07 May 2008

Pepsico & The IMA

Pepsico and the Indian Medical Association (IMA) have reached a non-commercial deal, whereby Indian doctors will be endorsing two products of the company, namely Tropicana Pure Juices and Quaker Oats in India.

As per the story (http://economictimes.indiatimes.com/News/News_By_Industry/PepsiCo_enters_into_non-commercial_deal_with_IMA/articleshow/3016920.cms) published in the Economic Times on 07-May-2008, the doctors will be endorsing these two products in advertisments for these products while Pepisco will help IMA in sponsoring public forums and other such events. In management-speak, this appears to be a win-win for both parties. However, it appears that at least one of the parties, namely the IMA, has not thought of the impact of this deal on the third party - the public. Pepsico is definitely aware of the impact; I will go so far as to say that they got into the deal knowing fully well what impact this deal is going to have and fully intending to maximise that impact.

Dr. Ajay Kumar, who is the past president of the IMA is the chief architect of this deal. Dr. Ajay Kumar is a highly respected surgeon specialising in Urology, and runs his practice in Patna, the capital city of Bihar. Dr. Ajay is a very intelligent person and a very good surgeon, and I say this based on first-hand experience. Dr. Ajay and I went to the same boarding school in (erstwhile) Bihar, though not at the same time. I have interacted with him outside of school and found him to be a highly intelligent person.

Which is why it surprises me that Dr. Ajay has not taken into account the implications of this deal for the public. Dr. Ajay comes from one of the poorest states in India and Doctors in Bihar, and even in the rest of India, enjoy a respect which borders on awe and blind faith. A patient will go to any lengths to get the medicines and vitamins prescribed by her doctor, even if she doesn't have the money to buy those medicines and vitamins. A patient will also try to follow the dietary recommendations of the doctor to the extent that they can be followed. When doctors recommend Daab Pani (fresh juice from green coconuts) or SugarCane juice or Dalia (Wheat meal), patients try and stick with that recommendation. These things are easily available in every nook and corner of Bihar, and, they are inexpensive. OK, maybe they are not so inexpensive. But Tropicana Pure Juices? And Quaker Oats? Having spent some time in Patna, I can count the number of stores that would have these items in stock; these stores are all high-end stores, with high prices and an exclusive clientele. Besides, the fact that these products are being marketed by Pepsi automatically jacks up the price. I mean, Pepsi will not be selling these products in open containers, will it? Packaging is expensive, you know, and then somebody's got to pay for all that advertising, and the salaries of all those suits. Right? Are the doctors going to pay for all that? So, the poor patient, in addition to the price of the medicines and the vitamins, will also be paying the salaries of the suits that Pepsico employs to market these products.

Sure, Pepsico is not asking doctors to make dietary recommendations to patients , but do you think that Pepsico is going to be content with the doctors' endorsement? At what point in time, does some Pepsico suit turn around and assess the returns from this deal? You bet it is going to within the year. Pepsico is bound to put in a monitoring mechanism whereby it assesses the revenue growth in its sales regions based on the number of doctors in that region, and not just based on salespersons in its employ.

Then there is the local availability of the raw material and cropping patterns to consider. Oats are not a major crop in India and are chiefly produced in Russia, Canada, USA, Finland, and Poland. India does produce Oats but mainly as a fodder crop. Pepsico will, in all probability, source its Quaker Oats from USA for the time being, but given the emphasis on cost reduction in the supply chain it will start sourcing from India in the not too distant future, as soon as it can get its Quality Control processes in place. Now, I am not a big fan of how commercial farming has acted as a disruptive force in Indian agriculture. Sure, it has resulted in increased incomes for the commercial farmers, but at the same time it has decreased the area under food production. Sure, Oats are food, and I am the majority stakeholder in Pepsico!

Dr. Ajay, we are happy with our narial-pani and dalia. Thanks for the Orange Juice and Oats, but we don't need them.

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