Business Case Study: Cvs
According to Standard & Poor’s Ratings Services CVS Caremark Corp - Business Case Study: Cvs introduction. went to stable from negative. CVS has been able to keep up the competitiveness with the other leading drugstore chains. They have created immaculate brand equity and have high hopes in continuing that reputation. Within the next few years the number of people in the target market is going to increase rapidly and with strategy I am proposing, I believe that I can help with the future success of this Corporation.
It is now 2013 and opening up stores in new locations in states where CVS is nowhere to be found would the most successful strategy to try and fulfill. I believe that CVS is in a comfortable financial position to be able to construct and build new operations in new locations. Situation & SWOT Analysis As the company has presence across the value chain of pharmaceutical services, CVS Caremark “is the largest pharmacy health care provider in the US” (datamonitor). This company drives their revenues through inexpensive pharmaceuticals to help improve the health of those in need. Approximately 75% of the US population lives within three miles of a CVS store. ” (Pearson) With these positive strengths in mind I suggest that CVS Caremark work hard to try and keep up this reputation and work on the issues presented in Exhibit 1 of the Appendix. Strengths One of CVS’ main strengths is that CVS has created strong brand equity. They have provided exactly what all customers’ need like easy access like stated before 75% of Americans live within 3 miles of a CVS. 65% of stores are open 24 hours a day and they even provide ExtraCare health cards which allow you to have extra savings.
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I believe all of these are strong qualities within the CVS Corporation and that even with tough economic times should not be affected. Weaknesses Now although CVS has many promising strengths they are not problem free. Some weaknesses that have come to my attention are the fact that they are not as prevalent as Walgreens (a huge competitor) nor is there a CVS is every state in the United States. If CVS wants to stay the number one company you are going to have to start producing this business in every state. A growing Wal-Mart is also not too far behind with increasing prescription sales.
Opportunities CVS is in line for huge opportunities coming their way. Within the next 20 years 70 million Americans will turn 65. “People who are 65 and older fill more than 24% of all prescriptions annually” (Pearson) Another prevalent opportunity is the fact that within the next 10 years healthcare will be available to almost every citizen so I believe that CVS can use this as a huge opportunity to gain new loyal customers. Threats The presence of industry competition creates a complex pricing model for CVS.
Although CVS may seem like they are more expensive they offer many coupon and savings opportunities that people do not take advantage of. The most obvious threat is Walgreens who is the nation’s largest drugstore chain with their growing retail pharmacy market share. Weaknesses to be addressed The issue that I feel is the most relevant is the fact that CVS’ competitors are too close in the market. Although CVS is the largest pharmacy health care provider it does fall short of Walgreens as the largest drugstore chain.
Walgreens is a little more up to speed in a few different aspects as well as Wal-Mart who operates all around the world and is quickly catching up to speed with CVS. My proposed strategies are to suggest CVS diversify their items they sell in stores to become more up to date with the changing healthier eating habits to help boost their revenues. Also since CVS is not currently operating in every state like their competitors, Wal-Mart and Walgreens, it would only make sense to create operations in every area possible to try and keep up with the competition.
Strategy 1 Proposed strategy number one would be to open up CVS pharmacies in the states in which there are currently no stores. There are currently 8 different states where CVS is not operating in, (Alaska, Colorado, Idaho, Oregon, South Dakota, Utah, Washington and Wyoming). If CVS Corporation wants to keep their company as number one and be able compete in the market with the leading competitors Walgreens and Wal-Mart.
As president and CEO of CVS stated, “We continue to believe that our goals of providing greater access and convenience, improving health outcomes and lowering overall costs align very well with the direction in which health care is headed,” (Merlo) he mentioned he wanted to greater access and convenience but if his operation is not readily available to everyone then maybe this needs to be their number one focus. If this strategy is implemented then their original goal to opening more MinuteClinics would be produce more revenue because they will have the pharmacy to follow. Strategy 2
My second proposed strategy pursues vertical integration, to offer different products in the stores already operating. We are becoming a more health conscious nation and unlike Walgreens and Wal-Mart, CVS does not cater to that changing demographic. “Consumption of organic and natural foods is on the rise” (Pearson) CVS is currently missing out on a huge market and I believe that with a new healthy organic produce choice CVS would see in an increase in revenues and profits. With this they will gain a largest market share all together and be able to cater to everyone’s needs. Strategy 3
My last proposed strategy pursues concentric diversification. It would be to add on to the MinuteClinic and add house calls. What better way to broaden your market then by adding at home visits. Since there is such a high percentage of older citizens needed prescriptions and most of them are not able to drive themselves to see a doctor someone from the CVS clinic could just go a see them. CVS is known for convenient inexpensive prescriptions, minute clinics that don’t require appointments of any kind so in order to keep adding on to the different elements that make CVS unique why not try and increase their customer service aspect.
Reason for Strategy 1 After much consideration I recommend that Strategy 1 be pursued by CVS Corporation. It will bring CVS the amount of future success the Corporation is looking for. I chose not to go with strategy two for a few reasons. I did not want to get away from the CVS mission statement and possibly ruin the reputation for being a pharmacy and not necessarily a grocery store. While the shortage in primary care physicians has been hovering around 10,000 in recent years, the health care reform is going to significantly increase this shortage.
In 2015 the expected shortage in primary care physicians is 30,000, in 2020 the expected shortage is 45,000 and in 2025 the expected shortage is 65,000 primary care physicians. CVS has been continuously expanding their MinuteClinic store locations in order to reap the benefits from the shortage in primary care physicians. CVS opened 100 new MinuteClinics in 2011 and currently operates 657. CVS is on pace to reach their goal of having over 1,000 MinuteClinic locations by the end of 2016. With that being said after CVS opens up new locations they will be able to follow them with more MinuteClinics Implementation
The first major step that would be necessary would be through market development, which would require the company spend money and add to the building and constructions costs. I believe that CVS is in a good position to move forward with building new operations in new areas in order to grow their market share. Advantages: * Increase customer awareness of CVS Corporation * Higher revenue and growth as a company * In the near future be able to become the largest drug store chain passing Walgreens * Eventually go international after being readily stable in all of the US * Creating brand awareness all over the United States
Disadvantages: * Walgreens and Wal-Mart have already taken full advantage of the areas in which CVS is not located in * Cost, the cost of building new buildings would not create any revenue or profit in the later years Over the next 3 years or so including all the new buildings and reconstruction of old ones there should be about a $1 billion per year gross capital expenditure. Yes the number is relatively high but if this number is already in the budget then why can’t CVS use some of it to expand the business by opening new locations for the benefit of the company.
Control Measures The main control to measure the success from this strategy would be the amount of revenue and number of new customers gained from opening the new locations. Appendix Exhibit 1:SWOT Strengths * Loyal shopper base * Convenient stores (Easy to shop) * Diversified (retail & healthcare) * Loyalty card program – Extra Care| Weaknesses * Store locations are not as prevalent as Walgreens * Inconsistent store experiences * Not in every state| Opportunities * Number of people turning 65 and older in next 20 years * Health care reforms * Generic vs.
Name Brand| Threats * Walgreens as a huge competitor * Market competition * Growth of Wal-Mart as another competitor| Exhibit 2: Gantt Chart | Year 1| Q 1| Q 2| Q 3| Q 4 | ||| Year 2| Q 1| Q 2| Q 3| Q 4| | | | | | | | | | | | | Development of New Bulidings| | | | | | | | | | | | | | | | | | | | | | | | Opening of new operations| | | | | | | | | | | | | | | | | | | | | | | | Marketing in New Areas where| | | | | | | | | | | | CVS will be built| | | | | | | | | | | | | | | | | | | | | | | |
Analyze peformance| | | | | | | | | | | | | | | | | | | | | | | | Introduce MinuteClinic | | | | | | | | | | | | Works Cited Datamonitor: CVS Caremark Corporation. (SWOT Section) Pearson Custom Business Resources. St Edwards University. Strategic Management Merlo, Larry http://info. cvscaremark. com/newsroom/press-releases/cvs-caremark-provides-strong-growth-outlook-2013-and-beyond-announces-38divi S&P Rating Services: CVS Corporation http://www. standardandpoors. com/prot/ratings/articles/en/us/? articleType=HTML&assetID=1245304237000