NB Health Care
Disrupting Markets, Building Brands: Achieving scale at the BoP is anything but business as usual
Amitava Chattopadhyay is the Glax-o-SmithK-line chaired pro-fes-sor in cor-po-rate Inno-va-tion – pro-fes-sor of mar-ket-ing at INSEAD and founder and pro-gram direc-tor for Mar-ket Entry Strate-gies for India. He’s spent his pro-fes-sional life work-ing on the top-ics of brand-ing and inno-va-tion and recently turned to exam-in-ing these two top-ics in the con-text of emerg-ing mar-kets. That’s why we were delighted when he agreed to answer a few questions for NextBillion Health Care.
Kyle Poplin: In the 2012 book you co-authored, “The New Emerging Market Multinationals: Four Strategies for Disrupting Markets and Building Brands,” and in recent interviews you talk about businesses in emerging markets who are successfully building global brands, often beating out entrenched global players despite a relative lack of resources. What do these brand-building firms have in common?
Amitava Chattopadhyay: They have several things in common.
1. Passion and self-belief: In many emerging markets, there is a self-belief that they can win; a belief they historically did not have. You see this most overtly in China, where people actually will say, “It’s our turn.”
2. Product and process innovation: Unlike or perhaps in addition to labour arbitrage – the typical reason given for the competitive ability of emerging market firms – it is important to realize that they are aggressively pursuing product and process innovation.
3. Putting customers front and center: Consider Indian carmaker Mahindra and Mahindra. Unlike most car companies, they do not develop the chassis first. Rather, they work on the cabin that sits on top, as that is what the customer will touch and feel. They then work backwards from the cabin to create a chassis that will deliver the required drive performance.
4. Focus: The emerging-market multinationals (EMNCs) tend to be more focused than their global counterparts from the developed markets. The focus could be on categories, segments, brands, etc.
5. Integrated and customer-centric marketing strategy: EMNCs are also very careful to ensure that their brand-building efforts are centered on the target customer and carefully integrated to build the brand with their limited resources.
KP: How have consumers in emerging markets changed, specifically since C.K. Prahalad wrote “The Fortune at the Bottom of the Pyramid” a little more than a decade ago? Along those lines, among the business people you talk to, what are the most common misconceptions about consumers in emerging markets?
AC: This is a difficult one. Clearly, the consumers are getting more affluent. For instance, back in 2005, a year after C.K. Prahalad’s book, there were 11 million consumers in India who, according to McKinsey and Company, had an income over 1 million INR (about U.S. $15,600). That number is expected to grow to 29 million consumers by 2025, an almost threefold increase. More dramatically, those earning between .5 million and 1 million INR stood at 44 million back in 2005, but they are expected to jump tenfold to 457 million by 2025; they already number 243 million, according to the same report. Along with this, the poorest group, those earning less than 99,000 INR (about U.S. $1,500) per year, are expected to shrink from the reported 598 million back in 2005 to 314 million by 2025. India is not the only market. African consumers are also expected to see a rise in income. So there is a real opportunity for growth in the emerging markets for a whole host of products.
One area where global leaders make a mistake is to assume that emerging-market consumers will be content with what they already have in their product portfolios or in some cases stripped-down versions of the same products. This is clearly not the case. Some MNCs like GE are taking this seriously and have set up labs in India and China. The MACi ECG (electrocardiograph) machine from the lab in India took into account the specific needs of local consumers over and beyond price. Likewise, the Lullaby baby warmer. Both have been great successes.
(The Lullaby baby warmer by GE, left. Photo courtesy of GE)
The needs of emerging-market consumers often go beyond the adaptation of the product to their needs. The entire business solution may need to be re-engineered. Thus, to reach the masses in India with health care, Novartis developed the Arogya Parivar initiative that starts with helping rural, less affluent Indians discover their health conditions, identify appropriate medical practitioners, get the appropriate treatment, including access to tests, medications, etc., and finally ensure compliance with the treatment. This requires developing a complete solution and you can read more details in my case study on Arogya Parivar here.
Arogya Parivar works with health educators from the community who work in an area around their home at a radius of 10 kilometers. They go to villages and talk about health care issues ranging from malnutrition to TB. Since they are typically men, when it comes to women’s health, they work with the local government-employed nurses at local clinics to have them discuss health issues, as women are not comfortable discussing women’s health issues with men. Sometimes they team up with NGOs that focus on health and have the women working for them deal with the issues.
The first step in education is to get people to understand what a health issue is. For instance, poor women in rural India often have fainting spells due to malnutrition. This is seen as a “natural condition,” for want of a better way of describing it. As such, they are not given vitamin supplements which would improve their health. Recognizing fainting as a health problem thus becomes an educational objective.
A second aspect of education is creating an understanding of what a doctor is. The rural poor don’t have the same idea of a “doctor” as we do. There are often completely unqualified individuals who may have worked some years in a pharmacy or as a doctor’s assistant who have picked up some knowledge of medicine through their experience and who then acquire a stethoscope, perhaps a machine to measure blood pressure, and then set up shop as a “doctor” in rural India. When one has a severe disease like TB, the first problem is to identify that one may have TB and the second is to know whom they should go to beyond the local, so-called “doctor” to get a proper diagnosis and treatment.
Third, the local “doctor” often doles out medicines that are past the expiration date, that he may have acquired cheaply somewhere. Even the literate, more affluent consumers don’t look at the expiration date printed on the strip or bottle! So, how does one get the proper treatment with medicines that are not expired? Novartis had to expand their distribution system, which earlier did not reach into the rural interior of India, and make sure that medicines that were appropriate were carried and sold to the patients.
Finally, there is the challenge of compliance. Rural poor or, for that matter, the urban poor or the less educated do not understand that feeling better does not mean that one is cured and the entire treatment has to be completed. For diseases like TB, failure to complete the treatment and have a checkup to ensure that one is TB-free is likely to lead to a relapse and even a resistant strain of the bacteria.
Thus, for the Arogya Parivar initiative, Novartis had to educate the target audience to first understand they were sick. Then they had to point them to proper doctors in their area, ensuring that these doctors not only were qualified, but were actually competent. For the latter, they ran educational camps for doctors to upgrade their skills. They next had to ensure the availability of medicines and to do that they had to expand their distribution system. Finally, they had to, using the health educators again, ensure that patients were completing the treatment regimen. In other words, Novartis had to come up with a completely new business system and in doing so collaborate with nontraditional partners like NGOs and the government.
As for GE, they set up an R&D lab in India because they believed, and rightly so, that without locating themselves within the context of the challenges faced by consumers, health care workers and medical practitioners in India, they would not be able to find a proper solution.
(The MACi ECG machine by GE, right. Photo courtesy of GE)
Initially, the R&D lab did what MNCs typically do: Strip down first-world products to create a cheaper version to sell in emerging markets. However, when you strip down a U.S. $10,000 ECG machine, how cheap can you make it? Perhaps 30-50 percent cheaper. But then even, U.S. $5,000 is a lot of money in an emerging market and the cost of an ECG would still be too high for the vast majority.
As a next step, GE moved to developing a new ECG machine from the ground up. They started by looking at the willingness and ability of the poor consumer to pay for an ECG and also the features that the health care practitioners would need to make the machine viable, both from a cost and feature set point of view. They then looked for solutions that could deliver the benefits desired at a cost that was affordable. One element of this was looking for off-the-shelf components rather than the typical dedicated components.
Thus, for instance, the MACi uses an off-the-shelf printer to print out the ECG results. The printer is the same as that used in taxis to print out the fare receipt, or in credit card payment machines to print out the receipt. These are cheap and, with some dedicated software upgrades designed by the GE engineers, proved to be more than adequate, dramatically dropping the cost of the machine. They also used software to substitute for hardware which meant variable cost of the machine was reduced. To make the machine more usable they made it small so that it could be carried around. Electricity is often unavailable in rural India, so the MACi was given a rechargeable battery that could do 500 ECGs on a full charge and could be recharged in just three hours.
The MACi sells for U.S. $500, a 95 percent price reduction from the $10,000 machine referred to above. The result is that the cost of using an ECG for consumers has dropped from around U.S. $4 to about 25 cents, or the same as a liter bottle of drinking water! Equally importantly, it has made it accessible to rural medical practitioners. They can afford a $500 diagnostic machine but not a $10,000 diagnostic machine. This makes it accessible to millions more in India, over and beyond making it affordable.
The GE story is essentially about immersing themselves in the needs of the target consumers to truly understand their needs. As a second step, it required GE to step away from designing products as they usually do, and thinking about how could they meet the consumers’ requirements even if it meant not doing things internally the way they were used to. This required not only the engineers to think differently, but for their managers and all the way up to the top to start thinking in a more customer-centric way. This is a big challenge. One way in which GE CEO Jeff Immelt facilitated this was by making India a direct report to him rather than through the regional entity within which it had been embedded. This sped up the whole process, since the buck stopped with Mr. Immelt.
KP: Is it particularly difficult to achieve scale in health care businesses in emerging markets?
AC: It is totally possible to achieve scale. Arogya Parivar in India has, as has GE Healthcare. You need emerging-market-specific solutions, as both these players have developed.
To scale, you need to first experiment to develop a complete business model that works. Arogya Parivar tried many things along the way to develop their model in India. For instance, to raise awareness of health issues, they initially tried to use a van with a TV that played an educational video embedded within some entertaining programming. This proved too expensive. Then they tried putting TVs in the village panchayat (government) offices with the same content. However, lack of electricity and expense made this infeasible. They next tried street theatre but found that the actors used too much creative license, affecting the consistency and clarity of the message. Finally, they used health educators who were given a flipchart on a stand designed in a way that the flipchart and stand could be stowed in a compact case that could be carried on the bicycle that the health educators rode from one village to the next on their beat!
Given this is new terrain and each element of the new business model needs to be built from scratch, with no standard guidelines, it is important to experiment and find the “right” solution. Once all the elements are in place, then one can scale. So, in India, Novartis worked a handful of villages in two states to develop their model. They then scaled it across the nation. When that was done, their next step was to move the initiative to the regional level. They are now experimenting in Vietnam and Kenya to tweak the model developed in India for the idiosyncrasies of those markets.
Kyle Poplin is editor of NextBillion Health Care.