CVS: The Web Strategy a Harvard Case Analysis

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CVS The Web Strategya Harvard Case Analysis

• E-Commerce
• Management 671
• Radford University
• John Carson
• David Keeley
• Bryant Ermel
• Ben Reeves

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Outline

• Company description
• Porters Five Competitive Forces
• STEEP and SWOT
• The Business
• E-commerce and CVS
• The Internet and CVS.COM
• Industry comparison
• Key management challenges
• Vision
• Problem Statement
• Recommendations
• Summary

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CVS

• Consumer Value Store
• Founded in 1963
• 4,100 stores and 12.5 of all prescriptions
• CVS operations are grouped into four business
• Retail pharmacy
• Pharmacy Benefit Management Plans (PBMs)
• Specialty pharmacy - ProCare
• Internet pharmacy - CVS.COM

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CVS

• Total Healthcare solutions
• Soma.com - First web based pharmacy
• Spin-in of Soma.com provides CVS and CVS.COM
  First-mover status - 8/99
• Drugs on-line - Sell more drugs
• The best of Bricks and Clicks

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The Industry
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Retail Prescription Drug Industry

• Increased from 2.0 B in 1992 to nearly3.0 B in
  1999 - 50 increase in 7 years
• The year 2000 was expected to reach 3.15B
• Chain pharmacy is the leading component
• Dispensing more than 60 of these prescriptions
• 2 billion prescriptions annually

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Porters Big 5

• Suppliers
• Buy direct from manufacturers
• Physicians
• PBM
• Insurance

• Buyers
• Aging America (50)
• Fast growing new internet users are the 60
• Physicians
• PBM
• Insurance

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Porters Big 5

• Competitors
• On-line
• DrugStore.com
• PlantRX.com
• Walgreens
• Eckerd
• Bricks and Mortar
• Walgreens.
• Duane Reede Inc.
• Walgreens Company
• Rite Aid Corp.
• Longs Drug Stores Corp.

• New Entrants
• Highly regulate, mature industry with high
  barriers to entry
• Clicks without Bricks have failed
• Substitutes
• Bricks
• Mail order
• MerckMedco

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STEEP

• Situation
• CVS recognized Web threat
• Established first mover Brick and Clicks presence
  with spin-in of Soma.com
• Technology
• Use of MS DNA platform allowed CVS.com to be
  fielded in 11 weeks
• Updated all IT systems, both Bricks and Clicks
• Customers, supplier, and e-commerce

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STEEP

• Economic
• Healthcare an economic safe haven
• Necessity industry
• Bricks and Clicks synergy has benefited CVS
• Environment
• Increasing presence of Manage Care Organizations
  (MCOs)
• Emphasis on cost control
• Aging population
• Increase in new drugs and therapies

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STEEP

• Political
• Managed healthcare
• Hillary

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SWOT
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Business Model

• E-shop with value integration
• A hybrid Clicks and Bricks
• Benefit of B2B from mature Brick
• Evolution, not a Revolution
• Mail-order model with option to pick-up at local
  Brick or delivery
• Healthcare content provider
• Two way Banner hyperlinks with affiliates

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Core Competencies

• BRAND
• Buying power
• Direct from manufacturers -vertical integration
• Marketing synergies
• CRM
• IT

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BCG
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Management Issues

• Relationships with PBMs and insurers, physicians,
  manufacturers
• B2B and B2C costs (Margin)
• Maintain alliances
• Pricing, Privacy, and Customer Relations
• Managed Care
• Adapting on-line merchandising strategies

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Vision

• Our goal is to provide our customers with a total
  healthcare solution. Consistent with this goal,
  CVS launched two exciting businesses in 1999, CVS
  ProCare and CVS.com
• Our goal is to achieve long-term and sustainable
  earnings growth of 16-18, while continuing to
  invest in our future.

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Problem Statement

• How should CVS and CVS.com maintain their
  position and continue to reap the benefits?
• How important is the balance of building BRICKS
  and expanding CLICKS?

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Recommendations

• Penetrate new geographical markets - West Coast
  enhancement of BRAND awareness
• Buy Longs
• Focus on Health Care Solutions
• enhancement of CRM
• Promotion Advertising - programs such as Health
  Content (web portals links), Xtra! - frequent
  shopper program, and expand on-line Market
  Synergies
• Continue to develop and evaluate on-line
  merchandising strategies Buying Power

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Summary

• Unique Bricks Clicks Integration
• A Leading Retail Pharmacy Chain
• Nationally Recognized Name