Market Development Approaches

1. Market Development Approaches Making 2nd Tier Markets Work Bonn, October 2006 From choice, a world of possibilities

2. 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 the ultimate result/money saved benefits the poorest

3. Market Development Approaches Working Group The Market Development Approach Working Group focuses on expanding markets to serve the needs of lower and moderate income clients who may be able to pay for their RH products. • 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: • A Market Development Approaches scoping exercise – HLSP • Extensive review of generic manufacturers – UNFPA/ICON/Concept/PPD • Development of country criteria for MDAs – PSI • Total Market/2nd Tier Initiative, research and feasibility - ICON

4. Total Market/2nd Tier Initiative • The ICON Total Market/2nd Tier Initiative draws upon a concept paper developed in 2004: • Adopting a total market approach to country initiatives • 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 • Based upon developing partnerships with emerging generic manufacturers in developing countries, for supply to both market segments • Contains core and limited MDA elements

5. Increasingly, there are variations/ hybrids of the above models, • E.g. NGO programs with increased/ full cost recovery, or Manufacturers model with strong commitment to reach the poorest • Sample countries: Bolivia, Ghana, Thailand • Donors fund an NGO (typically an international network like PSI) to provide subsidised services and products • Develop and market their own brands with aim to maximize usage (share) in target group • May have some cost recovery • May establish own distribution infrastructure • Key agencies: PSI, MSI, IPPF • Sample countries: Angola, Eritrea, Uganda, Vietnam • Donor/ agency forms partnership with commercial players to co-fund marketing or other activities in exchange for commitment to furthering social goals (e.g. through lowering price, extending distribution) • Key agencies: Futures Group, CMS • Sample countries: Brazil, Cameroon, Morocco, Mexico • Depends on program, but generally aim to build on the strengths and minimize the weaknesses of the classical models • Offers NGO/ donor full flexibility/ control over all aspects of marketing mix – extending reach to the poorest/ neediest • Proven ability to create demand • Can be mobilized relatively quickly, by experienced NGOs • Inherent potential for sustainability • Can be much more cost-effective than NGO model • Inherently unsustainable – relies on continued donor funding • May crowd out commercial sector • May not build local capabilities • May not be very cost effective -> unnecessarily high cost per CYP • Sustainability is not automatic – incentives for commercial partners have to be right • Will only work in countries with a minimum level of commercial potential – may not be viable in the poorest countries • May not reach poorest/ neediest • Depends on program, but generally include a high level of complexity and a poor fit with the core capabilities of the implementing agency (a an NGO increasingly trying to act like a 100% commercial player) Market Development Approaches 2nd tier Approaches Public sector Non-Commercial Commercial Limited MDA e.g. public sector or NGO introducing charging for some segments or reducing cost of existing supply Core MDA e.g. introducing new commercial project to attract users from public sector Outcomes • Lowering cost/ increasing sustainability of a RH outcome Improved RH efficiency Not MDA e.g. public sector expanding scope of free distribution program Limited MDA e.g. introducing new commercial player to add to method mix • Achieving a better RH outcome Improved RH effectiveness • Initiatives to grow supply or demand in the non-commercial market (I.e. little or no cost-recovery) • Initiatives to grow supply or demand in the commercial market (I.e. full cost recovery, use of commercial channels) NGO/ Branded/ Distribution model + Commercial methodologies • Including marketing, distribution, procurement etc. NGO/ Branded/ Distribution model +RH Efficiency • Reduced donor spend • Improved sustainability + Cost recovery • Charging those who can pay + Reallo-cation to the Poor Manufacturers model + RH Effective-ness • Improved RH access • Improved RH + Commercial incentives • Providing market-based incentives Source: Adopted from Francoise Armand, Futures Group

6. Research and Feasibility phase • The results from the 2005 research and feasibility phase indicate: • In five out of seven countries, the Total Market/2nd Tier approach is feasible and could add value to national contraceptive security efforts • In four of the markets, the possibility exists for developing the 2nd tier and supplying the public sector with interest from government • It is established beyond reasonable doubt that high quality developing country generic manufacturers who could supply product do exist, albeit currently in limited numbers

7. 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

8. 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

9. 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?

10. Characterizing country environment Market Potential High CPR and/or favorable competitive environment Little ATP and/or WTP and/or unfavorable business environment EG: Nigeria High CPR and/or favorable competitive environment High ability to pay and/or WTP and/or favorable business environment EG: Morocco, Venezuela High Low CPR and/or competitive environment unfavorable No ATP and/or WTP and/or unfavorable business environment EG: Benin, Congo Low CPR and/or competitive environment unfavorable High ability to pay and/or WTP and/or favorable business environment EG: Ukraine Low High Low Sustainability Potential

11. Yemen environment? Market Potential High CPR and/or favorable competitive environment Little ATP and/or WTP and/or unfavorable business environment EG: Nigeria High CPR and/or favorable competitive environment High ability to pay and/or WTP? and/or favorable business environment? EG: Morocco, Venezuela High Low CPR and/or competitive environment unfavorable No ATP and/or WTP and/or unfavorable business environment EG: Benin, Congo Low CPR and/or competitive environment unfavorable High ability to pay and/or WTP and/or favorable business environment EG: Ukraine Low High Low Sustainability Potential

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

13. 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

14. Creating 2nd tier segments - free market interventions • Willgeneric manufacturers invest in significant product promotion and education to make a difference to markets? • Will they price branded products within the reach of 2nd tier target clients and look to maximize volumes or profit? • If successful, and competition is relatively limited what can we expect five years from now in terms of benefits to contraceptive security?

15. Total market segmentation – free market intervention High-price commercial sector products LIMITED Affordable commercial products created through the PPP Donor subsidized branded products – Social Marketing POSITIVES Government/donor products, supplied free of charge or at minimum cost recovery

16. The case for assisted market interventions (short term subsidy) • Real alternative for moving clients up the value chain • The long term cost of public provision can be reduced at the national level • Demonstrate to manufacturers that volume sales in the 2nd tier + sales to public sector can generate acceptable profits • Proper segmentation does not prohibit manufacturers from competing in high end/1st tier • At subsidy end, cost savings can outweigh investment and are sustainable • Effective, mutually beneficial public private partnerships • Agreed pricing and combined purchasing by public sector donors/agencies

17. Funding environment Lower price public sector availability More competitive high end market Improved social marketing cost recovery Tangible increase in no of clients served Established 2nd commercial tier/reduced demand on public finances Lower price public sector availability Significant product choice Max Benefit Minimum product choice & limited sales Reluctance to brand change Uncoordinated market development High brand awareness across Improved client trust for generic contraceptives Commercial product in reach of target clients Min Free market Assisted

18. 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

19. Assessing 2nd tier interventions

20. Action points