From choice, a world of possibilities

Market Development Approaches Making 2nd Tier Markets Work

Bonn, October 2006

Definition of a Market Development Approach ( MDA) Efficiency – interventions will seek to move

people away up from heavily subsidized products to wholly commercial and non-subsidized products, if conditions are right.

Effectiveness – interventions should result in overall market growth and increase in use

Equity – the success of interventions results in better targeting of subsidised products

Interventions are only worthwhile, if theultimate result/money saved benefits the poorest

Market Development Approaches Working Group

The Market Development Approach Working Group focuses onexpanding markets to serve the needs of lower andmoderate income clients who may be able to pay for their RHproducts.

The goal of the group is: to improve access to and choice of RH supplies for lower and moderate income consumers through public, private, and commercial sectors

Members of the MDA group, jointly and independently have carried out a number of important interrelated activities in pursuit of this goal, which have included:

1. A Market Development Approaches scoping exercise – HLSP2. Extensive review of generic manufacturers –

UNFPA/ICON/Concept/PPD3. Development of country criteria for MDAs – PSI4. Total Market/2nd Tier Initiative, research and feasibility - ICON

Total Market/2nd Tier Initiative

The ICON Total Market/2nd Tier Initiative draws upon a concept paper developed in 2004:

1. Adopting a total market approach to country initiatives

2. Developing a low-price 2nd commercial market segment for contraceptives in appropriate countries, where possible simultaneously supplying the public sector with lower cost product for free distribution –serving two segments

3. Based upon developing partnerships with emerging generic manufacturers in developing countries, for supply to both market segments

4. Contains core and limited MDA elements

Market Development Approaches Outcomes

Limited MDAe.g. public sector or NGO

introducingcharging for some segments or

reducing cost of existingsupply

Core MDAe.g. introducing new commercial project to

attract users frompublic sector

Not MDAe.g. public sector expanding

scope of free distributionprogram

Limited MDAe.g. introducing new commercial player to

add to method mix

ApproachesNon-Commercial Commercial

Improved RH efficiency

Improved RH effectiveness

•Initiatives to grow supply or demand in the commercial market (I.e. full cost recovery, use of commercial channels)

•Initiatives to grow supply or demand in the non-commercial market (I.e. little or no cost-recovery)

•Lowering cost/ increasing sustainability of a RH outcome

•Achieving a better RH outcome

2nd tierPublic sector

Research and Feasibility phase

The results from the 2005 research and feasibility phase indicate:

1. In five out of seven countries, the Total Market/2nd Tier approach is feasible and could add value to national contraceptive security efforts

2. In four of the markets, the possibility exists for developing the 2nd tier and supplying the public sector with interest from government

3. It is established beyond reasonable doubt that high quality developing country generic manufacturers who could supply product do exist, albeit currently in limited numbers

Total Market/2nd Tier Initiative as an MDA

Within any given MDA approach, it is possible to develop multiple variables to suit specific market conditions and country circumstances

There are many separate components within the Total Market/2nd Tier approach, which can be effectively used to add value to contraceptive supply related programmes

as concluded by the HSLP scoping study The HLSP scoping study concluded that, the

Total Market/2nd Tier approach is one example of an MDA, among many others

Progress – from theory to practice

The broad philosophy – using a total market approach, is being adopted by organisations/programs

Market segments assessments routinely carried out during the planning stage for new initiatives

Developing a low price 2nd commercial tier is specifically embedded into proposed new programs

Social marketing programs are increasingly sourcing products from emerging generic suppliers

Challenges

The ICON model and research activities has focused primarily on lower middle income countries, does it apply to low income countries?

To what extent can we identify appropriate country markets in advance?

What criteria do we apply in determining the correct approach and elements from the MDA mix?

High CPR and/or favorable High CPR and/or favorable competitive environmentcompetitive environment

Little ATP and/or WTP and/or Little ATP and/or WTP and/or unfavorable business unfavorable business environmentenvironment

EG: NigeriaEG: Nigeria

Characterizing country environment

Market Market

PotentialPotential

Sustainability Sustainability

PotentialPotential

LowLow

HighHigh

LowLow HighHigh

Low CPR and/or competitive Low CPR and/or competitive environment unfavorableenvironment unfavorable

No ATP and/or WTP and/or No ATP and/or WTP and/or unfavorable business unfavorable business environmentenvironment

EG: Benin, CongoEG: Benin, Congo

High CPR and/or favorable High CPR and/or favorable competitive environmentcompetitive environment

High ability to pay and/or High ability to pay and/or WTP and/or favorable WTP and/or favorable business environmentbusiness environment

EG: Morocco, VenezuelaEG: Morocco, Venezuela

Low CPR and/or competitive Low CPR and/or competitive environment unfavorableenvironment unfavorable

High ability to pay and/or High ability to pay and/or WTP and/or favorable WTP and/or favorable business environmentbusiness environment

EG: UkraineEG: Ukraine

High CPR and/or favorable High CPR and/or favorable competitive environmentcompetitive environment

Little ATP and/or WTP and/or Little ATP and/or WTP and/or unfavorable business unfavorable business environmentenvironment

EG: NigeriaEG: Nigeria

Yemen environment?Market Market

PotentialPotential

Sustainability Sustainability

PotentialPotential

LowLow

HighHigh

LowLow HighHigh

Low CPR and/or competitive Low CPR and/or competitive environment unfavorableenvironment unfavorable

No ATP and/or WTP and/or No ATP and/or WTP and/or unfavorable business unfavorable business environmentenvironment

EG: Benin, CongoEG: Benin, Congo

High CPR and/or favorable High CPR and/or favorable competitive environmentcompetitive environment

High ability to pay and/or High ability to pay and/or WTP? and/or favorable WTP? and/or favorable business environment?business environment?

EG: Morocco, VenezuelaEG: Morocco, Venezuela

Low CPR and/or competitive Low CPR and/or competitive environment unfavorableenvironment unfavorable

High ability to pay and/or High ability to pay and/or WTP and/or favorable WTP and/or favorable business environmentbusiness environment

EG: UkraineEG: Ukraine

Creating 2nd tier segments -assisted or free market interventions?

1. Free market intervention - generic manufacturers as commercial entities, will invest in capability/quality

improvements and product marketing as necessary in pursuit of their corporate objectives, providing competitive price

advantages for the public sector and establishing their niche in commercial market segments based upon market forces?

2. Assisted intervention – generic manufacturers should be assisted to market with the support of the Reproductive

Health community on a partnership basis, determined through mutually acceptable goals and objectives, which

commercially satisfy manufacturers and provide a demonstrable commodity security benefit for Reproductive

Health?

Key issues

How to avoid inadvertently supporting the development of a new monopoly for contraceptive supplies, able to eventually dictate prices using their business position/s

Ensuring the availability of low cost commercial products and creating an enabling environment for the development of 2nd tier market segments

Ensuring manufacturers are able to generate decent profits through guaranteed ongoing business and steady production volumes

Creating 2nd tier segments - free market interventions

1. Will generic manufacturers invest in significant product promotion and education to make a

difference to markets?2. Will they price branded products within the reach

of 2nd tier target clients and look to maximize volumes or profit?

3. If successful, and competition is relatively limited what can we expect five years from now in terms

of benefits to contraceptive security?

Total market segmentation – free market intervention

1st Tier

2nd Tier

Free Distribution Tier

High-price commercial sector products

Affordable commercial products created through the PPP

Donor subsidized branded products – Social Marketing

Government/donor products, supplied free of charge or at minimum cost recovery

LIMITED

POSITIVES

The case for assisted market interventions (short term subsidy)

1. Real alternative for moving clients up the value chain2. The long term cost of public provision can be reduced at

the national level3. Demonstrate to manufacturers that volume sales in the 2nd

tier + sales to public sector can generate acceptable profits4. Proper segmentation does not prohibit manufacturers from

competing in high end/1st tier 5. At subsidy end, cost savings can outweigh investment and

are sustainable6. Effective, mutually beneficial public private partnerships

7. Agreed pricing and combined purchasing by public sector donors/agencies

Lower price public sector Lower price public sector availabilityavailability

More competitive high end More competitive high end marketmarket

Improved social marketing Improved social marketing cost recoverycost recovery

Funding environment

AssistedAssisted

MinMin

MaxMax

Free marketFree market

Minimum product choice & Minimum product choice & limited saleslimited sales

Reluctance to brand changeReluctance to brand change

Uncoordinated market Uncoordinated market developmentdevelopment

Tangible increase in no of Tangible increase in no of clients servedclients served

Established 2Established 2ndnd commercial commercial tier/reduced demand on tier/reduced demand on public financespublic finances

Lower price public sector Lower price public sector availabilityavailabilitySignificant product choiceSignificant product choice

High brand awareness acrossHigh brand awareness across

Improved client trust for Improved client trust for generic contraceptivesgeneric contraceptives

Commercial product in reach Commercial product in reach of target clientsof target clients

Ben

efi

t

Next Steps

To identify sufficient funding and undertake a limited number pilot of pilot Total Market programs, with comprehensive monitoring and evaluation mechanisms in place

To continue with and enhance the Market Scoping exercise carried out by PSI on behalf of the MDA Group

To develop an appropriate impact driven monitoring and evaluation mechanism, including comparative analysis to relevant similar interventions [1]

To appropriately assist in the development of additional generic manufacturers of supplies for sustainable contraceptive supply security to ensure competition?

[1] To compare pilot programs with concurrent similar initiatives, working with OECD manufacturers, and market performance of generic suppliers “own label” efforts

Assessing 2nd tier interventions1 2 3 4

TYPEDedicated 2nd tier

Dedicated 2nd tier

Dedicated 2nd tier

Free market

EXECUTORSocial Enterprise

NGOs Pharma OECD,Social Enterprise,NGO

Pharma Generic

SCOPE5 countries 10 countries 1 country 2 countries

SUPPLY SOURCE

Generic supplyGeneric supply OECD supply Generic supply

FUNDINGAssisted Unassisted Assisted Unassisted

Action points