Weiking

Weikang Pharmaceutical Co. Ltd. Case Analysis

Team Members Mayank Kumar Ashish Aggarwal Vamshi Krishna Sudheer Kumar Smita Singh Ruhi Nikose Piyushi Prabha Divya R.

Introduction 

Weikang Pharmaceuticals was established in 2005

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Products include high technology biomaterials like TISTAT

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Has achieved rapid growth with over 300 employees and Operating income of 85.88 Million RMB

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Products are sold all over China and exported as well

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Main customers are hospitals who use Weikang products in surgeries

Distribution Channel and Case Scenario 

Company operated acc. to principles of direct supply to distributors

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Each distributor was given a particular region to operate in

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Distributors were incentivised depending on sales performance

Liuzhou (Li Zhong)

Nanning (Sun Qiang)

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Annual sales of 13 M RMB achieved

More than double no. of hospitals as compared to Liuzhou

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Market was saturated

Zhong made sales to Nanning Second People’s Hospital This was violation of distribution agreement Qiang approached the company for action against Zhong Meeting of all regional managers and sales managers was called Survey for opinions of all distributors and salespersons was conducted

Many potential customers existed

ISSUE: How to deal with cross border operations

Few Facts of Channel Conflict 

Lack of any channel conflict in a marketing strategy usually indicates gaps in market coverage

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Conflict cannot be eliminated.

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The goal of marketing management must be to optimize market coverage and manage a healthy level of channel conflict so that it does not become destructive

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Market share erosion and declining street prices are evidence that channel conflict is becoming destructive.

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As markets evolve and mature, many manufacturers will be required to add new, lower-cost channels in order to cover all major market segments.

Structural Controls(alternative 1) 

Structural controls are only as effective as their enforcement.

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At 3 levels: Accounts products and geography.

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no value unless –

1. spell out the controls 2. enforce the stated penalties to all channel members.

Piggyback Distribution strategy

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Piggyback is a form of distribution in foreign markets in which a SME company (the “ rider”), deals with a larger company (the “carrier”) which already operates in certain foreign markets and is willing to act on behalf of the rider that whishes to export to those markets.

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This enables the carrier to utilize fully its established export facilities (sales subsidiaries) and foreign distribution.

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A special norm will be applied in case of a territory reaching saturation point.

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The distributor needs to take permission from the head office to enter into other territory.

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In the case, Liuzhou province reached a saturation point.

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The distributor can request the Head office for a special permission to enter into Nanning province.

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Head office can analyze the market scenario and take decision.

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The distributors will co-ordinate together to approach the prospects and will do the sale

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Once, the sale is done the profit earned will be shared among them.

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By this, they will conquer the market share

as well as earn profits without conflict.

 Alternative 2(Economic Punishment) Why?

01

Violated the agreement the company had signed with distributors

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Can cause huge damage to both company’s pricing and sales systems

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If behavior of distributor as unpunished, it would sharpen conflicts between both distributors

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Some hospitals in Nanning had begun to bargain for lower prices; Bargaining power could become overstretched

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Lesson for others

Issue 

Direct supply to distributors – responsible for particular regions

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Incentives on sales performance

Cross boundary sales made to Nanning Second People’s Hospital

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Violation of distribution agreement Qiang approached the company for action against Zhong Meeting of all regional managers and sales managers called Survey conducted for opinions of all distributors and salespersons

Support for Peaceful Settlement

Dilemma

Support for Severe Punishment

Increased market share – more sales volume

Cross boundary sales breach of contract

Driven and enthusiastic – example for other distributors as dedicated to Weikang development

Can start a precedence among other distributors

Severe action can intimidate other distributors and limit ambition

Degrade company market share and reputation

Nanning distributor not active or tenacious enough

Make distributor network difficult to manage

Client not a current client Cannot lose or deter dedicated and high performing distributors like Zhang

Can start a price war

Thank You