysalesofoldformulasaresloweddown
whichcauseshugequantityofexpiresofmedicineswhichinturnresultinheavyloses.
6.Discountscannotbeoffered:Smallmedicalshopsbuyinsmallerquantitiesandcannotavailthe
advantageofvariousschemesonquantitypurchases,therebytheirunitpurchasepricesarehigherand
cannotofferdiscounttopatients/customers.
MAINACTIVITIESINVOLVEDINRETAILING
1.Choosingstorelocation:Threeattributesareimportanttoallretaillocations
a.Attractiveness
b.Convenience
c.Proximity
2.Sourcing/Buying/VendorPartnership/SupplyChainManagement
3.Achievingefficienciesinretailoperations
a.MarginTurnoverposition
b.Investmentproductivity
c.SpaceProductivity
d.EmployeeProductivity
e.Averagesizeoftransactions
ANILLUSTRATIONOFSUBHIKSHADISCOUNTCHAIN
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Subhikshagetsabout30dayscreditfromsuppliersandusesabout7daysforitscycle,saving23days
value.Subikshahasthreemodels:
1.Pharmaciesonlywhichare150squarefeetinarea.
2.Departmentalstorespluspharmacies,10001200squarefeet,and
3.SupermarketsplusPharmacies,16002000squarefeet.
Toincludepharmaceuticalshasbeenaparticularlygoodstrategicmoveforthestore.Medicalexpenseis
somethingthatmostmiddleclasspeopledread.Byofferingpharmaceuticalsatallitsstoresat10
percentdiscount,Subhikshahasbuiltcustomerloyalty.Subhikshahadtofacefuriousoppositionat
everystagefromfellowretailtradersasmanufacturersandcompanieshavetriedrefusingtosupply
Subhiksha.Thetacticofofferingpharmaceuticalsata10percentdiscountinparticular,causedagreat
dealofcontroversy.Pharmacompanies,distributorsandchemistshavebeenupinarmsagainstthe
discountingbySubhiksha.
Tobeabletooffersuchahighlevelofdiscountandstillbeprofitable,Subhikshaneededthreethings,
1.Commandlargevolumestoenablevolumediscountsfrom
2.Manufacturersandcutoutmiddleman
3.Slashoverheadsandinventorycosts.
TheSubhikshaStoreshavenoneofthefrillsofthelargeoutlets.Theyaresimple,functionaloutlets,
directlyoperated,notfranchisedandcomparativelysmall.
TheSubhikshaformatrestsontwomainplanks
1.Lowerprices
2.Neighbourhoodstores
SubhikshabelievesthattheMRPisjustacaponpricesandpreferstoselleverythingatlessthenMRP.It
managestoprovidediscountsintherangeof10percentonnearlyallproducts.Subhiksha'sappealtothe
averagemiddleclasshouseholdisconsiderable,thepricesavingsmeanalotforthem.
CONCLUSION
In the field of pharma retail the Apollo Hospital enterprise is doing its business with more than 642
pharmaciesacrossthecountrywithanaimtoreach1000unitsattheendofprofityear2008.Lasyear
Apollo added 262 pharmacies and gained the profit of Rs.8.8 crore. Now they have aim to reach Rs.16
crorefortheyear200809.Theshareoforganizedretailinthetotalmarketislikelytogrowmanyfold
from existing 2% in the coming year. The latest Indian retail review shows that in the year 2010 this
rate will be 20% because growth is attracting new players in the market. So in conclusion we can say
that though there is hike in retail market and specially in organized retail. Then we have what will be
future of unorganized small retailers. I am using the sentence for small retailers of famous Hindi
NovelistPremchand"Kisaanabapnihizameenparmazdoorbankarrehjayega.
REFERENCES
Businessworld
Business&Economy
V.S.Ramaswami&S.Namkumari
Businessline.
TheHindu
EconomicTimes.

PunitKumarDwivedi
Asst.Professor
BankatlalBadrukaCollegeforInformationTechnology
Hyderabad

C.ChandraShekarReddy
Asst.Professor
BadrukaCollegePGCentre
Hyderabad

Source:EmailAugust12,2008

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