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

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: 1. A Market Development Approaches scoping exercise – HLSP 2. Extensive review of generic manufacturers – UNFPA/ICON/Concept/PPD 3. Development of country criteria for MDAs – PSI 4. Total Market/2 nd Tier Initiative, research and feasibility - ICON

4. Total Market/2 nd Tier Initiative The ICON Total Market/2 nd Tier Initiative draws upon a concept paper developed in 2004: 1. Adopting a total market approach to country initiatives 2. Developing a low-price 2 nd 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

5. Market Development Approaches Manufacturers model +RH Efficiency Reduced donor spend Improved sustainability Outcomes NGO/ Branded/ Distribution model Source: Adopted from Francoise Armand, Futures Group 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 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 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 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 Inherent potential for sustainability Can be much more cost- effective than NGO model 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 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 Depends on program, but generally aim to build on the strengths and minimize the weaknesses of the classical models 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) NGO/ Branded/ Distribution model + RH Effective-ness Improved RH access Improved RH + Reallo- cation to the Poor + Cost recovery Charging those who can pay + Commercial methodologies Including marketing, distribution, procurement etc. + Commercial incentives Providing market-based incentives  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  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 Approaches Non-CommercialCommercial 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 2 nd tier Public sector

6. Research and Feasibility phase The results from the 2005 research and feasibility phase indicate: 1. In five out of seven countries, the Total Market/2 nd 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 2 nd 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

7. Total Market/2 nd 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/2 nd 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/2 nd 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 2 nd 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. High CPR and/or favorable competitive environment Little ATP and/or WTP and/or unfavorable business environment EG: Nigeria Characterizing country environment MarketPotential SustainabilityPotential Low High Low High Low CPR and/or competitive environment unfavorable No ATP and/or WTP and/or unfavorable business environment EG: Benin, Congo High CPR and/or favorable competitive environment High ability to pay and/or WTP and/or favorable business environment EG: Morocco, Venezuela Low CPR and/or competitive environment unfavorable High ability to pay and/or WTP and/or favorable business environment EG: Ukraine

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

12. Creating 2 nd 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?

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 2 nd 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 2 nd 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?

15. Total market segmentation – free market intervention 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

16. The case for assisted market interventions (short term subsidy) 1. Real alternative for moving clients up the value chain 2. The long term cost of public provision can be reduced at the national level 3. Demonstrate to manufacturers that volume sales in the 2 nd tier + sales to public sector can generate acceptable profits 4. Proper segmentation does not prohibit manufacturers from competing in high end/1 st tier 5. At subsidy end, cost savings can outweigh investment and are sustainable 6. Effective, mutually beneficial public private partnerships 7. Agreed pricing and combined purchasing by public sector donors/agencies

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

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][1] To appropriately assist in the development of additional generic manufacturers of supplies for sustainable contraceptive supply security to ensure competition? [1][1] To compare pilot programs with concurrent similar initiatives, working with OECD manufacturers, and market performance of generic suppliers “own label” efforts

19. Assessing 2 nd tier interventions 1234 TYPE Dedicated 2 nd tier Free market EXECUTOR Social EnterpriseNGOsPharma OECD, Social Enterprise, NGO Pharma Generic SCOPE 5 countries10 countries1 country2 countries SUPPLY SOURCE Generic supply OECD supplyGeneric supply FUNDING AssistedUnassistedAssistedUnassisted

20. Action points