Case Study The Competitive Strategy Of Eckerd

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Case Study The Competitive Strategy Of Eckerd



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COMPETITIVE STRATEGY (BY MICHAEL PORTER)

Sign in. Home Page Pall Mall. Page 6 of 13 - About Essays. Compare And Contrast Your Hometown Have you ever compared your hometown with any of the other cities that you may have ever been to? Read More. Words: - Pages: 3. Marketing Strategy: Dynamic Pricing Strategy There was a time when my mother used to go to the grocery for her regular household items and I used to go to tailor for my best Christmas attire or carpenter for my cabinet. Words: - Pages: 4. Tony Hoagland Poem with this poet is based on the poems that I have read, the strategies that I try to mimic, and the images that I am trying to convey. Coca Coda Aims And Objectives A strong brand image is very important to any retailer as a recognised, trusted and respected brand ensures customers can be certain that they know what to expect with their chosen retailer and can give the retailer a competitive advantage.

Words: - Pages: Long Ago Case Study of a plot of land, but also encourages shoppers themselves to walk around more, see more and shop more. Personal Narrative: I Hate People In Store Yeah, my mom, since I didn 't have any friends, mostly because I pushed them away this was the only company I ever got at the stores and malls. Words: - Pages: 5. Ready To Get Started? Create Flashcards. Discover Create Flashcards Mobile apps. Follow Facebook Twitter. The literature on activity-based costing argues that to offer many different products increases costs in real but hard-to-document ways.

In a key article, Cooper and Kaplan describe the hypothetical case of two plants that produce the same number of pens: one produces one color and. They conjecture:. Several studies examined whether automobile manufacturing incurs such product complexity costs. Moreover, the cost of product complexity documented in the studies cited above reflect only manufacturing costs. Fisher et al. The increased amount of tying that has occurred since may be attributed to this effect. Price discrimination is common in the automobile industry, but it is not a plausible explanation for Honda's tying strategy or the change in Ford's over time.

While under some circumstances tying can increase profits relative to pure components selling, theories of bundling as a form of price discrimination predict that mixed bundling can lead to even higher profits. Strategic leveraging explanations do not make sense here. The companies that initiated the strategy of tying were not the incumbents but the entrants. It is implausible that Ford tied its cars to radios by not allowing customers to delete the radio and get a price reduction to monopolize the radio market or prevent radio manufacturers from evolving into a threat to its car manufacturing business. If price discrimination and leveraging does not motivate the observed tying, then cost savings are the most likely explanation.

As noted above, though, there is no apparent marginal cost savings from bundling. However, the car industry does experience the same sort of product-specific fixed costs present in the adapter case, whether or not they are obvious. Quantifying these efficiencies is difficult because it requires the sort of detailed internal cost information that is not publicly available. Even if they were it is not clear that one could isolate and measure cost savings from analysis of such data. There is more tying of options in the automobile industry than there once was: features that used to be options are often now standard equipment. The cost of these additional features increases the price of cars. Those customers who want plain cars are harmed as a result.

We doubt that many Taurus buyers in Houston would want to do without air conditioning, but there might well be car buyers who live in cooler climates who feel no need for it. Studies for understanding the costs of product complexity are imperfect and controversial. Published evidence about the issue likely exists for the automobile industry because it is the largest manufacturing industry in the world and the stakes are so high. There might be other businesses where the evidence is not collected but decisions are made because managers believe that product complexity increases costs. The importance of this case is that it documents increased tying that occurred under competition. Of course, it did not occur under perfect competition, and there are enough complications in the case that others might push alternative explanations.

In our view, though, the cost basis for tying is by far the most likely. Tying occurred not to segment markets of to foreclose independent parts suppliers. It occurred because Ford realized that the cost of variety was too great and that its attempts to provide each customer exactly what he or she wanted made Ford less able to meet the needs of what most customers wanted. Just as RadioShack had to limit its product offerings, so did Ford. Tying is common in competitive markets. It results in lower costs for producers--which get passed on to consumers--or greater convenience, which benefits consumers directly. But these cost savings for producers and consumers are not necessarily easy to document.

The price discounts in over-the-counter cold medicines provide persuasive evidence that there can be significant cost savings from bundling. But we were able to document that in large part because the sellers did not tie--they offered products separately as well as combined. The cost savings are harder to establish in foreign electrical adapters or in other cases of pure bundling.

The savings in packaging costs that presumably result in RadioShack tying all the adapters together in a single bundle may be quite modest; this evidence might not meet the court of appeals' skeptical view of proffers of efficiency evidence in Jefferson Parish. The same is true for automobiles. The most plausible explanation is that limiting the possible product variants reduces costs. But it is not clear that even a detailed investigation of automobile manufacturing would provide definitive evidence. In the latter two cases, we believe the cost savings explanations in part because we do not believe alternative explanations, such as anti-competitive foreclosure, which we can rule out because of the structure of these industries. Our competitive theory of tying shows that the explanations for tying can be subtle in some situations.

Marginal cost savings from packaging or other factors can result in bundling. In Pharmaceuticals we saw that savings resulted in mixed bundling but not in tying. Firms engage in tying when doing so reduces the fixed costs of offering one or more components separately. Such product-specific scale economies provide a plausible explanation for the pure bundling we observed in the foreign-adapter case shelf space is the fixed cost and the increased pure bundling we observed in the mid-sized automobile case where product-specific scale economies arise from complexity.

The modified per se rule is not based on any generally accepted theory of how tying could harm competition or consumers. But it seems to be founded on two premises. The first premise is that denying consumers the choice of buying the tying product without the tied product is bad, while choice is good. The second premise is that when dominant firms deny consumers a choice they must be doing it to leverage their monopoly into the tied market or to protect their monopoly in the tying market.

Otherwise they would not make consumers take something they do not want. Our analysis shows that both premises are wrong, both theoretically and empirically. The first premise wrongly assumes that product choice is free. Businesses incur fixed costs when they make and distribute products. Adding a choice can result in lower consumer welfare in addition to lower producer welfare, as our theory has shown.

This point is empirically clear--there are many product choices that some consumers would like to have that they cannot get, but businesses cannot always offer those choices profitably at prices that those consumers would be willing to pay. The second premise, that tying is often used to leverage a monopoly into an adjacent market, is wrong because tying is common in competitive markets and therefore a source of efficiency.

Our case studies show that in foreign electrical adapters and mid-size sedans reducing fixed costs was the most credible explanation for tying. That is not to say that tying could not be anticompetitive, but the economic theories we reviewed earlier show that even monopoly firms have the motive and ability to use tying for anticompetitive purposes only in quite special circumstances. As a matter of theoretical and empirical economics, the modified per se test is not capable of identifying anticompetitive tying except by happenstance. The single-product test, which examines whether the tying and tied good are part of a "single product," is not a reliable proxy for examining whether there are efficiencies or not.

Although there may be a demand for the tied product separately e. That is the case with foreign electrical adapters where RadioShack stores offer only a bundle of four adapters, any one of which can be purchased separately on the web. The coercion prong of the modified per se test is flawed as well. The decision not to offer a particular product configuration is routine, as we have seen, so there is no basis for presuming that coercion is a source of anticompetitive harm. At least three alternatives to the modified per se test have been proposed: First, keep the test but permit the defendant to offer an efficiency defense. Third, replace the modified per se test with a structured rale of reason where a series of screens focus on situations where the defendant has the ability and incentive to act anticompetitively.

The final step of the structured rale of reason involves a balancing of anticompetitive effects and efficiencies. In all three cases the empirical evidence reported above cautions against imposing too heavy a burden on defendants to establish efficiencies. We have seen that even in competitive industries where we are confident that efficiencies are the only plausible explanation for the practice, solid empirical evidence is not easy to produce.

Suppose the firms in either the foreign adapter or midsized automobile cases had monopoly power. A finder of fact, looking only at the evidence in those particular cases, might worry that the efficiency explanations were being put forward as a pretext. Taken on their own terms, and ignoring the competitive structure of the industries, our efficiency explanations are, perhaps, no more persuasive than the efficiency explanation that was rejected by the Fifth Circuit and ignored by the Supreme Court in Jefferson Parish.

Our theoretical and empirical results therefore suggest that alternative rules that consider efficiencies should not impose too heavy a burden on the defendant. For a structured rule-of-reason approach, we recommend the following. Plaintiffs should have to show that the defendant has the incentive and ability to use tying to foreclose competition. As part of their responses, defendants could put forth an efficiency defense just as they do now under the rule of reason and the objective justification standard used in the EU.

In Jefferson Parish, the Supreme Court considered whether a hospital's exclusive contract with an anesthesiology practice constituted an illegal tie. The district court concluded that it did not, because the practice was efficient. It ruled for the hospital only because it operated in a competitive market. In concluding that surgical and anesthesiology services were separate products, it implicitly dismissed evidence in the record of efficiencies from tying. But nothing in the record of the case suggests that the underlying economic analysis if there was any was sufficient to arrive at that conclusion.

The evidence may have demonstrated that there was some demand for the hospital's services without the hospital's anesthesiologists, but the extent of any such demand was unknown. The Supreme Court relied on the court of appeals' casual dismissal of claimed efficiencies. As noted above, our cost-based theory of bundling shows it is important to examine the practices in competitive markets and assess the demand for all of the possible product configurations. The Court's test did not enable it to receive evidence that consumers overall were harmed by the tying by the hospital. Tetra Pak is an international packaging company with a very large share of the aseptic packaging business in many European countries, and a more moderate share of die non-aseptic packaging business.

It faced entry into the aseptic packaging business in Italy. The Commission complained about a number of practices, one of which was Tetra Pak's requirement that customers take systems that included the packaging equipment and cartons. It also objected to Tetra Pak's requirement that it be allowed to inspect, repair and maintain the equipment; in feet, Tetra Pak reserved the right to inspect the machines without notice. As with Jefferson Parish, Tetra Pak's efficiency explanation for the practice was quickly dismissed. The company claimed that its system-related requirements were necessary to reduce its exposure to products liability and to ensure public health.

Tetra Pak systems, were used to package food. Misuse presumably could have resulted in tainted food and, as a result, illness or even death in large numbers. A court might well have had trouble assessing fault and, as a result, Tetra Pak could have faced liability. Less restrictive means might in fact be harder to enforce. For example, one might argue that Tetra Pak should establish specifications for cartons used on its machines but then allow its customers to purchase any cartons that met the specifications.

Tetra Pak could not, however, simply assume that its customers would abide by the agreement. It would have to monitor purchases of supplies. It would also have to set up a certification system for carton suppliers to become "qualified suppliers" and it would have to monitor the suppliers' performance to make sure that they maintained their standards. Our point is not that Tetra Pak had a valid efficiency justification. It could have been a pretext for engaging in a massive price discrimination scheme or an attempt to foreclose entry into aseptic packaging schemes.

In practice, the efficiency defense is neutered through dismissive claims that the efficiencies are not important or could be achieved in other ways. Tying is common under competition. Product-specific scale economies are a major factor in making tying efficient. By limiting product selection--for example, by refusing to sell the tied good without the tying good--firms can reduce overall costs. The product-specific scale economies that give rise to tying under competition are just as likely to be present and to result in tying when firms have market power. Like other practices that are common under competition, tying should be treated under the rule of reason.

The fact that product-specific scale economies are not easy to document in practice, together with the fact that tying is presumptively efficient, leads us to argue that defendants should not bear too onerous a burden of proving efficiencies. Microsoft Corporation provided research funding for which the authors are grateful. Jefferson Parish Hosp. Hyde, U. For a review of the case law in Europe, see Christian - Ahlborn et al. Standard Oil v. United States, U. See CTR. See Dennis W. Whinston, Tying, Foreclosure, and Exclusion, 80 Am. Neither Whinston nor Carlton and Waldman allow for marginal or fixed cost savings of bundling in their models.

We do not mean this observation as a criticism of these or related articles, but rather as a caution against drawing improper policy inferences from them. In light of Chicago School arguments that firms do not have incentives to use tying to foreclose, laying out the broad outlines of a theory of anticompetitive tying that is valid despite those arguments is a significant contribution. But assuming away efficiencies to elucidate the logic of foreclosure should not be taken to mean that efficiencies do not exist in real cases.

Here and throughout this article we use the term "monopoly" to refer to firms that have significant market power in that they can raise price substantially above the levels that would prevail in an industry in which firms on average earn only competitive rates of return. See Int'l Salt Co. Jean Tirole, the theory of Industrial organization , See Hal R. Willig, eds. See Whinston, supra note S. In some theoretical models in the recent literature, "foreclosure" of the market for the tied good is used to protect monopoly power in the market for the tying good, not to leverage one monopoly into a second.

In these models, tying involves foreclosure but not leverage. For simplicity, this paper uses the term "foreclosure" to refer to either type of effect. A recent report on bundling and tying by Barry Nalebuff, a leading contributor to the literature, is but one example of how economists put efficiency explanations to one side. Tying is a special case of bundling, as we discuss below.

After presenting a "complete list" for why firms bundle, he notes: "Perhaps the most obvious reason to bundle two products is that this leads to a cost saving or quality improvement or both. He then devotes nearly thirty pages explaining ten additional reasons for bundling and tying that are not related to efficiencies. We use the phrase "competitive markets" to refer to ones in which firms do not persistently earn above-normal rates of return, either because of multiple firms in the market or because of the threat of entry. Firms in competitive markets can thus have some limited degree of short-run market power.

Our cost-based theory of competitive tying incorporates this notion of competition by assuming that markets are contestable in the sense that the threat of entry prevents prices from significantly exceeding average costs. See infra Part II for more details. L See Ahlborn et al. This article focuses on the case in which the bundle includes discrete products that could be sold separately.. However, similar considerations apply to the situation in which firms make choices on integrating product attributes together rather than creating separable components. In the economics literature, the term "mixed bundling" means offering the goods separately and in combination with a discount for the combination.

Pure bundling is a form of tying, as is selling the package and just some of the components. Effects similar to this can arise from network effects even if product-specific scale economies do not exist For example, suppose that network effects exist for the tying good but are affected by the presence of the tied good. That is, the tying good alone might be thought to constitute one network, and the bundle of the tying and tied goods to constitute another network.

A vendor could conclude that while some customers would prefer to purchase the goods separately, the resulting lost network effects for other customers reduce the overall value of the system to customers as a whole. ON REG. We are not aware of any articles in a mainstream economics journal or by an economist in a law review that finds that the Jefferson Parish rule could distinguish pro-competitive from anticompetitive tying.

See Ahlborn et at. For a discussion of the EU approach, see Ahlborn et al. As we have pointed out elsewhere. Professor Nalebuff s results support this. He reevaluates several leading tying cases in the United States and Europe. His results show a high rate of error under his evaluation. For further discussion of the error-cost issue, see Evans et al. For the classic treatment, see Frank H. See also David S. This approach is therefore more consistent with the approach endorsed by the D. Circuit in its evaluation of the alleged tie of Microsoft Windows and Internet Explorer under the consent decree entered into by Microsoft and the U.

Department of Justice, United States v. Microsoft Corp. It resembles a practice usually considered under the rule of reason because there is no strong presumption in economics mat tying will harm consumers, and it provides efficiencies unlike all other practices covered under the usual per se standard. See, e. Thus, a rule of reason approach used for several other areas of antitrust law should be adopted to evaluate tying arrangements. Thomson Fin. Ink, Inc. Trident, Inc. See infra Section I. A for a description of the per se test's four conditions. Howard H. Chang et al. Commissioner Mario Monti Mar.

We focus here on the aspects of the tying law that are relevant for our discussion later. For a detailed discussion of Jefferson Parish, see William J. White eds. Fortner Enter. Loew's Inc. Paramount Pictures, Inc. Jefferson Parish, U. The Supreme Court has been willing to alter other aspects of antitrust doctrine. A prime example is. Matsushita Elec. Zenith Radio Corp. The courts have historically been reluctant to treat product integration as tying, and the law is therefore substantially less hostile to technological integration than to tying. Because the distinction between technological integration and contractual tying is often not clear, however, this has emerged as a key issue in computer software.

In our framework, technological integration can be a source of bundling economies and could be treated as part of a unified doctrine that covers both contractual tying and product integration. George J. Bundling is of economic interest only if the bundle price is different from the sum of the components prices. There is price discrimination if these differences are not the result of cost differences i.

Although foreclosure strategies could also lead to price differences we treat those separately and therefore reserve the term price discrimination for those cases where the motive for the bundling is based neither on efficiency nor foreclosure reasons. The price-discrimination models we consider assume that the seller is a monopolist and evaluate whether bundling yields higher profits than simple monopoly pricing i.

Simple monopoly pricing leaves consumers with some surplus because some consumers are willing to pay more than the monopoly price and leaves other consumers without the product even though they are willing to pay more man the marginal cost of production but they do not buy because they value the good at less than the monopoly price. This consumer surplus that is lost from not supplying this second group is known as "deadweight loss. Bowman, Jr. Several articles over the years have explored this basic explanation at greater levels of generality. Preston McAfee et al. This choice of numbers more nearly matches Grade A and Grade B movies, but it is not as effective for illustrating why consumers might welcome bundling by a multiproduct firm.

In this example, offering the bundle rather than the components does not make any customer worse off. Thus, the example only illustrates the potential gain from bundling, not the potential cost. Michael A. For an initial economic discussion, see M. For explicit modeling see Walter Y. ECON 77 , and L. Also see Bowman, supra note 49, for a discussion of the legal implications. Int'l Bus. SCM Corp. Xerox Corp. When issues like this arise, there is typically a claimed efficiency. IBM argued that its machines would only work properly if used with its punch cards.

A prominent set of cases in Europe concerned Tetra Pak, which sells packaging systems for milk and other consumable liquids. Commission, E. Whinston, supra note 5, at Carlton and Waldman state, "we would like to caution that trying to turn the theoretical possibility for harm shown here into a prescriptive theory of antitrust enforcement is a difficult task. See also Michael D. Whinston, Exclusivity and Tying in U. For a formal exposition of the theory, see David S. Edward H. Chamberlin, The Theory of Monopolistic Competition The fact that a bundle is a combination of two distinct products has implications for both cost and demand that are not easy to capture with the demand and cost structure of these models.

The theory of contestable markets considers price competition in the presence of scale economies and assumes that the threat of entry limits firms to charging a price equal to their average cost rather than to marginal cost for multi-product firms with joint costs, "average cost" is not well defined, but a similar zero-profit condition holds. The theory has fallen into disuse because of analytical problems, see Martin L. See Steven A. S3 , for evidence rejecting some predictions of the contestability hypothesis in the airline industry. We do not suggest that any of the markets we consider are perfectly contestable; however, to the extent that the primary constraint on firms' pricing behavior is the threat of entry, the contestability assumption might yield the best approximation among the available alternatives even if the threat of entry does not limit firms to zero economic profits.

Under Jefferson Parish, the plaintiff would have to show that there is a demand for the component. Consider, for example, mixed bundling focusing on the prices of good 1 and the bundle. People who want just good 1 can meet their needs by buying good 1 as a separate item or by buying the bundle and discarding good 2. For good 1 to be offered in a sustainable combination, the price of good 1 must be less than what the price of the bundle would be when it is priced to attract the consumers who want just good 1 as well as the customers who want both components.

This condition is stronger than the condition that the price of good 1 be less than the price of the bundle under mixed bundling. For an elaboration, see the discussion ofthe example in Table 3 infra. For example, pure components selling is only sustainable if there is no price at which the bundle could profitably be offered. Personal computer software that comes in a box with both Windows and Mac versions illustrates this possibility. It is likely that everyone who buys the software wants one or the other, but not both.

However, the single package with both versions saves the fixed cost of having two separate products. While the "goods" in the model can correspond to actual goods that could be sold separately, they can also correspond to features as well. So is a package of four electrical adapters. Some of the automobile options we consider, such as an automobile sound system, can be purchased separately. As far as we know, however, there is no market to get electronic locks installed on cars that come without them. Thus, much of what we label as tying in that case concerns "features" rather than goods. This distinction might conceivably be important for determining whether a tie is illegal, but it does not affect the underlying economic principles.

Consider, for example, the distinction between first class and coach airline service. The former typically involves a larger seat, a better meal, and free alcoholic beverages. All are included in the premium for a first class ticket One cannot buy the larger seat and forego the cost of the drinks. Whether or not the better meal and drinks are labeled "features" or "products," the model captures the essence of the situation. Some people who want the additional room would also choose to pay extra for a better meal and alcohol, but others would not; and the airline does not give them the choice.

While we focus on two goods and three types of customers, the model could be generalized to any number of products and demand groups. Customers of each type are willing to pay much more for the good they want than what they might have to pay in the market to obtain it. This treatment assumes perfectly inelastic demand within groups and no mobility between groups. This stylized treatment of demand greatly simplifies the exposition particularly of the numerical examples. Accounting for demand elasticity within groups has no substantive impact on the results. The average cost of a product depends on the quantity purchased, which in turn depends on what other products are offered. Even though we assume in these examples that the fixed cost of each product offering is the same, we list the size of the fixed cost for each offering to emphasize that they could be different in a more general model.

The calculations when good 2 and the bundle are offered are comparable. We noted above that the bundling efficiencies could be convenience realized by consumers rather than cost savings for firms. Such convenience would be reflected in a willingness to pay a premium for the bundle rather than both components separately and would therefore affect the sustainability conditions. If, however, consumers who want both components strictly preferred to buy them in bundled form and were willing to pay, say, a 2.

S0 premium to do so, then the bundle price could be as high as Similarly, customers who want just one component might strictly prefer not to get the other. That is, our implicit assumption of free disposal might not apply. The model can also handle this twist with a modification of the sustainability conditions. As Table 3 indicates, that is the price of the bundle, under pure bundling. The seven parameters are: the number of people who want good 1 X 1 , the number of people who want good 2 X 2 , the number of people who want both goods X B , the marginal cost of good 1 c 1 , the marginal cost of good 2 c 2 , the marginal cost of the bundle c B , and the fixed cost of an offering F. Holding the other values in Table 3 constant, mixed bundling is sustainable when demand for good 1 alone is 62 but not when it is It might seem surprising at first that the people who want good 1 would not buy it at that price, since it is less than 20, the price of the bundle under mixed bundling.

For consumers who want both goods to buy them separately, the sum of the prices of the separate goods must drop below 20, which is the price of the bundle under mixed bundling. One might suspect that this could not happen since the price of good 2 under mixed bundling is 14 and the price of good 1 cannot drop below the marginal cost of 8. However, if good 2 is sold to the group that wants both goods as well as the group that wants just good 2, the fixed cost is spread over a larger group and the price of good 2 can be lowered to Provided the number of people who want just good 1 is large enough so that the price can be lowered below 9, then the bundle can no longer be offered profitably.

This happens when people want just good 1. Since there are seven variables whose effects interact, it would take a large number of tables to provide a complete representation of the model's comparative statics. It is easy to find values for each case that give rise to each possibility. Similarly, if the number of people who demand both goods is relatively small, then an increase in F can make it unprofitable to offer the bundle. Leiner Health Products, Inc. Pharmaceutical Formulations, Inc. Motrin, like Tylenol, is a brand owned by McNeil.

So is the St Joseph brand of low-dosage aspirin. Aleve is a brand owned by Bayer. II, See Am. Health Ass'n, Cardiology Patient Page, at httprfcirc. Note that consumers are not allowed to purchase pseudoephedrine hydrochloride in large quantities, since it can be used to manufacture methamphetamine "speed". See Diversion Control Program, U. Using that and other searches, which are probably not comprehensive, we have been able to identify at least fifty-eight Tylenol products on the site. The Walgreens web site lists ninety Tylenol products. The CVS branded products shown in Table 8 show mixed bundling: consumers can purchase either component separately, or they can purchase the combination product.

In contrast, the Tylenol products that are available technically reflect "tying": consumers can buy either the pain reliever or the combination product, but they cannot purchase a Tylenol-branded decongestant. That is, the "tying" product for the Tylenol brand is one for which Sudafed not Tylenol arguably has some market power. A corresponding issue arises with the Sudafed branded products in question: the "tying" product for the Sudafed brand is one for which Tylenol not Sudafed arguably has some market power. Strategic explanations do not seem believable either. CVS and the other drug store chains engage in mixed bundling, not tying, so tying-related foreclosure stories are not applicable. Moreover, there is no reason to believe that CVS has appreciable market power in any of the component products or in the combination products.

The ExtraCare loyalty program of CVS has helped it in driving its front-store profitability besides assisting it in leveraging customer insights. Related and Unrelated Diversification Strategy- One of the possible ways to overcome the seasonality sale fluctuation and improve gross profit margin, would be the implementation of a similar or unrelated diversification strategy. The company should also search the opportunities for related diversification. One of the alternatives could be a development of their brand products and services that would enable to practice with their own set of the off-season and under unfavorable weather conditions. The environment affects every business that operates in it.

Competitive pressures, barriers to entry, price elscticity, inflation, GDP growth, overall economic condition, industry growth potential, are some of the SPACE matric factors related to business external strategic dimensions. The SPACE matrix can be subdivided into four quadrants where each quadrant suggests a different type strategy and these include: Aggressive Conservative Defensive Competitive. These are based on four areas of analysis. The organization has a strong competitive position it the market with rapid growth.

The internal areas of strength are required such at a market penetration and market development strategy is developed. This may involve acquisition of competitors, integration with other companies and product development. CVS unique selling proposition is being a legacy brand and the most significant drug retailer and pharmacy benefits manager in the US. CVS enjoys a number of various competitive advantages that exist in their two segments aimed at generating revenue. First, they can generate considerable free cash flow, which puts them in a position to acquire in a consolidating industry.

The free cash flow yield of the biggest competitor Walgreens is lower than that on of CVS at 6. IE Matrix Another strategic management tool that can be used to analyze working conditions and the strategic position of a business is the Internal-External IE matrix. The Internal-External Matrix or short IE matrix is based on an analysis of internal and external business aspects put together to form a single suggestive model. Three major regions that have different strategic implications can be derived out of the IE matrix. Cells 1, 2 and 3 reveal the grow and build strategy. This means intensive and aggressive tactical approach. Policies should focus on market penetration, market development, and product development.

A horizontal integration, forward integration and backward integration from the operational perational perspective should also be considered. In this case, your tactical plan should focus on market penetration and product development. If amount of money needed to revive a company is lo, it should then be attempted to revitalize the company. The aggressive cost management is another alternative to play the end game. A rating of 2. A grade of 3. On the horizontal, the total weighted score of 1. A score between 2 and 2. Points between 3. CVS can hold its position, but due to competitiveness, not get complacent. CVS Health should pursue strategies focused on increasing market penetration and product development.

The pharmacy services outlook is relatively positive. With an increased covergae and a higher employed population within the United States, there is higher demand from plan sponsors for PBM services. The population of aged people is also growing as these seek drug is also a growing elderly population seeking drug cost savings which is a goal of PBMs. Retail sections are looking for more suitable and convenient locations for their outlets, higher customer service and satisfaction, better product selection and lower prices. The highly regional LTC pharmaceutical services and nature, and because of this are not too competitive due to specialization Prescription drugs accounted for close to 68 percent of revenue in both and However, the profit margin relative to these products is higher than brand name drugs.

CVS Health continues to be a lucractive business venture because of its ability to generate significant cash flow, their putting emphasis the returns of shareholders and the company being an industry leader in pharmacy providers for long-term care and innovative cost solutions. CVS enjoys 8. CVS has had dividend increase for 14 years consecutively, has a share buyback program and is a leading company because of its free cash flow, to acquire in a consolidating industry.

The rebranding effort helps align the company for an expanded role in providing health care services beyond the traditional retail pharmacy business model. CVS should increase non-drug retail products such as food and drink. Hypothetical Strategic Alternatives Just like any company or business entity, CVS Health incorporation also needs strategies that will help it achieve a number of goals and objectives when applied to both human and material resources. These are particularly intended at fixing the loopholes that exist within the current strategies used by the company.

There is a need for a new direction for CVS to increase its profits and help it maintain a competitive advantage in the market that it is currently enjoying. These strategic alternatives are handy because even though the company may give credit to the current strategies having enabled it get where it is now, there is a lot of work that needs to be done if the company is to retain the market-leader position. Current Organizational Structure The current organizational structure of the company is centered around the chairman of the board who also doubles as the Chief Executive Officer.

Below him is a number of Executive Vice Presidents as well as Senior Vice presidents with their assigned roles and responsibilities. Below these are the presidents of the four divisions of the company and other internal operations officers. This seemingly small organizational structure for such a large and diverse company shows that a lot of work and decision-making processes are rested in these few places of authority. As well, it indicates that a lot of the business processes are left for the care and management of the junior workers who may be incompetent or overwhelmed by the load of tasks that they must take on.

For that note, there is a need for CVS Health company to reform its current organization structure to allow in a number of other authorities that are in line with the strategy of the company. In the case that CSV Health Incorporation introduces another organizational Structure, the workplace environment will be improved and become more productive, and staff communication and innovation will be enhanced. The best organizational structure that the company can probably take on is the Functional Organizational Structure. Below these are the heads of various departments that are responsible for the various minor tasks in the company.

The strengths of this type of organizational structure are that it encourages specialization as each department focuses on its area of expertise. As for CVS, each of the four divisions can focus on its private domain and bring out the best results. As well, the structure encourages productivity because the specialism practiced means that staff is competent in the tasks they partake.

The primary weaknesses of this type of organizational structure are that the common bond that is paramount in the success of a business is weakened. As well, the other weakness of this type of organizational structure is that it limits the coordination not only between workers but also between departments. Making each department independent of the other is likely to limit both coordination and communication between them and may to a large extent tear the organization up and lead to its collapse. Lastly, a functional organizational structure may encourage disputes between the departments or divisions of the company. These may arise due to budgetary competition or disagreements over the collective goals of the company and how they may be achieved relative to the departmental levels.

Managerial Structure With reference to the core values the CVS, the best alternative managerial structure that the company can take up is the organic managerial structure. This will likely lead to effective group leadership and enjoying the benefits of team work. The organic leadership structure leverages on the notion that leadership is shared among a number of employees rather than being centrally held by one person. One of the weaknesses poses by this managerial structure emanate from the fact that no limits are set for the standards, boundaries and rules on which the company moves. Whereas this may be of advantage to some companies, it may likely breed greed and selfish motives among some workers who are unsatisfactorily hungry for power and authority.

It may as well antagonize customer relations as one customer may receive different replies to one query. As well, the structure poses communication barriers between departments and divisions of the company. This is because the departments govern themselves and this may cause conflicts between two departments in case they fail to agree over an issue they collectively have to consider. Built using WordPress and the Materialis Theme. I'm Alfred! We can help in obtaining an essay which suits your individual requirements.

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