Parkin Labs.pdf

W13262
PARKIN LABORATORIES: SALES TARGET DILEMMA
Sandeep Puri wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective
or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to
protect confidentiality.
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University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2013, Richard Ivey School of Business Foundation Version: 2013-12-10
On a cold evening in October 2012, Manoj Kumar, the general manager of sales at Parkin Laboratories in
India was thinking about his sales strategy for the final quarter of the year (October to December). He was
having a difficult time deciding on the revised targets for the five regional sales managers (RSMs). His
team had achieved 91 per cent of its sales targets in the first three quarters with a growth of 10.6 per cent
over the previous year, while the growth target to be achieved was 20 per cent. In 2011, the company had
achieved 101 per cent of its targets with growth of 23.5 per cent over the previous year. Kumar knew that
he needed to find a way to make his RSMs more productive and efficient.
He was also thinking about the annual targets given to various RSMs. The South zone had achieved 97.1
per cent of its target with 9.2 per cent growth, whereas the West zone had achieved 88.4 per cent of its
target with growth of 14 per cent. The feeling among the field force was that the 2012 targets had not
been decided judiciously, as many territories had uneven growth. The organization’s incentive plan was
linked to the target achievements, but this uneven growth worked as a demoralizing factor for many
medical representatives (MRs) (see Exhibit 1) In addition, the company had planned to launch a new anti-
diabetic drug in December 2012. Kumar was indecisive about a new product launch when the sales team
was striving hard to achieve their budgets.
COMPANY’S BACKGROUND
Parkin Laboratories (Parkin) was an innovative generic-pharmaceutical company that provided
combination drugs to the medical community. The company was launched in 1987 with a small capital of
US$1 million and 10 employees. Within a year, Parkin Laboratories had launched an antibiotic, Cefokin,
the company’s first recognized brand in India. Soon, Parkin landed another success with
Dicoron, its branded Diclofenac — an analgesic and anti-inflammatory medication, which was launched
at half the price of other brands in the Indian market. Subsequently, the company was ranked among the
top 50 fastest growing pharmaceutical companies of India with an employee base of approximately 800. It
was aiming for a net revenue of US$500 million in 2012 (see Exhibit 2).
Parkin Laboratories’ line of 75 medications included antibiotics, antifungal drugs, gastrointestinal drugs,
non-steroidal anti-inflammatory drugs, antidiabetic drugs, anthelmintic drugs, cardiovascular and dermal
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9B13A017
products. Its strong portfolio of products and its distribution network provided strategic advantages of
integration that allowed Parkin to perform well in an increasingly competitive market (see Exhibit 3).
Parkin faced strong competition from large industry players such as Ranbaxy, Cipla, Novartis, Lupin and
Mankind. Many of these competitors had been extremely successful because of their research capabilities
and distribution network. The company had a comprehensive network of 35 carrying and forwarding
agents, and 2,500 stockists, who distributed its products to customers in different parts of the country.
THE INDIAN PHARMACEUTICAL INDUSTRY
The Indian pharmaceutical industry had done well in the past two decades and had consistently been
growing at a compound annual growth rate of more than 15 per cent over the past five years. This growth
was driven by such factors as low drug penetration, a rising middle class, increased spending on the
health care infrastructure, increasing acceptance of medical insurance, changing demographic patterns
and the rise in chronic lifestyle-related diseases.1
Multinational pharmaceutical companies had been
introducing generic and low-priced versions of popular medicines. Multinational corporations had also
lowered the prices of their existing products to gain more market share in the growing Indian
pharmaceutical industry. The business model of Indian pharmaceutical companies was built on selling
large volumes of low-priced medicines to take advantage of both affordability and popularity.
The Indian pharmaceutical market was expected to grow faster than the global pharmaceutical market. It
was estimated to reach US$15.5 billion by 2014.2
The Indian pharmaceutical industry was now the third
largest in the world by volume (accounting for approximately 10 per cent of the world’s production) and
the fourteenth largest by value (accounting for around 2 per cent).3
The Indian pharmaceutical market was
expected to touch US$74 billion sales by 2020 from its current annual sales of US$11 billion4
(see
Exhibit 4).
SALES MANAGEMENT AT PARKIN
B. P. Chaudhary, chief executive officer of Parkin Laboratories, had always believed that a strong sales
process produced both solid sales growth and more accurate sales forecasting. He further emphasized that
sales resources needed to be used effectively with quality and quantity in mind. According to Chaudhary,
Kumar needed to work with each sales team to discover the pattern for successful sales strategies in their
respective zones. Further, he was also required to design a sales and sales management process that was
compatible with company policy and its product line.
Sales Organization
The sales force had continued to be the biggest promotional investment for Parkin Laboratories. It had
evolved over a period of time and had adopted innovative commercial models according to its needs —
1
“Indian Pharma Industry – An Overview,” India Biznews, April 13, 2012, www.indiabiznews.com/?q=node/2873, accessed
February 11, 2013.
2
“Top 10 Pharmaceutical Companies in India,” www.pharmaceutical-drug-manufacturers.com/articles/top-10-
pharmaceutical-companies-in-india.html, accessed January 19, 2013.
3
Pharma World Expo, 2013 brochure, www.chemtech-online.com/events/chemtech/pdf/Pharma_brochure_2013.pdf,
accessed March 19, 2012.
4
“India Pharma Inc.: Gearing up for the Next Level of Growth,” PWC Report, published October, 2012,
www.pwc.in/en_IN/in/assets/pdfs/pharma/pharma-summit-report-31-10-12.pdf, accessed December 19, 2012.
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from the sales and marketing model to the strategic business unit model of specialized task forces. The
key reason for all models remained the same: to provide better customer focus and targeting, enhance call
efficiencies, develop newer business areas and increase the accountability of resources.
Parkin’s sales team had 600 medical representatives (MRs). Its sales force was widely regarded as being
among the best in the pharmaceutical industry. Sales and product training were extensive: each new MR
underwent a one-month training course held twice a year at the company facility in New Delhi. All MRs
were also exposed to a one-week refresher course in the same facility each year. Moreover, district sales
managers (DSMs) worked with each medical representative for three days each month for field-training
and performance reviews. Seven MRs were grouped geographically with a DSM, who in turn reported to
a regional sales manager (RSM). Parkin had five RSMs representing North, East, West, South and Central
zones of India. These RSMs reported to the general manager of sales (see Exhibit 5).
Sales Process
Pharmaceutical selling was distinct from general selling. Pharmaceutical selling required MRs to have
both sound product knowledge and good selling skills, as they were required to sell the product to
medical practitioners. MRs from different companies tried to woo customers with the similar “me too”
products that had different brand names.
Missionary selling was the main sales style used in pharmaceutical selling. Thus, an MR’s role was to
convince doctors about the effectiveness of a product they could prescribe for their patients. Missionary
salespersons were also referred to as detailing salespersons. Detailing involved discussing the features and
benefits of products with doctors and chemists and was a platform for doctors to learn about indications,
dosages, side effects and the prices of different products. Parkin used Sales Force Automation (SFA)
software by Oracle CRM to monitor different sales activities in the field. The MRs recorded their
discussions with customers, both in their daily reports and by using SFA software. The MRs needed to
meet with retail chemists to ensure product availability. MRs worked independently and preferred to self-
manage their territories. They needed to follow a disciplined and planned calling system for regular visits
to doctors, chemists, stockists and hospitals. MRs were responsible for sales and marketing in their
respective territories. Their sales results were monitored by a sophisticated “sales audit” system.
SALES TARGETS
Sales targets at Parkin were decided each November for the following year. These targets were usually
based on industry growth, segment growth and the previous year’s sales. Factors such as additional sales
force, launch of new products and promotional plans were also considered when deciding on the annual
targets. At the same time, Kumar would meet each of his RSMs individually to review their performance
for the current year and their forecast for the coming year. Based on these discussions, Kumar would
divide his target among the RSMs, who, in turn, followed the same process in deciding the targets for
DSMs and MRs.
Parkin Laboratories followed the QTQ (Quality-Target-Quantity) technique, whereby all RSMs, DSMs
and MRs needed to achieve both qualitative and quantitative targets. For example, MRs needed to meet
10 doctors and four chemists each day. They also needed to target 50 per cent of their time to “A” class
customers, 30 per cent to “B” class and 20 per cent to “C” class customers. Each MR was mandated to
complete a minimum of 220 calls to doctors and 88 calls to retailers per month. Similarly, MRs needed to
achieve the required growth of value and volume targets on a monthly and yearly basis. DSMs and RSMs
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worked closely with the MRs to guide them in achieving their targets. Parkin offered handsome
performance-linked incentives to MRs, DSMs and RSMs.
Distribution Structure
The typical pharmaceutical supply chain in India started with inbound logistics, wherein the manufacturer
procured raw materials from the suppliers and converted them into the final product. Finished medicines
from the production department would go to the organizations’ central warehouses. From there, the
products moved to the carrying and forwarding agents (CFAs). CFAs supplied the goods to various
stockists, distributors or wholesalers, as per their orders. The products were then distributed to millions of
retailers countrywide.
At Parkin Laboratories, its products were delivered to customers through a network of 35 CFAs, who
were primarily responsible for maintaining stocks of the company’s products and forwarding different
stock keeping units to the stockists. Parkin’s 2,500 stockists then acted as the distributors in the
designated territories to supply medicines to the retailers in that area (see Exhibit 6).
THE DILEMMA
The general economic outlook was good, and the segment represented by Parkin Laboratories had shown
handsome growth of 16 per cent in 2012. However, competition was intensifying as every player fought
hard to capture more market share with higher growth rates. Parkin’s main competitor, Mankind Pharma,
was targeting 28 to 30 per cent growth in the current financial year.5
Parkin Laboratories was also
planning to launch a new anti-diabetic drug in December 2012. Kumar was indecisive about launching a
new product when the sales team was striving hard to achieve its current sales targets.
Kumar felt that it was time to make his team accountable for the targets and the required growth. He
believed that to improve the performance of the different zones, he would need to re-evaluate his
strategies for setting revised targets for the last and critical quarter of 2012. Kumar also wondered about
the possibility of all RSMs meeting the targets with the required growth of 20 per cent. He was also
considering the different strategies that needed to be adopted to help the MRs and DSMs to achieve their
targets. As he began to outline his plan to refine the targets, he found he was in a dilemma whether to
revise the sales targets for the last quarter or to support the team with a marketing blitz and sales
promotion to achieve the targets for 2012. He thought about the response of different stakeholders toward
this change in strategy and contemplated whether this was the right time to launch a new product.
5
“Mankind Pharma Set to Tap Core Drugs Market,” Business Standard, July 19, 2012, www.business-
standard.com/article/companies/mankind-pharma-set-to-tap-core-drugs-market-112071900076_1.html, accessed January
26, 2013.
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EXHIBIT 1: SALES PERFORMANCE AT PARKIN LABORATORIES, 2012
Zone
2011
Achieve
-ment
(US $
Million)
2012
Target
(US $
Million)
%
Target
Growth
over
2011
Jan-Sep
2011
Achieve-
ment (US
$ Million)
Jan-Sep
2012
Target (US
$ Million)
Jan- Sep
2012
Achieve-
ment (US $
Million)
% Achieve-
ment ( Jan-
Sep)
Growth
% (Jan-
Sep)
North 95 118 24.2 69 88.5 77 87.0 11.6
East 84 102 21.4 64 76.5 69 90.2 7.8
South 98 114 16.3 76 85.5 83 97.1 9.2
West 78 98 25.6 57 73.5 65 88.4 14.0
Central 65 72 10.8 45 54 50 92.6 11.1
Team 420 504 20.0 311 378 344 91.0 10.6
Note: Figures have been changed to maintain confidentiality.
Source: Provided by the company.
EXHIBIT 2: SELECTED FINANCIALS FOR PARKIN LABORATORIES, 2007–2011
(IN MILLIONS OF US$)
2007 2008 2009 2010 2011
Net Revenue 180 225 270 340 420
Cost of Sales 54 68 83 105 132
Operating Expenses 11 14 17 22 27
Other Income (Loss)* 1 3 –2 5 4
Net Income 116 146 168 218 265
Notes: * Includes gain (loss) on equity investments, settlement income, benefit (provision) for income taxes, cumulative
effect of changes in accounting principles and other income.
Figures have been changed to maintain confidentiality.
EXHIBIT 3: PARKIN LABORATORIES’ TOP 10 PRODUCTS, BY SALES
S.No Product Category
1 Dicoron Analgesic and anti-inflammatory
2 Zincotone Multivitamin with zinc
3 Cetakin Anti-allergic
4 Coldex Anticold
5 Diclozox-P Muscle relaxant
6 Zymvit Forte Digestive enzyme
7 Cefokin Antibiotic
8 Ope-20 Antacid
9 Norakin Antibiotic
10 Ambrokin Plus Cough syrup
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EXHIBIT 4: TOP 10 PHARMACEUTICAL COMPANIES IN INDIA
Rank Company MAT Oct’12 ( in Billions)
1 Abbott 506.4
2 Cipla 353.0
3 Sun 303.5
4 Ranbaxy 301.5
5 Glaxosmithkline 300.0
6 Zydus Cadila 284.0
7 Mankind 242.4
8 Alkem 236.7
9 Pfizer 228.6
10 Sanofi 201.9
Note: MAT = moving annual total.
Source: ACNielsen ORG-MARG Research Report, November 2012.
EXHIBIT 5: ORGANIZATIONAL STRUCTURE OF PARKIN LABORATORIES
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EXHIBIT 6: DISTRIBUTION STRUCTURE OF PARKIN LABORATORIES
Carrying and Forwarding agents
Stockists
Retailers
Customers
Central Warehouse
Manufacturing Unit
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