Business Model

A business model is a way of organizing and running a business. There are many different models available, but 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.

The company 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

CVS is a retail pharmacy chain that sells its products to customers 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 

Standardization Business Model 

This ensures that customers will always get the same service or product no matter where they are located. This is a fine example of a model where all the stores follow the same set of rules and regulations while manufacturing and distributing the service/product.

Pharmacy Benefit Management (PBM) 

CVS Health is a major player in the market for drug negotiation. It negotiates 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. This model is used by pharmacies to get a better price for their products from insurers.

Pipeline and Platform Business Models 

The Platform model is the newest and most popular model of pipeline. It allows for both supplier and user interaction, which is beneficial because it allows for a more efficient and streamlined process.

How CVS has been able to grow exponentially over the years?

  1. Introducing a new loyalty program called “CVS Plus” which offers customers more benefits and discounts on products and services when they join.
  2. Expanding its distribution network to include more stores in rural areas and small towns across the U.S.
  3. Making changes to its store layout to make it more customer-friendly, including adding more areas for customers to interact with employees and managers.

CVS has always been a company that focuses on winning the trust of its customers. It believes that by interacting with them personally, it can build a strong relationship and ensure that its products are of the best quality. CVS also decided to ban the sale of tobacco products in its stores a few years back, in order to help build a high reputation for the company in the eyes of the whole nation.

The company has decided to buy and merge several 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 order to become the only major player in the market. For example, Minute Clinics, and Aetna insurance co. are its subsidiaries.

Cost cutting is a way for a company to stay ahead of its competitors by finding new ways and techniques to lower the cost of the product and selling it at its MRP. This difference increases the profit margin of the company.

The company has faced criticism for its brand value and goodwill, as well as announcing plans to close around 900 of its stores in 2022. Many lawsuits have been filed against it during the past decades, related to issues such as: –  1.  Poor management

The deceptive business practices of pharmacies are often criticized by economists for their 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

CVS has been known for its flexibility in switching to new and latest models, which has helped it grow over the years. Despite controversies, it is currently ranked 4th on the Fortune 500 list. Additionally, CVS has worked on increasing its economies of scale by expanding into a variety of products. Whether it be chocolate or cosmetic products, CVS offers a variety of choices for consumers. ..