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CVS Health Redefining The Value Proposition Case Solution
It has become a great challenge for CVS health to adapt to the changing competitive landscape, particularly when it has changed its strategy from dealing only with its core pharmacy retail business to diversifying its offering services in healthcare. The evolving healthcare environment also presented a challenge, as many lobbies are speaking against the non-traditional settings that helped CVS Health in penetrating the healthcare services. Moreover, the competitors are also becoming stronger by consolidation. So, it will be a great challenge to overcome such issues and sustain its positive progress in the longer run.
Following questions are answered in this case study solution
Evaluation of Strategic Options
Case Analysis for CVS Health Redefining The Value Proposition
2. External Analysis
It is a strategic framework that helps in evaluating the important external factors which can impact a business in the near future like political, economic, legal, social, and other factors (Schuetz and Mair). Health and pharmaceutical industries are regulated strongly by the government authorities. The government has frequently intervened to ensure that healthcare becomes accessible to the major population. It has also intervened in issues pertaining to the rise in the prices of drugs.
As far as the healthcare industry is concerned, the cost of health comprises 18% of the United States (US) GDP. Average per capita spending investment on health is quite high, in comparison to other developed nations around the world. The prescription drug spending amounted to 10% of the direct health cost. This shows great potential for drug manufacturers and retailers. The robust healthcare system of the country was also consolidating, and this was another feature to take into account. However, it has been observed that the profit margins on some old generic medicines have been declining, and this aspect was not seen in a positive light by the drug manufacturers and retailers. Technology has also become quite important in the healthcare industry. Apart from advanced analytics, telemedicine services have also gained great prominence as platforms that can be used to make access to physicians more effective. Moreover, technology has also been excessively used in managing the data related to the workforce, and the number of patients. On the other hand, several legal stipulations have been developed by the government to ensure effective healthcare services to the general population.
ii. Industry and Competitors
Drugstore chains have been experiencing steady growth, with a total approximate sale of $250 million. These chains generated most of their revenue from prescriptions. Considering the retail prescription drug revenues, CVS was the leader. Retail stores play an important role in providing drugs to the end-users. Moreover, drugstore chains also operate centralized and automated mail order facilities. The pharmacy benefit management services are also dispatched by certain players who have their respective retail pharmacy networks. Furthermore, specialty pharmacy services by different players in the industry. Considering the evolving dynamics of the leading chains, it is also important to consider the venturing of drugstore chains in health services.
Considering the drugstore retail chains, it is important to consider important players in the industry. Walgreens Boots Alliance was the largest drugstore chain, in terms of the number of stores it operates in different parts of the country. This drugstore chain has recently gone through the process of structural changes in the organization for the purpose of cutting down the costs incurred by the organization. The organization has also focused on imparting healthcare services by operating on-site clinics. Rite Aid is another major competitor of the organization. This organization has also focused on trimming stores that were not operating up to their potential. Apart from this, the retail chain has also focused on developing a health alliance program that emphasized health coaching. It also used advanced analytics in ensuring the deliverance of effective healthcare services. Other players like Standalone Pharmacy Benefit Managers (PBMs), Walmart, and Independents were also major competitors that catered to the target audience.
It is important to consider that the three top drugstore chains accounted for more than 85% of drugstore locations. This indicates the presence of few strong players in the industry. Moreover, it is also quite obvious that all the players were focusing on providing healthcare services to the end-consumer, so as to diversify their service offering and adhere to the evolving market dynamics. Industry consolidation is also an important trend to take into account. In recent times Walgreen has grown much bigger by acquiring Rite Aid. On the other hand, the physician lobbies have been criticizing the expansion of care in non-traditional settings, which have helped CVS in offering effective healthcare services. At the same time, the rate of growth in the profitability margin has been quite low. This has put great pressure on CVS to not only evolve in the current market dynamics but also improve its profitability by identifying profitable opportunities.
3. Internal Capabilities
It is also important to ascertain the internal capabilities of CVS health, so as to look into the options that can be used by the organization in responding appropriately to the evolving market dynamics.
i. Resources and Capabilities
CVS has also relied on mergers and acquisitions to consolidate its position in the industry. It has been successful in developing a strong operational framework, with a presence in different locations of the country. It has a strong workforce in 47 states and Puerto Rico, and this includes nurses, pharmacists, and assistant physicians. It also has a well-organized loyalty program, which has a membership of around 70 million users. This shows that the organization has a fairly large customer base, which can be profitably utilized for its various initiatives. Apart from this, it is also important to note that the organization has one of the fastest-growing chains of retail clinics, with a presence in over 1000 locations in different parts of the country. The organization has also utilized the latest technologies related to improving the efficiency and effectiveness of healthcare services. Exhibit A provides insights pertaining to the financial strength of the organization.
ii. Value Chain
Considering the resources and capabilities of the organization, it is important to emphasize the value chain of the retail drugstore organization. The primary activities in the value chain include operations, logistics, marketing & sales, and services (Jones, Demirkaya and Bethmann). It has effectively used technologies to make its operations more effective. The app developed by the drugstore chain provided great convenience to its customers when it comes to managing their respective prescription requirements. Moreover, analytics were also used to develop an effective product mix. It also has a well-developed logistical framework that plays a pivotal role in meeting different requirements of the market. Moreover, the loyalty program of the organization also provides various incentives to its customer base, in view of various discounts and offers that attract the end-users towards availing its services. The supporting activities include infrastructure, procurement, technology, and human resource. In order to support its primary activities, the organization has a robust infrastructure, with over 1500 pharmacies and more than 9000 retail stores. As discussed earlier, the company has also been making appropriate use of technology in order to implement its various operational initiatives. For instance, its stores have the presence of devices that can detect the customer’s store apps. This facilitates the customers and the company in delivering quality-oriented services. The presence of more than 200000 employees helps in ensuring that the operational initiatives are effectively implemented in the best interest of the business.
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