For the PCD Pharma marketing model it is extremely essential to understand that Having Pure monopoly is essential as much for a distributor as it is for a manufacturer.
Distributor’s Concern: A distributor is always concerned while choosing a new pharma-franchise company that whether that company is already operating in the area where he wants to start marketing. He would want that whatever hard work he is putting in for setting up a new company in his head quarter, he should get the entire benefit himself.
Leakage Point: The distributor commits compensation to doctors for his support. Then the distributor makes the stock available to the chemist at trade retail margin and asks the doctor to start prescribing.
For whatever prescription that the doctor writes, he would get compensated and the chemist will benefit because he will serve those prescriptions that the doctor has written.
Now in this case if the chemist starts sourcing the same goods from another source which allows him to purchase the stock at a price much lesser than the trade retail margin, then his margin will go higher.
This can be done by another distributor who also holds the same stock in the same area. He can sell it to the chemist for cheaper and still earn a handsome profit as he will not have to compensate the doctor with anything. This is the first loss that a distributor will face when doing his pharma franchise business in an impure monopoly market.
The second bigger loss he will face is the larger compensation that the doctor will expect because the doctor has done his job. Here the relationship and trust between the pharma pcd distributor and the doctor will suffer.
Manufacturer’s concern: If the distributor is not making profit, he will soon leave the manufacturer’s pharma franchise and search for a new company. The second distributor that the manufacturer had appointed in search for more business from the same area will also slowly stop his work. This is because his leakage point will not exist. So as a result the PCD Pharma manufacturer will lose out on both the old distributor as well as the new one.