Cvs – Web Strategy

Running head: CASE ANALYSIS – CVS: THE WEB STRATEGY Abstract CVS decided to expand its services by opening a Web -based drugstore. Initially, there were many doubts concerning how to do it “right”; building it from start, or acquisition were the options on hand. After studying the possibilities CVS decided to acquire Soma. com and gradually (less than 3 months) turn it into CVS. com. There were many challenges during the process: coordinating a bicoastal organization (Soma. om headquarters were in Seattle and CVS headquarters were in Rhode Island), determining how the reimbursement were going to be handle for online purchases, building brand awareness and increasing traffi c and sales on the new channel (the Web). This paper intends to analyze CVS’ Web strategy and provide some recommendations on that area. 1 CASE ANALYSIS – CVS: THE WEB STRATEGY 2 CASE ANALYSIS – C VS: THE WEB STRATEGY After carefully studying how to venture in a new distribution channel (the Web), CVS decided to acquire an established company (Soma. com). The goal was to re -launch Soma. com as CVS. om, in just a few months. The pressure was high since the competition was fierce and constantly increasing. By the time CVS acquired Soma. com there were already strong competitors in the market: Drugstore. com and Planet Rx. Venturing on a Web-based drugstore was based on the fact that “the market for drugstore products was four times the combined sales of books and CD’s, two sectors that had flourished on the web” (Shah, 1999, p. 1). Everyday more and more drugstores were thinking about the possibility of venturing with online presence, the Internet was flourishing and everyone wanted to take advantage of it.
According to Shah (1999), CVS decided to acquire Soma. com for several reasons: speed, human resource quality, fully automated warehouse, and similar health -care-focused beliefs. Speed was crucial to respond to the fast -growing competition, “it would have taken [them] 3 to 4 months to build what [they] bought for the same cost” (Shah, 1999, p. 6). In fact, Soma. com used top notch technology to operate and control its business, managing up to 3,000 SKUs of just prescription medicines. Moreover, Soma. com’s huma n resource was a great asset that came ‘with the price’.
Soma. com was especially careful about hiring people “with mail order prescription backgrounds” (Shah, 1999, p. 6). Therefore, hiring qualified employees to manage the new distribution channel was not a concern for CVS. The following table was design to summarize the analysis of the provided information about CVS web venture. The table summarizes the strengths and weaknesses of the organization and the opportunities and threats of its environment. CASE ANALYSIS – CVS: THE WEB STRATEGY 3 Table 1 CVS Web-based Drugstore SWOT Analysis Strengths ?

CVS brand equity: second drugstore in the US, Weaknesses ? Bicoastal organization: Soma. com and the one with more number of stores. Detailed and well-design operation process from headquarters were in Rhode Island. Time dispensing to shipping: registration required, ? headquarters were in Seattle and CVS difference is a challenge. specified reimbursement need from the customer, ? Privacy issues: user sensibility to sharing different options to present the prescription, free shipping of orders that included prescription reminders were not in sync with brick -and- edicines. ? medical information online, e-mail prescription mortars drugstores. “E-mail prescription refill reminders for registered ? Making a product available on cvs. com was users, and 24-hour access to pharmacists via email or telephone” (Shah, 1999, p. 6) Top-notch automated technology in the can click on the dosage, indications and description of ingredients” (Pigott as cited in prescription medicines. ? to web-enable each product to make sure you warehouse, able to deal with up to 3,000 SKU of ? time consuming: To add a new SKU “we have
Shah, 1999, p. 8) Xtra! : CVS’ frequent shopper program, which ? Difficulty to agree on joint developing could be implemented online. Making cvs. com a tool to facilitate physic ians’ enable more products for purchase through the jobs: “A physician could visit cvs. com site to website (such as cosmetics, other related prescribe, confirm a prescription or learn a healthcare products, greeting cards), but the patient’s formulary… [CVS] need[s] to make it website team management constantly wa s in easier to prescribe through CVS than elsewhere” ? trategies for the website: CVS wanted to disagreement with this idea. (Shah, 1999, p. 7) ? ? Different delivery options: “an order could be mailed to the customer’s home or picked up at the Undefined long-term pricing strategy for the website. ? Inability to successfully draw customers to use local CVS” (Shah, 1999, p. 8) Cvs. com site was treated as a SBU. It had its own strategies implemented for it (free shipping, marketing team and manager, who responded to ? the website, despite the different marketing lower prices, 24-hour service, etc. ). CVS marketing director. Online pricing strategy: lower than in stores. CASE ANALYSIS – CVS: THE WEB STRATEGY 4 Opportunities ? Great market possibility: four times as big as Threats ? Online drugstores were a novelty. No one books and CD’s, products that successfully were being sold online. ? knew how profitable and feasible they really were. Increased negotiation power due to mergers and ? There was a risk of losing the reimbursement acquisitions in the drugstore industry, leaving only to online drugstores: PBM’s have threatened four major drugstores and the rest as industry with that. ndependents. ? ? Strong and increasing direct competition Possibility of being able to have an ‘online (Drugstore. com, Planet Rx, Walgreens. com pharmacy’ built within the PBM’s dispensary and e-pharmacy. com), as well as indirect (Shah, 1999, p. 9). (healthcare sites without prescription filling such as WebMD, which later became Healtheon). ? Mail-order companies created by PBMs to fill long-term prescriptions created a conflict of interest between suppliers and online drugstores. CVS had everything figured out for a smooth launching and operation of cvs. om: detailed and careful design purchasing process, differentiated prices, and quality customer service. All these were supported on CVS’ brand equity. However, they forgot to truly integrate both companies not only technol ogically but functionally. Even though it appeared to be the best way to do it, having different marketing teams on different time zones created an issue for the company. That was onl y one of CVS integration issues, another one was that the website database was not synchronized with the stores database, which made the e – mail reminder tool ineffective.
It appears to be that the main cause of cvs. com issues was the rush of launching the site; no long-term strategies were planned. There was uncertainty in pri cing strategies for the CASE ANALYSIS – CVS: THE WEB STRATEGY 5 website, as well as expansion in product offerings. I t was challenging to look for common ground between CVS and the team managing cvs. com. To make cvs. com a successful distribution channel, CVS needed to start working on long term strategies for growth. CVS needed to take advantage of the great amount of product possibilities available under the drugstore market.
There were already other online healthcare sites without prescription filling services (WebMD or Healtheon) offering rela ted products. Hence, more products needed to be introduced for online purchase, and the frequent -shopper program ‘ Xtra! ’ should have been implemented online as well. It was a fact that the “hybrid order -and-delivery offering create[d] an advantage over pur e online competition” (Foulkes as cited in Shah, 1999, p. 8), however, i f they offered different delivery options, they should offer different pricing strategies.
Therefore, a discount based on the amount purchased could be designed to increase the website traffic, or a double-point system could be developed for those customers that were Xtra! users. Another major issue that needed attention was the PBMs’ relationship. Conflicts of interest were rising due to the similarities in the delivery process between the PBMs’ mail -order prescription program and the online drugstores. Contract’s liabilities with the PBMs were at risk under this new distribution channel. In conclusion, cvs. com built its foundation but forgot to plan for growth.
More efforts need to be made on long-term, consistent marketing strategies; strategies that are a ble to attract loyal customers to the site. Moreover, CVS’ lack of planning is putting at risk the relationship with the suppliers (PBMs). To avoid failing and committing greater mistakes, CVS should set a marketing plan that allows them to know the profile of the online customer, their needs and wants. Based on that r esearch, they should r e-design a nd implement features on the website. Moreover, they need to develop strategies to keep their suppliers ( PBMs) satisfied, without
CASE ANALYSIS – CVS: THE WEB STRATEGY 6 feeling at risk of losing business from their mail -order programs. For that specific issue, maybe a joint strategy could be implemented to increase awareness among their customers about whom their PBMs are. By doing so, all the 30 -day refills could be made through them. I f CVS is able to design a nd implement a long-term marketing plan for cvs. com, the website as a new distribution channel would be a complete success. CASE ANALYSIS – CVS: THE WEB STRATEGY 7 Reference Shah, A. (1999). CVS: The web strategy. Harvard Business School.