Plesico Pharma: Contemplating on devising a compensation strategy

(Draft Version)

9th June, 2015. Saurabh Pandey came out of the conference room in Plesico pharmaceuticals Kolkata
office in a pensive mood. His discussion with Ramesh Pradhan, the owner of the firm failed to give him
any direction of what to be done to devise a compensation strategy to its sales force to motivate them to
meet the ambitious expectation of Ramesh to penetrate the highly competitive pharma market of West
Bengal with a me-too range of pharma and OTC products of a Pharma start-up like Plesico.

Saurabh Pandey is an IIM alumnus with a lot of confidence in his ability of dealing with issues of
business development of pharma related products. Prior joining IIM, he worked with a multinational
pharma major as the area business manager for two years. His background in pharmacy enabled him to
grasp the product knowledge imperative to succeed as a pharmaceutical sales personnel.

In his second year of graduation Saurabh decided to go back to pharma industry, but with high end
functional role. He chose to join some pharma start-up in a senior position instead of joining an
established pharma major as the mid-level manager. Incidentally, he met Ramesh at a party. Ramesh, a
first generation entrepreneur, started a new company Plesico pharma Pvt Ltd. Ramesh gave offered him
to join Plesico as the sales director and promised him the freedom to design the sales force to meet
ambitious growth targets of Plesico.

Plesico Pharma contract manufactures and markets pharmaceutical and Over-the-counter (OTC) drugs
(Table 1). Ramesh Pradhan is the CEO of the company; Ajit Mukherjee is the marketing director and
Saurabh joined as a sales head. The company is a start-up and yet to develop a cohesive organizational
structure. Plesico, being a start-up has the obvious resource limitations. Plesicos product portfolio is
small and includes prescription drugs, like antibiotic (amoxicillin, cephalexin), cough syrup
(chlorphenamine maleate), anti-allergic tab/syrup (Cetrizine), and a B-complex tab. The products have a
lot of competition from multinational pharma majors like GSK, Ranbaxy, etc. and the challenge is to
catch the medical practitioners attention to get established in the market. In the OTC range, the company
markets Paracetamol (1gm) for pain relief and Pseudoephedrine, a decongestant.

A prescription drug (also prescription medication or prescription medicine) is a licensed medicine that is
regulated by legislation to require a medical prescription before it can be obtained. The term is used to
distinguish it from over-the-counter drugs (OTC) that can be obtained without a prescription. Pharma
companies promote their prescription products to medical practitioners through Medical Representatives
(MRs). The MRs visit the doctors and promote the prescription medicines. The doctors advise their
patients to buy medicines to recover from ailments. In India, the job of the medical representative is not
confined to promote the companys products, but also to manage the territory sales by handling a network
of distributors and retailers.

An OTC medicine does not require to be sold on a doctors prescription. The patients can directly buy the
products over the counter. In India, the pharmaceutical drug dealers can also get the OTC profiled
medicine of the company subject to companys authorization.

Table 1: Products of Plesico and major competitions

Profitability of product

1. Plexin: 35%
2. Plesmox: 25%
3. Plesydyl: 15%
4. Pletrizine: 21%
5. Pbplex: 12%
6. Palpol: 12%
 7. Phephine: 15%
Rx generation difficulty
1. Plexin: +++++
2. Plesmox: ++++
3. Plesydyl: +++
4. Pletrizine: +++
5. Pbplex: ++
6. Palpol: ++
7. Phephine: +++

Sales process of pharmaceutical products involve promoting medicines to targeted medical practioners
through medical sales executives/representatives (MSE/MSR) in designated territories. The objective is
prescription generation and acheve the sales target through the sale of prescribed medicine. The work of
the medical sales executives are supervised by the 1st line managers. Each MSE has to create a must-see
list of customers (doctors) and classify them according to the importance/priorities of coverage. Doctors
are visited in varied frequencies like, most important doctors are visited 3 times in a quarterly cycle of 3
months whereas, medium important doctors are visited twice or least important doctors are visited once.
Designated territories are classified as headquarters (where the MSE is based), ex-station (the places
where an MSE visits in day time and comeback to the HQ) and out station (territories where the MSE has
to spend the night). Each field working day of an MSE or 1st line manager is compensated with a daily
allowance and travel allowance which is reimbursed to the sales person at the end of each month.

Company authorized stockists are those, who own the title directly from the company and redistribute the
products to retailers and /or wholesale so that the products reach the final consumers.

Wholesalers are middlemen who are not authorized to take the title of the products directly from the
company. They take goods from the authorized stockists and redistribute the goods to retail so that the
products reach the final consumers.

Consuming doctors are registered medical practitioners mainly practicing in the rural/suburban areas who
consume the medicines i.e. takes the title of the medicine and sell it to his/her patients from the chamber.
They look for margins and less sensitive to the companys equity unless the ailment scenario is critical,
and product efficacy is of differential priority.

In Pharma industry, MSE/MSRs sales is determined by the primary sales generated by the territory i.e.
the stock lifted by the company authorized stockists from the company. For the first line managers, the
primary sales is determined by the total stock lifted by the authorized distributtors of all his MSE
territories together. Secondary sales are determined accordingly. Every month the MSE/MSRs prepare a
stock and sales statement to know the offtake from the Distributorsshelf to the next level of the
distribution channel. The MSE/MSRs also need to visit the ratil outlets to track the prescription behavior
of the medical practitioners and strategize accordingly to increase prescription generation.

Sales force compensation for such a new company operating in a highly competitive pharma space is
undoubtedly a challenge and needs a structured approach to address. Saurabh was contemplating the pros
and cons of various sales force compensation strategy like Income Producer approach and TTCC (with or
without hurdles)with leverage approach in the context of a given channel structure. He has to take a call
fast before presenting his plan to Ramesh and Ajit on 10th July, during their next meeting.

Figure 1: Pharma distribution channels in India

Table 2: A list of factors for doctors prescription behavior

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Dr. Nirmalya Bandyopadhyay prepared this case, as the basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation. The case, though
based on real events, is fictionalized, and any resemblances to actual persons and entities are
coincidental. There are occasional references of the actual companies in the narration.