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Understanding healthcare distribution dynamics for startups

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Saumya Gaur, Healthcare Investment Lead, Unitus Ventures opines on how startups can carve a niche in a market with established players

Largely fragmented and somewhat disorganised, the healthtech distribution landscape in India can be a tough one to navigate. In order to maximize distribution potential, startups utilise multiple strategies to disseminate their product(s).

Direct distribution

At an early stage, when a startup has limited resources and distributor economics, which usually require significant margin dilution, a startup could reach out directly to potential clients/customers to sell its product(s). Doing so, allows a startup to gain visibility into every aspect of its supply chain and integrate early direct feedback into both its product as well as its distribution strategy. This method, however, does have its downside: it can be time-taking, labour-intensive and geographically constraining.

Indirect distribution

Through an existing distributor (B2D)

A startup could directly reach out to a distributor in order to get its product(s) included in the distributor’s portfolio. Depending on the targeted level of coverage and geographies, it may be necessary to deal with multiple distributors. Some key aspects to negotiate would include role definition, including lead generation and maintenance, as well as margins.

Through a business with an existing network (B2B2D)

OEMs and PACS providers:

In working with an OEM, a startup can quickly gain access to the distributors that already serve the OEM as well as to the OEM’s existing client base. This strategy is especially useful if a business is looking to expand globally. A typical agreement with an OEM could entail revenue sharing, profit sharing or an equity stake.

Large hospital chains:

A startup could also approach a large hospital chain instead of individual clinics in order to sell its products. Apollo, for instance, has over 64 hospitals and 100 primary care centres internationally. Successfully negotiating an agreement with Apollo to place a device in even a portion of its clinics could help the startup consolidate distribution efforts and costs as well as gain significant early traction. However, this process may be lengthy and bureaucratic. Startups could also find themselves squeezed for margins, especially considering that some hospitals may insist on a pilot prior to purchasing the startup’s solution. This strategy may be best suited for telemedicine such tele ICUs, teleradiology or workflow assisting and productivity improving software.

Pharmacy chains:

Startups with patent-centric products such as BP monitors, glauco meters, pulse oximeters as well as home use or wearable devices can distribute products through large pharmacy outlets such as MedPlus, Apollo, Trust Pharma etc. Generally, sales of these devices are driven by recommendations made by clinicians. The core advantages of this strategy include rapid penetration, access to the large patient base and potential for cross-selling (For e.g., chemists can identify patients on regular BP medication and offer BP monitors to them. The primary drawback would be the high margins demanded by chemists.

Through the existing point of care locations:

This channel makes a lot of sense to devices which need significant diagnosis/assessment before prescribed use. Examples include hearing aids, contact lenses and prescription glasses. The advantages of this strategy include access to existing customer base, quick and easy fulfillment as well as an existing network of reliable touchpoints for support and service. However, due to the multiple players involved, margins can be tight – for instance, in the case of hearing aids, margins are spread between the core distributor, referral clinician and the audiologist.

Through the government (B2G2D)

Commercialisation via sales to governments is another attractive option, particularly because of the sheer market volume that a tender with any government can offer. Though an effective path to scale, the process of government-led sales can be lengthy, tiresome and marred with bureaucracy. In addition, since local governments can vary significantly, a startup will likely have to navigate through each governing body individually and the network effect may not be very strong. A good idea would be to have parallel distribution strategies in order to offset the delays and roadblocks often associated with government contracts.

Through an electronic marketplace

Another way for a startup to commercialise is through the use of an electronic platform or an existing e-commerce channel.

Pro Tips

In addition to the strategies mentioned above, we have a few additional pointers for startups thinking about distribution.

Using Key Opinion Leaders (KOLs):

In healthcare, specifically in niche products and services, key opinion leaders (KOLs) play a crucial role in customer acquisition and lead generation. A start-up that leverages KOLs can generate an early buzz and tap into the network effect in order to boost adoption. Here, the relationship with the KOL will have to be clearly defined in terms of compensation, use of the product as well as feedback loops. A startup should choose its KOL carefully; the candidate should ideally be a well-respected, high-standing and neutral member of the industry. Compensation can be non-traditional and many startups choose to include KOLs in the co-founding or core advisory team in order to align incentives. To maximise value and minimise resources spent, startups should use KOLs in geographies where the KOL has the strongest network.

Factor in the peripherals:

  • When introducing a new product, a startup may have to spend significant time training the healthcare professional that will be using the product in order to ensure proper use and foster longevity of the product. Determining how training will be included in the distribution strategy is crucial and should be inclusive of factors such as complexity and frequency of training.
  • After sales service is another important aspect which should be factored into the distribution strategy based on the level of involvement with the customer, the logistics of support provision as well as complexity/resource intensiveness of parts replacement and maintenance.
  • Factoring in the peripherals is especially important for startups choosing to go the indirect route for distribution. Given limited exposure to end users, some ways to offer training and after sales service include hosting remote trainings, offering customer support lines, chatbots, ad-hoc online groups t (e.g. WhatsApp) as well as developing scalable user support materials.
  • The distribution landscape in India is diverse and complex, and there is clearly no one-size-fits-all strategy to tackle the challenge. However, with some thorough planning, tough negotiating and resourceful thinking, startups can successfully leverage current market dynamics.

 

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