Marketing Management - II

Project Assignment

Value Generation In
Marketing Channels
Submitted to – Prof. Nalin Jain

Submission Date – 22/10/2010

Submitted by:
Vaibhav Gupta – 191174
Aniruddh Sarkar – 191124
Sunny Behl – 191179
Tables of Content

1) Objectives…………………………………………………………………… …..3
2) Methodology…………………………………………………………………… ..3
3) Company Profile
a) Why Novartis……………………………………………………………...….4
b) About the Company………………………………………………………….. 4
c) Novartis India………………………………………………………………... 5
4) Findings
a) Region Analysed…………………………………………………………….. 6
b) Channel Structure…………………………………………………………….6
c) Flows…………………………………………………………………………8
i) Product and Demand flow………………………………………………...8
ii) Financial flow……………………………………………………………..8
d) Expectation/Relationship among the channel member………………………8
e) Specialized Medicine/Third Party……………………………………………9
f) Product Portfolio…………………………………………………………….. 9
g) Strategic Importance of channel…………………………………………….10
5) Details of People Visited……………………………………………………….11

Page | 2
Objectives of survey

1. To study the complete distribution channel of India

2. To find out the structure and type of the marketing channels deployed by the company
3. To identify the value generation done in the marketing channel both at the supply side and
at the demand side and specify the generic channel outputs
4. To study the strategic importance and use of the marketing channels by the supplier to
achieve desired marketing objectives.
5. To observe the roles, functions and activities performed by the channel members
6. To evaluate the appropriateness of the chosen marketing channel design in achieving the
market positioning and the level of integration in the channel
7. To compare the company’s marketing channel with competitors as a source of competitive
advantage
8. To learn how the process of channel management especially that of physical distribution
and logistics is carried out in the channel

Methodology

We identified the manufacturer/marketer i.e. via internet and personal references.

We visited the head office, Asaf Ali road, Central Delhi and met the Deputy Manager – Sales
Division. Here we collected information about the channel structure and their intermediaries.
We selected the area of Chattisgarh and NCR region and found various dealers and company
sponsored showrooms via internet.

As we all members are dispersed during vacations so initially we have talk to the dealers and
stockist of our respective area. We also visited an accounts manager of Company Store in
Raipur. Here we collected information about the operations of these establishments and the
activities carried out by them.
As the company deals in various domains so their competitors are different in different
domains, we analyzed the information from primary as well as secondary sources.

Pharmaceuticals
Page | 3
Pharmacy involves all the stages that are associated with the drugs i.e. discovery, development,
action, safety, formulation, use, quality control, packaging, storage, marketing, etc. This profession
has a large socio-economic relevance to the Indian economy.

Company Profile
Why Novartis?
After an exhaustive search on pharmaceutical companies, we chose as the company we would
survey. This is the market leader in the therapeutic drugs and contact lens and a third largest
manufacturer in the world. It has many programs in India for Patient Support program and CSR
activities which helps us to have an in-depth analysis of Branding as well as to know a distribution
channel which is completely different from rest of the companies. We chose this company
because of following reasons:

1. Great brand value

2. Huge product portfolio covering virtually anything and everything of drugs.

3. Therapeutic drugs like Cardiovascular and metabolism, Oncology, Respiratory,

Immunology and Infectious Diseases. These are the Life Saving drugs and which makes
Novartis a major leader of these drugs in the world.
4. Many Over the Counter Products like Voverane, Calcium Sandoz and skin care products
plays a vital role in the life of every individual.

About the Company

Novartis International AG is a multinational pharmaceutical company based in Basel, Switzerland,
ranking number three in sales among the world-wide industry, which accounted 36.173 billon in
2008. It currently is the sixth largest pharmaceutical company in terms of revenue ($41.5 billion in
2009) with a profit margin of about 20%, which is the same as its industry competitors.

Novartis is a full member of the European Federation of Pharmaceutical Industries and

Associations (EFPIA) and of the International Federation of Pharmaceutical Manufacturers and
Associations (IFPMA).

In addition to internal research and development activities Novartis is also involved in publicly
funded collaborative research projects, with other industrial and academic partners. One example
in the area of non-clinical safety assessment is the InnoMed PredTox.

Novartis was created in 1996 from the merger of Ciba-Geigy and Sandoz Laboratories, both Swiss
companies with long histories. Ciba-Geigy was formed in 1970 by the merger of J. R. Geigy

Page | 4
Ltd (founded in Basel in 1758) and CIBA (founded in Basel in 1859). Combining the histories of the
merger partners, the company's effective history spans 250 years.

Novartis India

Novartis India (NIL), incorporated in 1947, is a subsidiary of Swiss giant Novartis -- the world's
second largest pharmaceutical company.

The company finds its origin from three separate entities namely Geigy, Ciba, and Sandoz. Geigy
was founded in 1758; Ciba was founded around 1860 and Sandoz was founded in 1886.In the year
1970 Ciba and Geigy merged and formed Ciba-Geigy. Much later in 1996 Sandoz

FINDINGS

Page | 5
 Novartis pharmaceuticals

Region analysed
Being a major player in pharmaceutical industry, has its reach (channels) in all the states in India.
For our case study we selected the state of Chattisgarh and Delhi which have a strong distribution
channel of. The head office of the company is located in Asafali road, Central Delhi. As per our
research findings, the company has its branches in all the major cities in each of the states. In
Chattisgarh, its branch located at the B.U. Complex, Dalalseoni, Anant Vihar, and Mowa in the
capital city of Raipur. As stated earlier, the manufacturing plants in Mumbai, supply the finished
products.

Channel Structure
Novartis has a very robust channel structure. The entire channel is represented in the figure
below:

OUTSOURCED IMPORTED

CENTRAL WAREHOUSE

MASS MARKETING SPECIALIZED MEDICINE

STATE CFA STATE CFA

STOCKIST

Patient/BPL Hospital Pharmacy

Dispensing Doctors Hospital Pharmacy

Chemists
 The Channel structure comprises the manufacturing plants, the warehouses, Carrying and
Forwarding agents, the Stockists(wholesalers) and the retailers(stores) . Retailers and the
Consumer/Patient

Page | 6
 chemist/druggist are the point of contact for the individual customers (B2C). Contractors
and Company Sales Executives serves public and private institutions (B2B)
 The central warehouse of is in Bhiwandi, Mumbai that collects and stacks all the supplies
from the different manufacturing plants.
 There are three manufacturing plants of located in
1. Santa Monica works,Goa.
2. MIDC Industrial Area, Raigad District Maharashtra.
3. Thane, Maharashtra.

 From these manufacturing plants, the medicines are transported to the central warehouse
in Bhiwandi.
 From Bhiwandi medicines are supplied to the various state centres.
 At times, Branch –to-Branch transfer also takes place for order fulfilment.

In the Chattisgarh region, the MASS MARKETING sales are basically done through the following
channels

 The first level in the channel is the C n F agent. In Chattisgarh there is only one C n F
agent. This agent receives the medicines from other companies as well i.e. there
are no legal compulsions on the C n F agent for stocking the medicines of other
companies. This C n F agent stocks medicines for 21 different companies supplying
medicines in this state. The C n F agent is selected by the company itself and is
responsible for the control of the entire distribution channel in the state of
Chattisgarh.

 Next level comprises of the stockists (wholesalers).

 Under the supervision of this C n F agent there are 30 stockists that store and
distribute the products of for the state of Chattisgarh. Just like the C n F agents
these stockists also have the freedom to stock and distribute products of other
companies as well. The stockists are responsible for the sales and distribution of
the products to the retailers/chemists/doctors/hospitals. The company exercises
control over the channel only up to the stockists.

 The next level in the channel comprises of the retailers.

 Each stockist is linked to a minimum of 200 and a maximum of 500 retailers
including the doctors and the hospital pharmacies spread over the 16 districts. The
choice of the retailers is totally in the hands of the stockists and the company has
no role in the selection process of retailers. The retailers are the ones who finally
deliver the product to the consumers.

Page | 7
Flows
Product and demand flow

 This channel follows a very simple model of matching demand n supply.

 The retailers estimate the demand of the medicines as per the customer /doctors’
preferences and stores accordingly and communicate this demand to the stockists.
 The stockists communicate their demand to the C n F agent based on the available stocks,
demand from the retailers and their own estimated demand.
 And similarly the C n F agent demands the products from.
 Accordingly supplies the medicines and the products flow through the channel in the
opposite direction of the demand.
 These demands/order fulfilments are done under strict company policies/terms and
conditions
 Any breach of code is dealt with a warning first and on continuation of such behaviour may
cause the termination of contract for any channel member.

Financial flow (Voveran)

 Novartis has partnered with some leading banking institutions to handle the accounts. It
uses an efficient cash management system.
 The company pays to the C n F agent. Usually the sales margin of the C n F agent is only
around 1-2% of Operating Sales / sometimes it is fixed by the company in case of C n F.
 But the company does not pay anything to the stockists.
 The stockists have their own margin of around 10% on the MRP.
 But the maximum margin is kept by the retailers.
 The stockists deposit the check with the C n F agent who then forwards it to the company’s
office.
 The freight charges from the supplier to the receiver are paid by the supplier i.e. company
bears transportation costs up to the C n F agent who bears the cost of transporting it to
the stockists and so on.

Expectations/Relationship among the channel members

 The channel members have a strictly professional relationship amongst each other and
abide by the company terms and conditions.
 All of the intermediaries have a minimum experience of 5-10 years. So naturally they share
an old bonding with the company.
 The C n F agent and the stockists are responsible towards maintaining a very high quality
of storage space as medicines require proper storage conditions like temperature, hygiene
etc.

Page | 8
  They are expected to tap the local markets or the territories assigned to them by
maintaining a qualified sales staff.

Specialized Medicine-Role of as a Support Program

As a CSR activity (Patient Support Program) and Sahyog Program for BPL (Below Poverty Line)
people, sells some of its global/specialized medicines to BPL people directly.

Third Party
Earlier Novartis gave costly life saving drugs to poor people through doctors and chemist
references. Now they have hired Third party agents, who evaluate and give recommendations
about who can pay what amount.

Benefits
 Charges only that amount which the consumer can pay.
 Transparency

Product Portfolio
The company deals with various products under various segments which are as follows:

Cardiovascular and metabolism Calcium Sandoz

Oncology (Hematology) Cold/Cough
Neuroscience and ophthalmics Alergy
Respiratory Analgesics
Immunology and Skin care
Categories
Infectious Diseases Therapeutic
Product Gastrointestinal
Counter
Areas 
Over the

health care
Animal Contact lens

CIBA- Contact Lens

Strategic Importance of Channel

Reasons

Page | 9
 Specialty Medicine

 Novartis has a major share in specialty medicine. Life of these specialty medicines in which has a
major share is around (5 months-1.5 years)
 Different channels are used to sell special products. Customer can directly purchase from the
business unit.

Production Centre is Global

 Major Production Centre of is Switzerland. This helps the company in making effective decisions
regarding production and forecasting, how much of the product is to be produced.

Costly Products

 Majorly deals in costly product e.g. contact lens, cancer Medicines etc. which lays great emphasis
while deciding its channel communication. Lacking in communication or any deficiency during the
distribution process may lead to loss in terms of product, globally scattered clients etc.
 Since, the company produces medicines which have limited lifetime and costly as well, therefore
company has to take care of delaying of product.

Inventory Management

 In this scenario, whether it’s a pharmaceutical company or any other product oriented company
inventory management has great importance. Business are now globalised, therefore one has to
look after how the inventory is managed.
 Today, what comes as of great importance is maintaining relationship with your stakeholders.
Novartis is a market leader and has business units in various locations. This requires company to
maintain good relations with its channel people all over the world; one way to achieve it is
through proper inventory management.

Sales Forecasting

 Projection from field force – Sales team on the field is the one who tell the organization what is
the demand of a particular product. They are the people who directly meet the distributor,
stockist and even the end user in some cases. On the basis of their findings company is able to
forecast about how much to be produced, what is the demand, how much stockist is demanding,
what is the actual sale?
 Location wise – Deciding what amount of product is required at a particular location is possible
only through efficient channel management. Which regions or units are more profitable can be
known through sales people only.

Inventory Projection

Page | 10
 Importance of channel comes into existence when company has to project what amount of
inventory is required at each level. Many times stockist or distributor demand more than what is
required.
 At various distribution level wastage of inventory take place due to excess demand by distributors.
Projecting and auditing of the inventory helps in clearing this drawback.

Details of People Visited

Company Name Person Designation Contact Email

Interviewed Number

Novartis Healthcare Gaurav Jerath Key Sales +91- Gaurav.jerath@novartis.com

Pvt. Ltd. Manager 9968606080

Novartis Healthcare Inderjeet Singh Area Business +91- Inderjeet.sethi@novartis.co

Pvt. Ltd. Sethi Manager 9212512900 m

C n F Agent of Bhupesh Dadsena C and F Agent +91- mehrancorp1@sify.com

Novartis, Cadilla and 9329723444
Ozone

Cipla Saurav Sehgal M.B.U +91- sauravmba@gmail.com

9416238521

Page | 11