Vous êtes sur la page 1sur 7

European Journal of Scientific Research, Vol.

38, No 4, 2009
_____________________________________________________________________________________________

FRDN Incorporated, 2009


Editor-In-Chief & Managing Editor: Adrian Marcus Steinberg, PhD
117, Orion Mall, Palm Street, P.O. Box 828, Victoria, Mah, Seychelles
Tel: +248 400138344 Fax: +248 400138345
European Journal of Scientific Research ISSN: 1450-216X / 1450-202X
Vol. 38 (4): 321-327, December 2009
DOI: http://www.europeanjournalofscientificresearch.com/issues/EJSR_38_4.html

DISTRIBUTION CHANNELS IN PAKISTANI PHARMACEUTICAL INDUSTRY


AHMED RIZWAN RAHEEM1* AND SATTAR IRFAN2
Tel: +92-300-829-3560
1,2

Shaheed Zulfikar Ali Bhutto Institute of Science & Technology Karachi

Abstract: This study examines that the Marketing is the driving force in pharmaceutical industry. Although, there is
good quality international literature available for the under examine topic, but it carries the perspective of developed
countries, where things are very different from a developing country like Pakistan. The study identified that
Pharmaceutical products can be distributed through different channels to its customers. For general marketing, sales
and distribution functions are mostly performed by the sale organization, or in some cases the company has its own
sales team taking care of selling function, whereas the distributor is responsible for physical distribution of goods
only. In pharmaceutical industry, selling function is invariably handled by the companys own sales team due to
highly technical and specialized nature of job, whereas the distributor is responsible only for the logistics part. It is
further concluded that there is no winning formula for pharmaceutical promotion. All one can do it to understand the
purpose of each tool, and then try to create a Marketing Mix, which works well under the given scenario.
Pharmaceutical distribution is the most important tool, which supports the other marketing functions.
Key words: Pharmaceutical Marketing; Physical Distribution; Logistic Parts; Marketing Mix

1. INTRODUCTION
Pharmaceutical industry is one of the most organized industries in Pakistan, employing a large number of
professionals in all areas of operations. The industry currently comprise of more than 600 companies, out of which
around 300 or so can be termed as Active Companies involved in manufacturing & marketing of pharmaceutical
products (IMS Q2&Q3 2008). Karachi is the city hosting the largest number of companies, but Lahore & Islamabad
are emerging fast as centers for pharmaceutical manufacturing & marketing. Marketing is, as in other industries is
the driving force in pharmaceutical industry (Kotler & Armstrong 2002). Most of the people engaged in marketing
activities in pharmaceutical industry are business graduates, with majors in marketing. However, the biggest
problem they face, and which in turn becomes a challenge for human resource function of the company is the
distinct character of pharmaceutical marketing. What these business graduates learn at schools do not encompass
these unique characteristics and as a result, they find themselves inadequately equipped to handle the dynamics of
pharmaceutical marketing. The very fact that in pharmaceutical marketing, you deal with a customer, who is
technically the most competent person, i.e. the doctor, makes the task very challenging (Westfall, McCabe &
Nicholas 1997). You have to convince him to suggest or prescribe your product and this he will due purely on the
basis of merits of the product, which he usually understands better than a common marketer (Parmar & Jalees 2004).
The restricted media use becomes a major obstacle as you as a marketer are not allowed to use the conventional and
established media like newspapers, magazines, radio & television, and instead have to reply upon direct marketing,
one-to-one sales calls, medical journals/newspapers, sponsorships, sampling and other tools. This makes the task not
only more difficult, but also less glamorous (Sattar & Maqsood 2004).

___________________________________________________________________________ 321

European Journal of Scientific Research, Vol. 38, No 4, 2009


_____________________________________________________________________________________________
There is a clear need for developing literature, which can take into account the needs of pharmaceutical
marketing, and become a basic guide to business graduates majoring in marketing to understand how things will be
when they pursue a career in pharmaceutical marketing (Wolf 2002). Although, there is good quality international
literature available, but it carries the perspective of developed countries, where things are very different from a
developing country like Pakistan. It is also interesting to note that pharmaceutical marketing is treated as a separate
& specialized discipline in almost all good international business school, yet in Pakistan no business school offers
this area of study. There is a healthcare management degree being offered at CBM, but that is more focused on the
operational side of healthcare institution, and the material being used for teaching is all international, with very little
relevance to local environment (Sattar & Maqsood 2004).
2. MATERIAL & METHODS
The distribution system in context of pharmaceutical marketing is a set of interdependent organizations
involved in the process of handling the transportation of medicines from companys warehouse to the market, or to
institutions pharmacies, where it will be sold to the end user (Wazana 2000).
2.1 Functions of Distributions Network
The major functions performed by distribution system in pharmaceutical markets are the following:
2.1.1 Warehousing
When a company transfers the stocks to its distributor, the responsibility of storage under proper condition
lies with the distributor. A company can have at any given time the stock available for sale at a much higher level
than its own capacity. In this manner, distributor share the inventory holding cost of the company and provides an
avenue of storing goods through clever planning and good relationship outside the company premises (Lexchin
1992).
2.1.2 Physical distribution
For a country like Pakistan, with under-developed infrastructure, it can be a monumental task to transport
goods from lets say Karachi, to outskirts of the country. Distributors handle this task. They make sure within their
area of responsibility to make sure that each potential target outlet stocks the companys products. They not only
feed the wholesale and distribution channel, but also participate in government tenders, and quote against
institutional demands on behalf of the company, and then supply the goods (Ahmed & Sattar 2009).
2.1.3 Financing
Most of good companies provide stocks to their distributors against advance payments. In this manner, the
company gets the profit immediately with minimum cash flow pressure. However, the distributor might have to hold
on to that stock for quite longer period of time. In most cases, any distributor carries stocks sufficient to cover one
months in-market sale (Duffy & Clark 2003). This keeps the money tied up for that particular period. In case of a
new product launch, a company might provide stocks to distributor according to the sales forecast prepared by the
marketing staff, and if the product doesnt takeoff, the distributor has to carry the extra load, which in some
instances may be equal to several months sale. The situation is even worse in case of government/institutional
supplies, where the buyers get the stock with 30 days credit and do not pay for several months. In such cases,
distributor suffers a lot. For this reason, institutional distribution is considered as a specialized area in
pharmaceutical marketing and only the distributors with good financial strength and contacts at right places can be
successful.
2.1.4 Market Feedback
The whole game of pharmaceutical marketing revolves around generating prescriptions, which then go to
the retail outlets/pharmacy, and result in liquidation of stock. Most of the companies want their own sales team to
focus on prescription generating activities, and rely largely on the feedback from the distributors about the
movement of the products off the shelves. Distributors, therefore, act as the market intelligence wing for their
principals (Kola & Landis 2004).

___________________________________________________________________________ 322

European Journal of Scientific Research, Vol. 38, No 4, 2009


_____________________________________________________________________________________________
2.1.5 Promotional Activities
With competition growing very fast, most companies try to explore new avenues of promotion. One of the
most important and crucial issues facing pharmaceutical companies these days is the growing number of brands of
each molecule. There are more than 50 brands available of paracetamol, diclofenac sodium, omeprazole, ibuprofen
and so on. This makes it very difficult for the chemist/pharmacist to remember the brands, and even to keep track of
his stocks. This makes it very important for the pharmaceutical companies to make sure that when a prescription of
their brand reaches the outlet, not only the outlet must be carrying stocks of that brand, but also the concerned
person there must be aware of availability and recalls it at the right moment (Pollack & Andrew 2002). This need is
being addressed through retail-level promotional activities like stickers, gift items, special shelf displays etc. The
distribution people under guidance of the company staff carry out these activities.
2.1.6 Follow up on Expiry Issues
Expiry of the products is one of the sore areas in pharmaceutical marketing. No one would ever like to lift
the stock from the market on the basis of expiry and settle the claims, which may cost a fortune. Normal expiry rate
for good companies is around 1-2% of the total sales (Filmore, Thayer & Willis 2004). Any thing above that means
that the situation is abnormal and needs to be rectified. The distributors are responsible for keeping track of the
expiry of stocks within their respective territories. Normally, companies have a system under which the distributor is
supposed to inform the company of the stocks closing of expiry (3-4 months shelf-life remaining). The companys
sales personnel then try to liquidate the stock first at the same outlet, and then by transferring it to places where the
movement of that particular product is faster. Failing this, the company has to call back the stock and compensate
the concerned outlet through the distributor.
2.2 Types of Distribution Channels
For general marketing, sales and distribution functions are mostly performed by the sale organization, or in
some cases the company has its own sales team taking care of selling function, whereas the distributor is responsible
for physical distribution of goods only. In pharmaceutical industry, selling function is invariably handled by the
companys own sales team due to highly technical and specialized nature of job, whereas the distributor is
responsible only for the logistics part (Gilbert, Hanske & Singh 2003). In order to arrive at a clear understanding of
these functions, we will discuss sales and distribution under separate heads, and will cover the different possible
types of setups, which a company can choose from.
SALES STRUCTURE
The selling function can be handled in either of the following two ways with respect to pharmaceutical
industry:
2.2.1 Companys Own Sales Team
This is the most preferred method in pharmaceutical industry. The reason is very simple; pharmaceutical
selling is a highly specialized function, and the people involved has to be highly qualified, skilled and appropriately
trained, which is only possible if the person is a permanent part of the company (Henderson 2000). It is also
important to develop long term relationship with the target doctors, which is only possible if the company has total
control over who is visiting the doctor, how many times, and what type of behavior he demonstrate in the doctors
chamber. The companies have developed excellent control mechanisms over the years, which ensure productivity of
the sales team, and achievement of corporate objectives. Another important reason for having own field force is that
each sales person carries samples, literature, gifts and other material worth huge amounts all the time. The company
would like to keep all that secure, and that objective can also be achieved with own sales team.
The number of registered medical practitioners in Pakistan is well over 50,000 now. Any good company
would be covering 10,000 to 15,000 doctors according to their product profile and targeting. This results in a sales
team comprising of between 100 to 150 persons. Management and productivity of such a large number is never
easy. Most of the companies have divided Pakistan into 3 regions and 9 zones/Area/Territories. They have one
Regional Sales Manager responsible for each region, and one Zonal/Area/Territory Sales Manager under them. On
an average, each Area Manager is responsible for managing 6-10 representatives, who have their own welldemarcated territories.
The companys sales team is responsible for the promotional side, which is the replacement of selling
function in general marketing. They visit the doctors in hospitals or at their private practice locations, and promote

___________________________________________________________________________ 323

European Journal of Scientific Research, Vol. 38, No 4, 2009


_____________________________________________________________________________________________
or detail the product by using different techniques and tools like samples, literatures, gifts, prescription pads etc.
They are also responsible for organizing events like seminars, symposia, round table discussions etc., where the
companys marketing staff may also be with them for greater effectiveness (Landau, Achilladelis, Scriabine &
Alexander 1999).
Each sales person is allocated a monthly target, which is to be achieved by generating prescriptions from
target doctors. One sales person usually has 150 to 200 doctors on his coverage list for 25 days working. The sale
reported by the distributor at the outlets falling in the area of each sales person is considered to have been resulted
through prescriptions generated in his area and he gets credit for that sale.
2.2.2 Contractual Sales Team
As the cost of personnel is increasing and control them becoming a difficult task, some companies in Pakistan have
started to appoint contractual sales team to promote products on their behalf. This also results when the companys
portfolio reach such proportions where handling all products either become financially non-feasible, or it becomes
difficult to create a synergy with too many product categories being focused. This problem is sorted out through
appointing third parties to handle selling function. Aventis is one of the companies, which has three contractual
teams working with them, and the system is working quite well for them, with their core staff getting maximum time
to focus on more profitable and important products.
DISTRIBUTION
The distribution function in pharmaceutical industry means physical distribution & logistics in essence
(Wolpert 2004). The types of distribution setups a company may choose from are the following:
2.2.3 Companys own distribution
It is very costly affair for any company to manage its own distribution setup. However, it can be worked
out if the revenue base is sizable, and amount to be paid to third party is enough to cover the cost of operations of a
company-owned network. Currently, Aventis amongst the MNCs and Platinum Pharmaceuticals amongst the
national companies have their own distribution network, which is serving them well.
2.2.4 National Contractual Distribution
Under this arrangement, a company appoints one major distribution house to handle its distribution on a
nation-wide basis. Most of the multinational companies prefer this mode of distribution, as they have clear corporate
guidelines to follow, which requires a uniform distribution strategy across the country.
The company having a national distributor transfers the required level of stocks to the distributor usually twice a
month, normally with a 30 days credit period. The stock is transferred from the companys warehouse to that of the
distributor, which is centrally located. The distributor then sends the stock to respective branches across the country
as per the requirements. The branches then take the products to the market through their sales team. Good national
distributors normally cover the whole of Pakistan through 30-40 branches at strategic locations.
Advantages:

Uniform policy across the country.


More financial support from the distributor.
Possibility of inter-branch transfers in case of shortage of stocks.
Uniform promotional activities and communication across the country.
Administrative ease due to dealing with a single distributor.
Lesser chances of infiltration of stock due to uniform discount rate and centralized control.
In case a distributor is weak in some areas, the company has to live with it because of the arrangement at
the national level.

Disadvantages:

No flexibility to address local requirements, which can be a major problem. There are several areas in
Pakistan where market dynamics are totally different from main towns and where a company might think
and act with a local perspective.
In case the company is under financial stress, a national distributor may not allow over-stocking because of
a national scenario being evident to the management.

___________________________________________________________________________ 324

European Journal of Scientific Research, Vol. 38, No 4, 2009


_____________________________________________________________________________________________

A problem identified in one area may be taken as a widespread problem due to the tendency to generalize
things.
Average cost may be higher as the distributor will be paid one rate across the board, which may be higher
than what the company may pay on individual basis under regional setup.

2.2.5 Regional Contractual Distribution


Most of the companies prefer a regional distribution setup, under which, different distributors are appointed
for one or more territories. In some cases, a company might have two parallel systems for main towns and outskirts
respectively. In some case, a company might have a random setup with assigning the distribution according to areas
to strength in different territories.
Usually, a company working on a regional contractual system may have any where between 10-30
distributors, unlike consumer products where the number can go well above 100 for most of the companies.
Advantages:

Flexibility to formulate and implement strategies according to the needs of specific geographical locations.
Possibility of shifting the stocks selectively in excess of requirement in a way that no particular distributor
is over-stocked to an extraordinary level.
Flexibility to appoint and fire distributors on the basis of their performance in their territory.
Possibility of appointing distributors having a specific profile, which suits specific geographical locations.
Small distributors may be appointed at a lower cost because of their low infrastructure cost and overheads.
Possibility of having different payment terms for different distributors resulting in a lower average cost.

Disadvantages:

Infiltration of stock between territories because of cost differences.


Administrative & communication cost is very high because of large number of distributors.
Uniformity in quality of service cannot be achieved because of differences in profiles and capabilities of
distributors.

2.3 Channel Selection Decisions


Developing a distribution setup is one of the most important tasks for any marketing team. The outcome of
all promotional activities, product positioning etc. will be in due course, determined by the quality and support of the
distribution system. More pharmaceutical operations fail due to ineffective distribution system than any other
reason. Any other mistake in product development or marketing strategy can be rectified without loosing much time,
but distribution system, one in place, can be a monumental task to be dismantled and developed again. That is why a
company should take immense pain and evaluates the decision of developing a distribution system with line with the
companys objectives and profile (Pavlouv 2003).
STEPS IN DECIDING UPON DISTRIBUTION NETWORK:
A company should consider the following things before finalizing the nature and structure of the
distribution setup:
2.3.1 Company Profile
A small sized company should never go for a national/large sized distribution network, as it will never get
the priority and focus that a small business deserves. A powerful distributor will always try to have its own way, and
this in turn may not prove to be good for the company. Such company should go for small sized distributors, which
are trying to make a mark in the industry, and will be dependent on the revenue generated by small companies.
On the other hand, a large sized company will be better off working with a distributor of matching size and profile.
2.3.2 Marketing Focus
A distribution system should always be perfectly aligned with the companys marketing objectives. A
company has to be very sure of how their marketing policies will be served by the distributors. If the company
believes in trade-oriented policies, giving discounts and bonuses, and making bulk sale, they need distributors with

___________________________________________________________________________ 325

European Journal of Scientific Research, Vol. 38, No 4, 2009


_____________________________________________________________________________________________
strong wholesale orientation. On the other hand, if a company believes in not relying on trade policies and instead
focus on prescription generation, it should appoint distributors with strong retail coverage (Lam & Michael 2004).
Similarly, a company must choose between focus on institutions or in-market sales, as the required profile
of distributors again varies for the two markets. In case, a company has a dual focus, it should consider having
separate distribution setups for institutions and market coverage with suitable distributors profile.
2.3.3 Area Coverage
A very important decision, which will determine the size and structure of the distribution system. It is not necessary,
that a company cover the whole of Pakistan. The product portfolio, the marketing objectives, and the resources all
will play an important role in determining the distribution setup. A company must try to come up with an optimum
structure, which is cost effective, and at the same time provides the required coverage (Agarwal, Desai, Holcomband
& Oberoi 2001).
2.3.4 Nature of Association
Companies may have different types of arrangements with the distributors. They can go for exclusive
distribution rights for certain areas, or they may appoint more than one distributor there. They can have a long-term
agreement like 3-5 years, or they may get into a contract for a year or less to keep the stakes low. They may ask for
advance payments for stocks, or have credit arrangement. All these decision will determine how careful a company
should be in evaluating the prospective distributors and in how much detail before a decision is made (Myshko
2004).
2.3.5 Services Needed from Distribution
A company must see what types of services they require from the distributors. In case, its simple logistics,
things are easy and any distributor with reasonable facilities can handle that. However, if the company requires
market intelligence, data management, conducting of surveys, implementation of promotional campaigns etc., the
profile of the distributors will obviously be different (Ratner 2004). These days, more and more companies are
attempting to gain maximum advantage of Internet facilities, and they require their distribution system to be online
for reporting, ordering & inventory management. In a third world country like Pakistan, this effectively reduces the
choice of distributors as except UDL, Muller & Phipps and Premier agencies, no other distributor has the
infrastructure, skills and even inclination towards latest technologies (Ahmed & Jalees 2008).
3. CONCLUSION
This study concluded that things are changing at lightening pace in pharmaceutical marketing, as in all
other discipline. The scenario in Pakistan is very dynamic and evolving rapidly. Things have really changed if we
considered the local pharmaceutical industry. The study identified that Pharmaceutical products can be distributed
through different channels to its customers. For general marketing, sales and distribution functions are mostly
performed by the sale organization, or in some cases the company has its own sales team taking care of selling
function, whereas the distributor is responsible for physical distribution of goods only. In pharmaceutical industry,
selling function is invariably handled by the companys own sales team due to highly technical and specialized
nature of job, whereas the distributor is responsible only for the logistics part. It is further concluded that there is no
winning formula for pharmaceutical promotion. All one can do it to understand the purpose of each tool, and then
try to create a Marketing Mix, which works well under the given scenario. Pharmaceutical distribution is the most
important tool, which supports the other marketing functions. It is further concluded that there is no winning formula
for pharmaceutical promotion. All one can do is to understand the purpose of each tool, and then try to create a mix
which works well under the given scenario.

REFERENCES
[1]. IMS PKPI (MAT Q2& Q3, 2008). Pakistani Pharmaceutical Industry, December 31, 2008.
[2]. Parmar and Jalees, 2004. Pharmaceutical Industry in Hyderabad, Unethical Practices in Drug Promotion,
Independent Study for MS, Shaheed Zulfiqar Ali Bhutto Institute of Science & Technology, Karachi, May.

___________________________________________________________________________ 326

European Journal of Scientific Research, Vol. 38, No 4, 2009


_____________________________________________________________________________________________
[3]. Sattar, I. and A. Maqsood, 2003. A Marketing Mix Model for Pharmaceutical Industry - A Pakistani
Perspective, The Journal of Independent Studies and Research, Volume 1, Number 2.
[4]. Wolfe, S. M., 2002. Direct-to-consumer advertising Education or emotion promotion? New England Journal
of Medicine, 346(7), 524-526.
[5]. Westfall, J. M., H. McCabe and R. A. Nicholas, 1997. Personal use of drug samples by physicians and office
staff. JAMA, 278:141-143.
[6]. Wazana, A., 2000. Physicians and the pharmaceutical industry: is a gift ever just a gift? JAMA, 283(3), 373-80.
[7]. Lexchin, J., 1992. Pharmaceutical promotion in the third world, Journal of Drug Issues; 22(2): 417-422.
[8]. Kotler, P. & Gary Armstrong, 2002. Principles of Marketing, 9th Edition, Prentice-Hall International, New
Jersey.
[9]. Duffy, C.M, M Clark, 2003, Who receives free sample medications? Journal of General Internal Medicine, 18;
205.
[10]. Kola, I. and J. Landis, 2004. Can the Pharmaceutical Industry Reduce Attrition Rates? Nature Reviews. Vol. 3
(August), pp. 711-715.
[11]. Pollack and Andrew, 2002. Despite Billions for Discoveries, Pipeline of Drugs is Far from Full. The New York
Times. April 19.
[12]. Filmore, D., Thayer, A.M. and Willis, R.C. 2004. Pipeline Challenges. Modern Drug Discovery, October, pp.
28-34.
[13]. Gilbert, J., Hanske, P., Singh, A. 2003. Rebuilding Big Pharmas Business Model. In Vivo, 21: 73-82
[14]. Henderson, Rebecca, 2000. Drug Industry Mergers Wont Necessarily Benefit R&D. Research Technology
Management, 43 (4): pp. 10-11.
[15]. Landau, Ralph. Achilladelis, Basil. Scriabine and Alexander, 1999. Pharmaceutical Innovation:
Revolutionizing Human Health. Chemical Heritage Press, pp. 100-105.
[16]. Wolpert, Jan., 2004. The BUY vs. BUILD Challenge to Drug Makers' Performance, Mergers and Acquisitions,
Philadelphia, 39 (8): pp. 22.
[17]. Ahmed, R. R., and Sattar, I., 2009. Distribution Channels in Pakistani Pharmaceutical Industry, European
Journal of Scientific Research, 38 (4): pp. 321-327.
[18]. Pavlouv, A., 2003. Biotechnology M&A insight: Deals and strategies, Journal of Commercial Biotechnology,
10 (I): pp. 85-91.
[19]. Lam and D.Michael, 2004. Dangerous Liaisons. Pharmaceutical Executive, 24 (5): pp.72.
[20]. Agarwal, S., S. Desai, M. Holcomband A.Oberoi, 2001. Unlocking the value of Big Pharma, The McKinsey
Quarterly, No. 2: pp. 65-73.
[21]. Myshko, Denise, 2004. The Secret to Alliance Success. PharmaVOICE, 4 (10): pp. 14-24.
[22]. Ratner, Mark, 2004. Public-private Model Pursues Precompetitive R&D. Nature Reviews Drug Discovery,
November, Vol. 3: pp. 987.
[23]. Ahmed, R. R., and Jalees, T., 2008. Pharmaceutical Industry in Pakistan: Unethical Pharmaceutical Marketing
Practices, Market Forces Index, 4 (2): pp. 30-39.

___________________________________________________________________________ 327