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Can APIs be Differentiated? Differentiation Strategies
Dr R B Smarta, Managing Director, Interlink Marketing Consultancy Pvt Ltd and Dr Durga Prasad, Consultant, Interlink Marketing Consultancy Pvt Ltd Indian Active Pharmaceutical Ingredient (API) manufacturers face tough competition from well-established API manufacturers from developed countries, and also aggressive Asian counterparts. This gives a question on how an Indian API manufacturer can compete with other Indian, Asian and global API manufacturers at various highly segmented global markets strata. One of the major tools to utilise is Product Differentiation Strategy. The article talks about how to differentiate a commoditised product like API.

The global Active Pharmaceutical Ingredient (API) market is estimated to touch USD 133 billion, while Indian API market is expected to be 11 per cent of the pie, with a projected 11 per cent Compound Annual Growth Rate (CAGR) by 2015. Indian API manufacturers face tough competition from well established API manufacturers from developed countries and also aggressive Asian counterparts. Moreover, the rule of survival of the fittest applies aptly to any Indian API manufacturer and it is expected to be competitive as compared to their peer group, i.e., other Indian manufacturers.

This gives a question on how an Indian API manufacturer can compete with other Indian, Asian and global API manufacturers at various highly segmented global markets strata. One of the major tools to utilise is Product Differentiation Strategy. The question is how to differentiate a commoditised product like API. Global generic formulators are keenly looking towards India as a preferred source of Generic API for Regulated Market. This is the shift witnessed over a period of two decades. The Indian API manufacturers are still fighting in competitive less regulated markets, while establishing themselves in regulated markets as trustworthy suppliers.

Differentiation
How to differentiate a commoditised product like APIs in the globe?
As an individual API manufacturer from India, how can one create a differentiation factor, especially when the market situations with respect to economy or regulations are drastically changing? The differentiation factors can be attached to the entire organisation or a product or a group of products, and also to a group of markets where you want to operate.

In fact, API is not just a product. It is a well blended combination of Product, Service, and Value.

Considering the Indian branded formulation market and the way companies promote their brands to doctors, the market is crowded with multiple numbers of brands for each molecule.

But the brands are positioned in such a way that the doctors remember and prescribe the brands based on the way it is communicated or promoted. The doctor remembers the brands due to the indication emphasised (or) specific attribute like taste, flavour (or) better formulation (or) reputation of the company (or) behaviour of sales representative (or) price (or) quality (or) communication flow (or) service (or) participation in conferences (or) response from patients (or) packaging (or) any other, either on individual basis or as combinations of these aspects.

Same customer behaviour applies even when companies try to promote API to the customers. Let us assume, an API manufacturer has the capability to bring new products quickly but drops the products once the margins start eroding. Customers would prefer this company for development and early launch phase of their formulations.

But at the same time the customer starts looking for alternate supplier. So this API manufacturer has created a differentiation for itself as a ‘quick to launch new products company’. As long as this manufacturer maintains this differentiation factor, the benefits keep flowing in. And it becomes equally tough for the manufacturer to suddenly change the profile to another differentiation factor. Customers remember the API manufacturers on the basis of various exhibited and inherent attributes of Product, Service and Value. The question of what attributes to choose and what is right and what is sustainable depends on the long-term vision of the API manufacturer who would like to create a differentiation factor.

Most of Chinese API manufacturers at the beginning became high volume cost effective, competitive and quick producers.

As time progressed, the differentiation factors increased and we now find a lot of Drug Master File (DMF) filings and handling of different chemistries.

As a result, a best-fit strategy to differentiate is based on the factors shown in Table 1 and weaving them in the competitive advantage. Gradually, the API companies should make their differentiation factors visible to the customer either through subtle communication or through your professional activity and ensure that the customer is aware about the changes. Feedback must be taken from within the organisation and also from customers to evaluate the relevance and importance and impact of the differentiation factors, and perform periodic reviews.

Differentiation factor lies within and success lies with a win-win situation with customers.