About CVS
Moving forward to the complex terminology of economics, let me introduce you with a brief description of the topic. It stands for Consumer Value Stores, popularly known as CVS Health Corp. It is the largest pharmacy and drug store chain in the USA. Founded in 1963 by three partners as a single store selling health & beauty products, it has around 10000 stores operating at present. It has 3 major segments – Retail, Corporate, and Pharmacy Services. CVS headquarters is in Woonsocket, Rhode Island. Now, we will see about CVS Business Model in this article.
Business Model
It is the main strategy of a business adopted by it to maximize its profit and compete in the market.There are a lot of business models available. Getting to a final decision, on which model to adopt requires a lot of analysis like finding the right audience, selling good quality products, selecting the price and cutting the cost, etc. A company doesn’t need to only stick to a single model in its lifetime, it can also adopt multiple models. CVS Health is also following the Hybrid model which is a combination of traditional as well as modern business models.
It has adopted a mixture of a few business models like Bricks & Mortar, Standardization, Pharmacy Benefit Management (PBM), and Pipeline & Platform business models via an Omni-channel Approach. Let’s discuss them in detail for better understanding: –
Bricks & Mortar Business Model
In this type of business model, the owner of the company sells final products to its customers face-to-face in physical stores like a Grocery Store. This is the most traditional way of doing business and CVS stores were first started doing business on this model.
Omni-channel Approach
It is the strategy of a company to sell its products via different channels e.g. through physical stores, online e-commerce sites, radio, TV, newspaper, etc. Later as CVS started growing and new players also started entering the market, it started selling drugs online on Amazon, e-bay, etc. along with selling them in pharmacies.
Standardization Business Model
This ensures that customers will get the same service or product no matter where the store is located. So, all the stores will follow the same set of rules and regulations while manufacturing and distributing the service/product. Minute Clinics regulated by CVS Health is a fine example of this model.
Pharmacy Benefit Management (PBM)
The company acts as a middleman between pharmacies and insurance companies, related to the negotiation of the price of the final product (drugs). The company & pharmacies negotiate with the manufacturer of the drugs to give them a discount and the insurance company will give some % of the commission because of the rebates received on the sale price. CVS Health is the major player in this model in the market.
Pipeline and Platform Business Models
The pipeline being the oldest model means that various raw materials (inputs) will pass through via a chain of processes and will be streamlined into a final product. Whereas, the Platform model has been popular in the past few years which means interaction of both supplier and user will be there.
How CVS has been able to grow exponentially over the years?
Started from a single store opened in Lowell, Massachusetts, and now a big organization having approx 10,000 stores located in different states of the U.S., is really applauding. Everyone wants to know the reason behind this huge success. CVS has taken many big steps to carry forward its business to stand out among its competitors such as: –
- Retaining its Customers – Maintaining a healthy relationship with your customers is a must for every business. CVS focussed on winning the trust of common people and attracting loyalty in return, by interacting with them personally. It believes that loyal customers will help in expanding the customer base as they will suggest it to their family & friends too.
- Selling Only Good Quality Products – A few years back, it suddenly decided to ban the sale of tobacco products in its stores. Albeit it created a huge loss to the revenue and gross profit of the company, it helped to build a high reputation for the company in the eyes of the whole nation.
- Mergers and Acquisitions (M&A) – It has acquired a few companies in the past, which were competitors of it and can prove to be a threat in near future. So, it decided to buy and merge them in it so that it can become the only major player in the market. For example, Minute Clinics, and Aetna insurance co. are its subsidiaries.
- Cost Cutting – It stays ahead of its competitors by finding new ways & techniques to lower the cost of the product and selling it at its MRP. This difference increases the profit margin of the company.
Are there any controversies related to CVS and its adopted strategy?
Yes, it has faced criticism too despite its brand value and goodwill. It has also announced to shut down around 900 of its stores’ branches in 2022. Many lawsuits have been filed against it during the past decades related to: –
- Deceptive business practices
- False and Incorrect prescriptions written to customers due to carelessness of the staff
- Bribing the senator
- Opioid crisis of Massachusetts in 2016
- Plus the PBM business model is often criticized by economists for its opaqueness. The discounts and rebates received by the company from the manufacturer and insurance companies are usually hidden and not disclosed while deciding the final price of the product. So, it is considered to be cheating the customers.
Conclusion
It has changed itself during its business by being flexible in switching to a new & latest model instead of sticking to the old one. Whatever the strategy or model adopted by it, the way CVS has grown over years is amazingly surprising for anyone. Despite its controversies, it has been ranked 4th on Fortune 500 list in the year 2021. It has worked on increasing its economies of scale by expanding its business in a variety of products. We can buy a variety of items from a bar of chocolate or candy to cosmetic products in its pharmacy.
