04-2316-98-1

STEDEC: THE FAMViC PROJECT

Mr. Aziz A. Khan, Managing Director, Scientific and Technological Development

Corporation, Lahore, Pakistan (STEDEC) wearily pushed his chair back, and gazed
thoughtfully in the air. He had just gone through a voluminous, 130 page report prepared
by MBA students of a local university on FAMViC, a product marketed by STEDEC.
Mr. Khan was preparing for a presentation on the future marketing strategy of FAMViC
to his Board of Directors. The meeting was scheduled for December 28, 1994, only a
couple of days away. FAMViC’s student report, past sales records, correspondence with
the distributors, and other documents covered almost all of the table. Mr. Khan was
wondering whether to position FAMViC back as an ethical product or continue it as an
over-the-counter food supplement. The rest of the marketing plan depended on this
decision. “Were we right to begin with?” he mused. “Or are we being impatient now? My
Board has been pretty accommodating so far. But now they will ask tough questions. Our
proposed strategy better be right this time.”

PCSIR LABS -- STEDEC BACKGROUND

STEDEC’s history was embedded in the history of the Pakistan Council of Scientific and
Industrial Research (PCSIR). PCSIR was established in 1953 as a corporate body under
the Ministry of Industries, Government of Pakistan (GOP). Its main objective was to
facilitate the development of science and technology in the country by establishing
regional laboratories and research institutes for research in pure and applied fields.
Research on indigenous development of products that were imported into Pakistan and on
the industrial utilization of locally available raw material was highly encouraged. Five
laboratories were established by PCSIR, one in Islamabad and one each in the four
provincial capitals. These labs specialized in different areas such as minerals and
metallurgical research, food and bio-technology research, etc. Each lab had a Director
General (DG) as its incharge and all the DGs reported to Chairman, PCSIR.

This case was written by Research Associate, Ghalib A. Sheikh under the supervision of Associate
Professor, Ehsan ul Haque to serve as a basis for class discussion rather than to illustrate either effective or
ineffective handling of an administrative situation. The case has borrowed material from the MBA project
report prepared by second year LUMS students; Abaid -ur-Rahman, Ayesha Nisar Ahmed, Furqan Ahmed
Syed, Mirza Rizwan Ahmed, and Tafweez-ul-Vakil. This material may not be quoted, photocopied or
reproduced in any form without the written consent of the Lahore University of Management Sciences.

© 1998 Lahore University of Management Sciences

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In the early seventies, PCSIR was moved to the newly created Ministry of Science and
Technology. During this time there was also a change of emphasis from pure to applied
research. It was believed that by focusing on applied research PCSIR Labs would not
only help the local industry but also reduce the dependency on foreign technologies and
save precious foreign exchange. Successful commercialization of products of this applied
research would also generate funds for PCSIR and reduce its dependency on GOP funds.

Over a period of years, the GOP got disillusioned with the output of PCSIR Labs. While
millions of rupees were being invested each year in the running of these labs, and while a
few good products did materialize, a large number of the products developed at PCSIR
did not get commercialized. The industry felt that these products were either irrelevant to
the market or better substitutes were available. The scientists at PCSIR felt that the
industry was not supportive of their efforts as it was not in industrialists’ interest to use
local know-how and technology. In addition, they complained that the funds and
infrastructure provided for research were scant. Many scientists had often protested that
their business was basic scientific research and not marketing of products. In the
meantime, GOP was increasingly finding itself in a financial crunch.

Consequently, in order to improve the self-financing capabilities of PCSIR Labs, and at

the recommendation of experts from international donor agencies, the GOP decided to
establish STEDEC. STEDEC’s explicit mandate was to promote and market research
outputs of PCSIR Labs.

STEDEC was established in 1988 as a private limited company with a paid up capital of
Rs 20 million. This grant from GOP was divided into two halves; one half was kept for
loans to the scientists at PCSIR working on interesting research projects, and the other
half for setting up pilot plants for products which had successfully passed the laboratory
tests and were approved by STEDEC. A board of directors was constituted to govern
STEDEC’s overall operations. Its chairman was the Minister of Science and Technology.
Other members included the Chairman and the five Director Generals of PCSIR Labs,
and five directors from the private sector nominated by the Ministry.

Two offices were established; the head office located in Lahore, and a branch office
located in Karachi. The MD operated from Lahore while a General Manager (GM)
assisted him and operated from Karachi. The GM, according to STEDEC’s charter, was a
scientist from one of the five PCSIR Labs sent on a deputation for 2 years. The GM was
further assisted by three managers; namely manager marketing, manager finance and
accounts, and manager projects and development. These managers had a fairly limited
staff to assist in the running of operations.

Mr. Aziz A. Khan had pursued his graduate education in the UK. From 1968 to 1977 he
worked as area manager for ESSO (UK). On his arrival in Pakistan in 1977 he was
appointed the managing director of Pakistan Design Institute. He became the managing
director of STEDEC in 1988.

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NEW PRODUCT DEVELOPMENT AT STEDEC

STEDEC’s managers regularly visited various PCSIR Labs. They met at least once a
month with each head of research centres to find out if there were any new products,
processes or technologies (hereafter called product for convenience) that could be
commercialized. If there was an interesting product, its sample was sent to Karachi for an
independent testing of the properties claimed for the product. Once the product crossed
this hurdle it was approved for the next stage.

During the second stage the viability of physical production of the product was gauged. If
there was a need, pilot plants were established for engineering evaluation. It was also at
this stage that the marketing manager looked into the market feasibility of the product.
However, because of lack of funds detailed market surveys could not be carried out. Only
an informal estimate of the approximate market size and demand was made. Competitive
products, their price structures, and existing channel margins were studied. Products
which showed promise were approved by the GM and introduced in the market. A typical
marketing strategy for the product included limited print media advertisement, slightly
higher margins for the distributors than those provided by competitors, and a
considerably lower price than that of competing products, especially if the competitor
was an MNC.

Once a product had demonstrated consumer acceptance and success in the market
STEDEC attempted to sell the new product and its related technology to investors/buyers
through a bidding process. Products launched by STEDEC, however, could not easily
find buyers. In such cases, STEDEC was allowed to continue marketing the product until
a buyer was found. However, during this time STEDEC had to recover its running
expenditures and also earn some profit on the product. After the initial grant of Rs 20
million, the GOP had no intentions of subsidizing STEDEC on a continuing basis. From
1989 to 1994, STEDEC had acquired 20 different products from PCSIR. Three had been
sold to buyers while the rest were either shelved or were in different stages of market
assessment and/or launch.

INITIAL HISTORY OF FAMViC

In 1990, Dr R. B. Qadri at PCSIR Lab, Karachi, was working on a canned sardines

project for Pakistan Army. He developed a process which led to the production of amino
acids (see Exhibit 1). Amino acids were essential for human growth and development.
The human body converted proteins found in normal diet into amino acids. Though food
items, such as, lentils, pulses and eggs contained sufficient proteins, a major source of
protein was considered to be meat which was expensive in Pakistan and its frequent
consumption was out of reach of the common man. Consequently, it was believed that
many low-income families were malnourished and needed some nutritional supplements.
Dr. Qadri believed that these amino acids could be very useful for individuals deficient in
proteins.

STEDEC saw a lot of potential in Dr. Qadri’s product. A series of meetings between

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managers at STEDEC and PCSIR resulted in a total agreement on launching this product
from the STEDEC platform. It was felt that the product met all requirements; it was
effective, rich in amino acids, inexpensive to manufacture, indigenously researched by
PCSIR, and met the market demand for a nutritional supplement. The product was
acquired by STEDEC and was named “FAMViC” which was the abbreviation of Family
Amino Acids Minerals Vitamin Compound. Though sugar was its major content by
weight, it was essentially a tonic rich in amino acids. It was decided to introduce the
product in two different sizes; 120 ml and 280 ml bottles.

The marketing team and the MD agreed that FAMViC would be marketed as a health
tonic for growing children, old people, expectant mothers, and patients recovering from
illness. The product was positioned as an ethical product to be sold only at medical and
drug stores.

STEDEC used to price its products at roughly half the price of competitive products in
the market. However, in the case of FAMViC there were surprisingly no competitive
products in the market. Therefore, a retail price of Rs 58 for a 280 ml bottle and Rs 39 for
a 120 ml bottle was set. This pricing enabled STEDEC to earn a healthy margin of
roughly 50% after deducting the distributors’ margin and PCSIR royalties. This price
could also enable STEDEC to break-even at annual sales of only 6000 liters.

The plant which was to produce FAMViC was situated in Karachi. Therefore, a Karachi-
based distributor, Uzma Foods (UF), was selected to reach pharmacies and medical
stores. Although UF had a relatively small network of distribution it had the experience
of dealing in pharmaceutical products. Moreover, STEDEC believed that a small
distributor, with fewer products in hand, would provide STEDEC a better service as
opposed to a large distributor. The margin for UF was settled at 35% of the retail price
and they were extended a month’s credit. They were also entrusted with developing the
market through contacts with doctors.

FAMViC was launched in March 1990. As FAMViC was an ethical product little
promotional activity accompanied the launch. Financial position of STEDEC also
precluded any major expenditure on advertising or promotion. A few ads were placed in
the daily Jang and Dawn and another twenty thousand rupees were spent in the
publication of brochures and point of sale mobiles (see Exhibits 2 and 3).

REPOSITIONING OF FAMViC

Although FAMViC was launched with great expectations the results did not turn out to
be very encouraging. While the STEDEC team expected a slow expansion of sales,
because of the limited marketing support that they could provide, the sales growth was
far below expectations (see Exhibit 4).

By the end of 1991, STEDEC had also developed serious differences with their
distributor. They had frequently asked UF to take steps to improve FAMViC sales
volume but to no avail. One reason seemed to be Ulf’s lack of a strong distribution

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network in Punjab -- the most populous province. In addition, STEDEC was facing
payment problems with UF. According to the original understanding, STEDEC offered a
30 days credit to UF and they in turn were expected to extend this credit to the retailers.
Over time UF started delaying payments and in spite of many reminders and warnings
from STEDEC continued to delay the payments, citing lack of sales as the reason.
However, STEDEC finally decided to change the terms and asked UF to pay cash up
front for any future stocks. This did not help matters much and STEDEC eventually
decided to sign on Ali Pharma as their new distributors of FAMViC in early 1992.

STEDEC provided the same 35% margin to Ali Pharma, however, no credit was
extended. Ali Pharma had a relatively larger distribution network and they also had many
more medical representatives who could detail doctors and visit pharmacies. The change
in distributors, however, did not bring about the needed results in sales volume. On the
other hand, Ali Pharma began to insist for credit terms in return for the marketing
services provided to FAMViC.

During this time STEDEC management was wondering whether they had made a mistake
in positioning FAMViC as an ethical product. They also felt that selection of smaller
distribution companies was a mistake as they were unable to properly support FAMViC.
They approached United Distributor Limited (UDL). UDL was considered as one of the
more well-established, and successful distribution companies in Pakistan. It was involved
in the distribution of pharmaceutical products for companies like Pfizer, Searle and
Allergan and fast moving consumer goods for companies like Procter and Gamble and
Morinaga. They had a substantial field force comprising both medical reps and other
sales representatives who covered all of Pakistan.

UDL executives concurred with STEDEC managements’ inclination to sell FAMViC as

an over-the-counter (OTC) product with significant advertising. They suggested that as
the product was not a medicine to be prescribed for patients but a nutritional supplement
it should be marketed as such. Many food supplements like Ovaltine, Energile, and
Complan (see Exhibit 5) were positioned as OTC products, advertized directly and
heavily to consumers, and placed at regular retail outlets in addition to the pharmacies
and drug stores. While some managers gave contrary examples of other successful tonics
like Lederplex and Vi-Daylin (see Exhibit 6) which were sold as ethical products and not
advertized directly to the consumer, however, a decision was reached to reposition
FAMViC. It was decided that UDL would make FAMViC available to a maximum
number of retail outlets all over Pakistan and STEDEC will generate consumer demand
for the product. UDL advised STEDEC to obtain a certification from a reputable
international organization on the health benefit claims made by FAMViC and highlight
this in their ads. UDL also suggested that if STEDEC could spend roughly Rs 2 million
on TV ads UDL would be able to sell around 200,000 bottles within a year. Mr. Aziz
Khan met with STEDEC’s board to discuss FAMViC’s new strategy as well as to get
approval to spend Rs 2 million on ads. While some members had reservations, the board
decided to allow this expenditure as they were getting impatient with FAMViC’s
progress.

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In February 1994, STEDEC terminated their relationship with Ali Pharma and signed on
UDL as their new distributors. A TV campaign was prepared and launched in July 1994.
Fifteen second spots were shown during the 9 o’clock Urdu News and during the Tariq
Aziz show, a weekly talk show popular among the lower-middle income group. Both the
show and news had a large audience. In addition to this, short duration films were also
shown in the cinema halls in ten major cities of Pakistan. This media blip continued till
September 1994. Sales picked up dramatically in the initial months but the momentum
was not maintained for long (see Exhibit 7).

THE STUDENT PROJECT

In September 1994, a group of MBA students from a local university contacted Mr. Aziz
Khan for work on a marketing project; they were required to undertake this assignment as
a part of their course requirement. Mr. Khan immediately suggested FAMViC to them.
He asked them to help STEDEC find out why consumers were not buying FAMViC. He
felt that a better understanding of consumers could help STEDEC fine-tune their
marketing strategy. The students took on the project and submitted their report in
December 1994.

The students had divided their study into three parts; doctors’ study, medical stores’
study, and consumers’ study. Key findings from the various studies were as follows:

DOCTORS’ SURVEY (also see Exhibit 8)

• The prescription of amino acid preparations was far less prevalent than that of
other supplemental medicines such as vitamins.

• Doctors felt that regular food was a good enough source of amino acids for all
except for a very few.

• Doctors mostly prescribed amino acid preparations in severe cases of

malnourishment (36%), tuberculosis (33%), protein deficiency (27%), and for
post-surgery recuperation.

• Competitive amino-acid preparations were all specialized medicines of high

potency. None of them were in the form of tonics.

• As amino acid preparations were used in severe cases of illness, doctors preferred
an intravenous form of product delivery as opposed to an oral form.

• Few doctors were aware of FAMViC and even fewer had actually prescribed it to
their patients.

• Ingredients of a medicine were the most important factor for doctors in

prescribing a particular brand to a patient.

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• Majority of doctors preferred prescribing an OTC amino acid preparation that
contained vitamins and minerals as well.

MEDICAL STORES’ SURVEY (also see Exhibit 9)

• Roughly 50% of purchasers at medical stores purchased a tonic.

• 71% of the purchases of tonics were on a doctor’s prescription.

• 70% of the consumers would go to another store if their prescribed tonic was not
available in the store.

• 33% of consumers complained about the high prices of tonics.

• Lederplex and Vi-Daylin were the most popular brands.

• Major reasons for the high sales of a particular brand were doctor’s prescription,
reputed manufacturer, and good quality product.

• Though a majority of drug store owners were aware of FAMViC, very few of
them kept it in stock.

• In the past 3 months, 23% of pharmacies had sold one or two bottles of FAMViC,
77% had sold none.

• A major reason for discontinuing stocking of FAMViC was that doctors were not
prescribing it.

CONSUMERS’ STUDY (also see Exhibit 10)

• Not many consumers were aware either of amino acids or their importance for
health.

• Only 4% of consumers were using some tonic on a regular basis. 96% either did
not use any or used one only in case of illness.

• Surbex-T, Vi-Daylin, and Lederplex were the more popular brands with the
respondents.

• Doctors’ recommendations influenced consumers the most in the purchase of a

tonic.

• If a prescribed brand was not available in a store 85% of consumers would go to

another shop to buy that brand.

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• Roughly 35% of consumers read some of the literature printed on, or carried in,
the package.

• 18% of the consumers were aware of FAMViC. However, very few households
(1%) had ever used it.

• Five percent of consumers showed an interest in purchasing FAMViC at a price

of about Rs 15 for a small bottle (120 ml).

The students had also carried out annual demand estimates based on their data and certain
assumptions. They determined the overall market size for liquid amino acid preparations
as follows:

Size of Pakistani Pharmaceutical Market at retail prices in Rs 3600 million

1994
Share of Vitamins market (@ 10%) Rs 360 million
Ratio of amino acid prescriptions to vitamin prescriptions 1:5
Size of amino acid market Rs 72 million
Size of liquid amino acid @ 30% Rs 22 million at
retail
Size of liquid amino acid market at manufacturer level Rs 12 million
assuming 40% trade discount
Number of bottles (120 ml) priced at Rs 40 each 300,000

As the data was collected only in Lahore and used a somewhat convenient sampling
scheme, Mr. Khan was not sure how much credence he should give to this report.
However, he appreciated the efforts that the students had put in.

SITUATION IN DECEMBER 1994

By December 1994, both STEDEC and UDL were becoming frustrated at the lack of
sales growth of FAMViC. UDL blamed STEDEC for not investing enough in ads
(STEDEC did not obtain any certificate as was suggested by UDL) which led to poor
sales performance of the product at retail level. As UDL had a lot of credit stuck in the
channel they now demanded credit facilities from STEDEC. STEDEC was not very
agreeable about this. On the part of STEDEC the advertising expenditures were
completed by September. The sales of last two months were as follows:

Month 120 ml 280 ml Total Rs

Sales Sales (liters) (‘000)

October 2,239 399 380 97

November 1,730 319 297 75

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UDL proposed that if STEDEC could provide them a promotional expense of 15%, in
addition to their current margin of 30%, they could also use their medical reps to visit
doctors and also provide various give-aways to doctors and medical stores to induce
sales. STEDEC was not very happy to learn of this suggestion. They blamed UDL for
reneging on their promise of 200,000 bottles sales.

The year was quickly coming to an end. A board meeting of STEDEC was scheduled for
the last week of December. Mr. Khan was expected to present to the board the status of
FAMViC and the results of Rs 2 million spent on ads. As he flipped through his notes
Mr. Khan wondered whether instead of relying on different distributors STEDEC should
have chalked out a marketing strategy of their own. “Now that we have some data on the
market as well as our own experience we should come up with a solid relaunch plan for
FAMViC.”

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 Exhibit 1
STEDEC: THE FAMViC PROJECT

Process of FAMViC Production

Step 1: A mixture of specific varieties of fresh fish is made. The length of the fish
is between 10 and 18 cms is made.

Step 2: Fish are washed in a rotating cage washer supplied with running clean
water.

Step 3: After washing, the fish are chopped and conveyed to the hydrolyser where
simple enzymatic hydrolysis is carried out.

Step 4: The hydrolysed mass is filtered to remove undigested tissues and bones,
etc.

Step 5: The hydrolysed mass is then clarified and oil is removed.

Step 6: In the final stage, the clarified mass is converted into palatable syrup by
adding sugar flavor and color.

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 Exhibit 2
STEDEC: THE FAMViC PROJECT

Copy of a Print Ad of FAMViC

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 Exhibit 3 (page 1 of 2)
STEDEC: THE FAMViC PROJECT

Copy of a Mobile (point of purchase hanger)

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 Exhibit 3 (page 2 of 2)
STEDEC: THE FAMViC PROJECT

Copy of the Brochure Developed for Doctors

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 Exhibit 4
STEDEC: THE FAMViC PROJECT

Sales of FAMViC

Year 120 ml bottles 280 ml bottles Total Sales*

No. No. Liters

1990 4,600 1,500 972

1991 5,456 2,020 1,220
1992 13,286 3,652 2,617
1993 15,489 4,296 3,062

* These are sales to retailers.

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 Exhibit 5
STEDEC: THE FAMViC PROJECT

Competitive OTC Products

Ovaltine Complan Energile

Ingredients 81% Carbohydrates 55% Carbohydrates 99% Glucose &

10% Proteins 19% Proteins Fructose Powder
3.5% Minerals & 10% Minerals & 1% Artificial Flavors,
Vitamins Vitamins Tricalcium Phosphate,
3.1% Fats 16% Fats Dicalcium Phosphate
25% Different & Vitamin C
Nutrients

Package Size 400 grams 400 grams 400 grams

Price Rs. 118 Rs. 95 Rs. 30.50

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 Exhibit 6
STEDEC: THE FAMViC PROJECT

Competitive Ethical Products

Vi-Daylin SurBex-T Lederplex

Ingredients 6% Vitamin A 14% Vitamin B 9% Vitamin B

25% Vitamin B 54% Vitamin C 22% Nictinamide
0.1% Vitamin D 27% Nictinamide 4% D-Penthenol
68% Nictinamide 5% Penthenol 22% Inositol
43% Choline

Package Size 120 ml 120 ml 120 ml

Approximate
Price Rs. 26.75 Rs. 26.25 Rs. 19.00

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 Exhibit 7
STEDEC: THE FAMViC PROJECT

Sales between July to September 1994

Months 120 ml bottles 280 ml bottles Total Sales Sales

No. No. Liters (Rs. ‘000)

First 6 months 3,108 1,361 754 180

average per month*
July 1,838 416 337 93
August 2,427 561 448 129
September 1,721 645 387 93

* Monthly average sales for the first six months (Jan 1994 - June 1994) are used as
disaggregated monthly sales were not available.

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 Exhibit 8
STEDEC: THE FAMViC PROJECT

Selected Findings from the Doctors Survey

Prescription Frequency of Amino Acids and Vitamins

Percentage of Patients in
the last 6 months who
were prescribed: Amino Acids Vitamins

Less than 5% 61%* 14%

6% - 25% 34 29
26% - 50% 5 19
51% - 80% 0 22
Greater than 80% 0 17

* To be read as: 61% of the doctors prescribed amino acid formulations to ‘less than 5%’ of
the patients they saw in the last six months versus 14% who prescribed vitamin
formulations to ‘less than 5%’ of the patients they saw in the last six months.

Awareness and Prescription Level of Amino Acid Preparations

Brand Aware of the brand Have Prescribed it

in the last one year

Aminovel 600 93%* 75%

Aminofusion 51 24
Aminosteril 34 10
FAMViC 17 3
Nephrosteril 14 9

* Percentages do not add to 100 because of multiple responses.

Factors that Influence Prescription of Brand

Influencing Factors Mean Importance Rating*

Ingredients 1.12
Purchasing Power of Patients 1.25
Information Provided by Manufacturers 1.63
Brand Name 1.97
Attitude of Reps 2.22
Visit Frequency of Reps 2.39
Giveaways 2.64

* On a scale of 1-3, where 1 is very important and 3 is not important.

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 Exhibit 9
STEDEC: THE FAMViC PROJECT

Selected Findings from the Medical Stores Owners Survey

Popular Brands

Tonic Brands Number of Mentions

Lederplex 25%
Vi-Daylin 21
Incremin 17
Santivini 10
Surbex-T 9
Cinkara 7

Reasons for High Sales of Tonic

Reasons Number of Mentions

Doctors Recommend it 90%
Well-Reputed Manufacturer 31
Good Product 29
Better Advertising 27
Cheap Price 10
Good POP Display 2

FAMViC Stocking Behaviour

Aware of FAMViC 87%

Sources of Awareness
Sales Rep 80%
Advertisements 13
Prescription 7
Ever Stocked FAMViC 67
Currently Carrying FAMViC 27

Reasons for Discontinuing FAMViC

Reasons Number of Mentions

Doctors did not prescribe it 86%
No Sales Potential 52
No/Ineffective Advertising 24
High Price 10
Low Margin 5
No/Poor Company Image 5

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 Exhibit 10
STEDEC: THE FAMViC PROJECT

Selected Findings from the Consumers Survey

How important are the following items for Proper Health?

Items Very Important Not Important Never heard of the Item

Vitamins 97% 3% 0%
Proteins 96 3 1
Carbohydrates 83 12 5
Amino Acids 36 14 47

Popular Tonics

Ever Consumed in the

Tonic Brands Unaided Recall Household

Surbex-T 33% 32%

Vi-Daylin 16 15
Lederplex 15 14
Cinkara 5 2
Others 31 37

Chances of Purchase if a Tonic is recommended by a (n)

Definitely May or Definitely

will Buy May not Buy will not Buy

Doctor 55% 40% 5%

Chemist 3 27 70
Advertisement 1 25 74
Friend 4 45 51

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