Interview Transcript

Your client is an online medicine delivery company, that delivers all kinds of Allopathic medicines on a written prescription within 2 hours. It is undergoing negative growth in India. You have to examine the problem and plan on how to increase the growth. But before beginning, I want you to estimate the market size of Online Medicine Delivery Applications in India.

I would like to ask a few clarifying questions before estimating the market size. Can go ahead with taking only urban areas into account, considering people in rural areas are currently not open to ordering medicines online?

Yes, you may go ahead with urban areas for this estimation right now.

Alright, so considering that people having an income above 2.5 lakhs will be able to afford and order medicines online. Of these people, any one family member would be placing the order, so avg. Indian family size can be taken as 4 which gives us a number of 9 crores. Based on assumptions taken, as to what kind of medicines urban population prefers between allopathy, homeopathy, and ayurveda. Taking into account that our client delivers only allopathy which can further be divided into serviceable and unserviceable, finally reducing the number to 6 crores orders. The orders can further be divided into two divisions- subscription-based orders and non-subscription. Considering the average amount and frequency of these two divisions, we can come up with the market size, which is approximately Rs. 25,000 crores.

Great, now you may go ahead with the case-solving aspect of the problem statement.

I would like to ask a few clarification questions before I analyze the problem. Since how long has the client been operating in India and in which cities?

The client has been operating since 2015 in India and they are operating in 5 Top tier 1 cities.

Is the Company facing the problem in all the operational cities and what is the growth rate in the last 5 years?

Yes, the company is facing problems in all the cities and the average growth rate for the last 5 years is -2% and has reached 8% from a previous growth rate of 18-20%.

Alright, As the problem statement states that there has been negative growth i.e. profits had declined. It could be due to an increase in costs or decrease in revenue or a combination of the two. Do we have an idea on which side the problem lies?

The revenue has declined.

Okay, I would like to further segment revenue into – Number of customers x Average Order. Do we know which one has seen a decline?

No. of customers has declined in the past few years.

The decline in the number of customers can be due to external and internal factors. Which one do you want me to focus on?

Let’s go ahead with the external factors first.

Okay, Considering the external factors through the 3CP framework there could be a change in

government policies or consumer preference which could be due to licensing of a medicinal firm. There could be negative publicity for the company due to any rumors in the market. Apart from this, there could be a new competitor in the market or a new product launched in the market due to which our customers have shifted to their brand.

Yes, there has been a new competitor in the market last year but there has been no change in the government policies nor any negative publicity.

Alright, I would like to know more about the competitor. What are the product offerings by the competitor and are they offering any features other than ours?

The competitors offer online Medical Consultation which has proved to be efficient in them garnering a larger amount of subscriptions and customers. You can now move to the internal factors.

Alright, Since we are not a manufacturing firm. It could be due to any problem in the distribution channel or a change in consumer behavior. Do we know which one has changed?

The distribution channel has been through a single warehouse in each city we operate but we are not able to deliver the orders within 2 hrs. Rest all factors remains constant.

Is the company using any marketing techniques to acquire customers?

No, not since the last 2 years. I think you now have enough information and can now start with the recommendations.

Alright, I would divide my recommendations into three parts. One would be a change in the distribution channel by opening dark stores to reduce the delivery time and setting up a Medical Consultation service on our website with features like instant appointments, to further gain traction on the website and retain the customers and lastly to use marketing techniques for attracting new customers and retain previous ones.

Great, I would like you to now calculate the cost of doing the same and the expected growth rate after the execution.

Yes sure, so let us first look at the average cost of setting up 1 dark store, we will incur expenditure on some fixed assets such as furniture (Racks, fridges, tables, packing equipment, etc.), and we can roughly take these costs to be 30 Lakhs. We will also need to set up a robust computer system so that there are no delays in receiving the orders or tracking the delivery executive, for which we can incur 2.5  Lakhs of expenditure. We can consider 2. The expenditure on recurring expenses would include the rent of the store, salaries of employees, utility bills, insurance premiums, and other miscellaneous expenses. I have assumed that for a 2,000 sq feet store, the annual rent will be around 18 lakhs, the salaries will amount to rupees 24 lakhs considering the average monthly salary for an employee to be 20k, the average consumption of utility services will incur an expense of 10 lakhs per annum along with an Insurance premium of 1 lakh and miscellaneous expenses of around

a lakh, reaching out to 58 lakhs per annum. 5 Lac of expenditure for miscellaneous expenses. Our total cost of setting up one dark store would be 93 lakhs.

Ok, and how many dark stores would you recommend, and on what basis?

Sir I would recommend doing an analysis of the 5 cities and identifying densely populated areas (for the complete capacity utilization & maximum revenue from dark stores). We should place at least 4 dark stores per city, so a total of 20 stores.

Ok, what could be the estimated cost of setting up the teleconsultation vertical?

For that, we would be required to set up an application, a comprehensive one can be built in around 50 Lakh rupees as the average cost of setting up an AI is 10 lakhs and would require a maintenance of around 3 lakhs per month , and I believe teleconsultation doctors draw a fixed salary, so the salary for 15-20 doctors could be around 1.5 to 2 crores.

Having incurred these costs, what do you think will be the impact on revenue?

Sir our expenditure on dark stores will not make the delivery process efficient, but will be able to strengthen the company’s position in their areas through constant marketing and instant supplies. Teleconsulting is an add-on feature, which will not only help us in increasing our user base but also retain it. I believe these services could help the company grow by at least 8-10% more each year, upon successful implementation.

Impressive, thank you for sharing your approach

Thank you sir, thanks for the opportunity!

Case Facts

Overview- online medicine delivery company delivering only allopathic medicines.

Industry Scenario– Problem specific to the company

Operational geography – Top 5 tier-1 cities

Problem- Experiencing negative growth