Capstone
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Week 8 Assignment 3
Yvonne Winn
BUS499 Business Administration Capstone
Dr. Keller
February 26, 2021
Week 8 Assignment 3
This paper seeks to review various aspects of the CVS Corporation, a US-based retail pharmacy chain that offers a range of medical and health services. Specifically, the paper focuses on analyzing the company's business-level strategies and also finding the most appropriate business-level strategy for the company in the long term. Also, the paper will review the organization's corporate-level strategies and determine how the firm achieves competitiveness in the broad healthcare sector. It will also review its competitive environment, identify its largest competitor, and compare the two companies' competitive strategies. Lastly, a review of the company's strategies in slow-cycle and fast-cycle markets, and those of its competitors will be carried out to determine which company would be successful in the long run.
Business-Level Strategies
Business-level strategies refer to an integrated set of actions, techniques, and commitments that a firm uses to gain a competitive advantage in the market (Hitt, Ireland, and Hoskisson, 1). They reflect the choices a firm makes regarding how it intends to compete in the market. In the case of CVS Corporation, the company utilizes several strategies to remain competitive in the pharmaceutical industry. In terms of business-level strategies, CVS Corporation employs both cost-leadership and differentiation strategies (CVS Health, 3). Cost leadership entails cutting costs or keeping them low compared to those of competitors, hence affording to offer quality products and services but at lower prices (Hitt, Ireland, and Hoskisson, 1). CVS Corporation utilizes the strategy of cost leadership due to its vast presence in the U.S. market. The company has more than 9900 retail stores in 49 states across the United States, besides Puerto Rico and the District of Columbia (United States Securities Exchange Commission, 2). Being an extensive firm allows the company to leverage economies of scale, hence significantly reducing its operational costs. As a result, the company can afford to offer drugs and services at competitively lower prices than its competitors.
Besides cost leadership, the company relies on product differentiation by making its products and services unique, hence attracting a large clientele than its competitors. Product differentiation refers to what makes a company's products different from those of its competitors. It helps to create brand loyalty, increase sales, as well as promote company growth. CVS Corporation employs product differentiation by making its services unique to those of its competitors in the industry. For instance, the company deviates from the usual means of access to healthcare, where people must physically visit hospitals and health centers to access medical care. CVS Health differentiates its services by allowing customers to access healthcare from anywhere they are. According to the company's website, CV seeks to meet people where they are, whether in the community, in one of its nearly 10,000 locations, at home, or in the palm of their hand (CVS Health, 3). That means CVS Health can serve clients at their convenience regardless of where they are. Serving clients at the 'palm of their hand" means the company can Health offer services remotely through mobile devices in a program known as telemedicine. For instance, CVS Health developed a device called Symphony, a medical alert tool that allows caregivers to remotely monitor the health of their loved ones, especially the elderly. The device has the power to record one's movements, room temperature, and many other human activities.
I believe the product differentiation strategy is the best for CVS's long-term growth. That is because it is difficult for competitors to copy such a strategy and implement it. In terms of cost leadership, competitors can strive and minimize their operational costs, thereby cutting the prices they sell their products. Any other big pharmaceutical company can strive and achieve economies of scale, enabling it to lower prices in the market. Besides, CVS corporation enjoys massive resources that allow it to implement a range of differentiated products, unlike its competitors. For instance, CVS Health controls 28.6% of the healthcare market, compared to its close competitors, Express Scripts and United Health Group, which have a market share of 23.0% and 13.3%, respectively (CVS Health, 3). It also has the highest cashflows among its competitors, giving it the edge to implement specialized and differentiated programs, products, and services. In the future, this strategy will be useful for the company since it has the necessary resources to sustain product differentiation.
Corporate-Level Strategies
Corporate-level strategies refer to a mix of actions that a company's management undertakes to compete with other firms in the industry and gain a competitive advantage (Hitt, Ireland, and Hoskisson, 1). The common corporate-level strategies include stability, expansion, retrenchment, and combination. CVS utilizes expansion and stability as its primary corporate-level strategies. Stability as a strategy aims to maintain and improve existing business strengths and capabilities. CVS strives to maintain its stability by guaranteeing quality healthcare services and products. Stability is guaranteed through efficiency in the company's operations and practices. CVS maintains stability through its elaborate and customer-centered mission statement, which is to "help people on their path to better health." The company's vision is to "become the most consumer-centric health company (CVS Health, 3)." Living by its mission and vision statements guarantees stability and business continuity.
The CVS Corporation heavily relies on an expansion strategy to gain a competitive edge in the market. CVS believes in diversification and expansion as its primary corporate strategies. In terms of diversification, the company runs three health segments under one roof. Its business segments include pharmacy services, pharmacy benefit management (PBM) solutions, retail healthcare services, and health insurance programs. Its wide range of services protects the company against adverse risks in one health sector. The company currently offers about 6,000 CVS Health and proprietary brand products, making it one of the most diversified companies. In terms of expansion, the company is among the largest healthcare companies in the United States. On December 31, 2020, CVS ran more than 1100 minute clinics and opened 55 new community locations in 2020 alone (United States Securities Exchange Commission, 2). Since its inception, the company has been on an expansion drive, and it now has operations in 49 states across the U.S., in addition to the district of Columbia and Puerto Rico. In 1998, CVS acquired 200 stores from Arbor drugs in Michigan, increasing its stores to 4100 across 24 states. In 2002, it acquired Stadlander, while in 2004, it acquired 1268 Eckerd Stores and Eckerd Health Services. In 2014, the company acquired Coram, a specialty infusion services firm belonging to Apria Healthcare Group Inc. The company also purchased Omnicare company in 2015 (CVS Health, 3). All these acquisitions have enabled the company to attain the highest share of the U.S. healthcare market, hence increasing its competitiveness. The expansion strategy has been very effective, and going into the future will help the company retain its competitive advantage in the healthcare industry.
Competitive Environment
CVS operates in a competitive environment since the healthcare sector is diverse and cannot be monopolized. The company's main competitors are Express Scripts, United Health Group, and PharMerica. The company faces competition in terms of product and service prices, store location and convenience, variety and quality of products, customer service, and satisfaction, and convenience in terms of store location (The United States Securities Exchange Commission, 2). Among the above competitors, Express Scripts is CVS's most significant competitor. While CVS relies on product differentiation and expansion strategies to remain competitive, Express Scripts focuses on cost-leadership to attain a competitive advantage. Express Script's primary marketing strategy is to substantially lower medical costs for their clients. In 2019, the company implemented cost-saving measures that saved more than $4.3 billion in healthcare costs (Express Scripts Inc., 4). The company uses its famous platform known as SafeGuardRX, a market value-based platform to calculate medical costs. That ensures customers are never over-charged and are offered the most affordable healthcare plans. It also has an analytical platform known as MediCube that helps pharmacists identify opportunities to minimize prescribing that increases cost with no clinical value. In 2018, the company saved $3.2 billion by offering members low-cost medications (Express Scripts Inc., 4). Therefore, the company leverages cost-leadership to gain a competitive advantage. It also looks forward to capitalizing on low costs to remain competitive in the future.
On the other hand, CVS Health relies on product differentiation and expansion strategies to compete with other firms in the healthcare industry. Its main strategy, which is expansion and acquisitions, has helped it remain competitive over the years. Its presence in 49 states across the United States, besides Puerto Rico and the District of Columbia, grants CVS an opportunity to rely on economies of scale to remain competitive. The company has more than 9900 retail stores and also operates subsidiaries such as Longs Drugs, Navarro Discount Pharmacy, among others. In 2018, CVS acquired Aetna, a healthcare insurance firm, while in 2015, Omnicare Pharmacy. In 2014, the company acquired Coram Company from Apria Healthcare Group Inc. (CVS Health, 3). The company's expansion drive allows it to acquire a greater market share, making it more competitive. CVS's expansion strategy is more sustainable compared to that of Express Scripts, and I believe CVS corporation will be successful in the long term.
Market Cycles
Market cycles are either slow or fast. Slow-cycle markets refer to situations where a firm's competitive strategies are safe from imitation for a relatively long period and where imitation of strategies is costly. On the other hand, fast-cycle markets refer to scenarios where a company's strategies are prone to market changes and can easily be imitated at lower costs (Hitt, Ireland, and Hoskisson, 1). Based on business and corporate strategies, I believe CVS corporation is more likely to succeed in the future compared to Express Scripts. That would be the case both in low-cycle markets. However, in fast-cycle markets, Express Scripts is likely to succeed more than CVS corporation.
In slow-cycle markets where strategies are complex and costly to imitate, CVS would remain competitive. The company's strategies of product differentiation and business expansion are hard to imitate even in the long-run. CVS utilizes its vast resources to make its products unique from those in the market. For instance, through technological innovation, the company launched a Symphony device that allows caregivers to monitor their patients remotely (CVS Health, 3). The company can serve patients at home, in health facilities, or even remotely through telemedicine. A capacity that many companies lack. The company has continued to expand its operations through acquisitions, as discussed earlier. Going into the future, the company is likely to dominate the healthcare market, and very few would be able to rival its power. Express Scripts' strategy of cost-leadership is not sustainable due to the rising costs of healthcare.
In fast-cycle markets, Express Scripts, which relies on cost-leadership, is likely to be more successful (Express Scripts Inc., 4). In a fast cycle situation where strategies are easy to imitate and less costly to implement, firms relying on cost-leadership are likely to succeed in the short run. That is because every company can adopt cost-cutting measures and compete based on cost-leadership. Besides, consumers are more focused on cutting costs, and any company that offers low-cost but quality products are likely to succeed. Therefore, in the long run, CVS corporation is likely to be more successful than Express Scripts.
Sources
1. Hitt, Ireland, & Hoskisson. 2020. Strategic management: Concepts and Cases: Competitiveness and globalization (13th ed.). Mason, OH: South-Western Cengage Learning
2. United States Securities Exchange Commission. 2020. Form 10-K: CVS Health Corporation. https://www.sec.gov/ix?doc=/Archives/edgar/data/64803/000006480321000011/cvs-20201231.htm
3. CVS Health. 2021. CVS Health at a glance. https://cvshealth.com/about/facts-andcompany-information
4. Express Scripts Inc. 2021. Services and solutions overview: Lowering costs. https://www.express-scripts.com/corporate/solutions/lowering-costs#healthy-ways-to-work