CVS business model and how it makes money

CVS has more than 10,000 stores across the U.S. and they employ more than 2,00,000 people. The company has established itself, as one of the top pharmacy and retail companies in the country. CVS business model is more popular for the affordable pricing they provide. Taking into consideration the speed at which CVS has grown to become a household name, everyone must be wondering, what propelled the company to such heights? What are the factors that resulted in the company becoming such a huge success? 

The CVS business model and design

The CVS business model is a health business model canvas. It includes healthcare service operations and retail pharmacy coupled together to achieve competitive advantages. Based on these two basic categories of business models they have developed a pipeline business model. This model is used by the organization, to transform the inputs into outputs sequentially. 

The customers are benefitting from their outputs such as consumer goods, healthcare services, and medicines. There are several strategies and designs used in the pipeline business model. This is based on divisions and subsidiaries that are representing CVS’s organizational structure. The two business models used by CVS for their design and strategies are,

1. Click and mortar business model. (This is also called a bricks-and-clicks business model.)

2. Pharmacy benefit management business model.

CVS iconic branding

CVS is an immediately recognizable brand. It comes with a red logo. This has become synonymous with one of the biggest drugstores in the U.S. It sells a range of products including pharmaceutical goods. CVS has deliberately cultivated its branding. It is done in a way that customers are aware of exactly what to expect when they are in stores. Then they find extremely reasonable pricing for all the items they wish to purchase. This emphasis the company placed on branding has made it one of the largest retailers in the pharmaceutical sector.

How CVS makes money

Versatility

The pharmacy division of CVS is responsible for almost two-thirds of its revenue. The term pharmacy used here can be a bit misleading. The kind of business they style can be more appropriately called retail. This business dispenses prescriptions and administers flu shots. But it also looks after sundry and convenience sales. 

These sales are associated with your visits to the drugstores. You can get everything from cookies to candies with CVS. They also have medical clinics that are called “MinuteClinic”. There are more than a thousand such clinics in the 33 states of the U.S. CVS made its entry into the industry pretty late. But it has emerged as the market leader.

Pharmacy Benefit management

One of the key operations of the CVS business model is pharmacy benefits management. It is responsible for processing prescription claims. This subsidiary is called Caremark. This division is distinct from the pharmacy operations of CVS in the sense that the pharmacy is a big operator. It deals with drug manufacturers, handling mail orders, and setting prices. In other words, this includes all the tangible operations related to administration. 

Specialty departments

Then there is a specialty department that handles complex, higher-end, expensive, and life-sustaining drugs. This division operates on lower volumes but its products have massive pricing. For every one thousand patients that need Xanax or Paxil prescription, a couple of them need a vial of Soliris that costs $6000. It stimulates the RBC creation and can keep itself alive. As these kinds of drugs are rare, specialized, and expensive they necessitate a need for a separate department. 

Another subdivision of CVS’s specialty business is Accordant. It provides a care program that is insurance paid for the patients suffering from one of the 17 serious conditions such as cystic fibrosis or hemophilia. Another division is Coram where nurses can arrive at your property and infuse medicine in your veins for the treatment of hemophilia and chronic congestive heart failures. Then there is Novologix which is responsible for making and maintaining claims software. More than 5 million people are visiting CVS stores every day. Coram serves in the excess of 45000 patients each month.

Other significant factors

Great locations

CVS is undoubtedly the biggest drugstore chain in the U.S. It has in the excess of 10,000 stores operating in the country. This also makes the company one of the more accessible stores for different customers that are looking to buy pharmaceuticals. Apart from that, the stores that inhabit the CVS products, are also well equipped to accommodate a huge number of goods. 

The size of these stores ranges from anywhere between 8000 sq. ft to 12,000 square feet. This leads to better accessibility for the customers visiting the CVS stores to locate the items they are looking for. All this means there is no need to visit the competitors for the clientele.

Customer care

The company promotes itself as a top health-conscious brand. It is committed to ensuring the welfare of its clients. In the recent past, the company made a conscious decision not to sell cigarettes and other tobacco products. They decided this even when it meant an annual loss of around $2 billion for the company. This decision among several others has established the brand’s reputation. 

They are conceived as a company that cares about the health of the customers. Concentrating on the health and welfare of the patrons has led to great relationships with the customers and employees. The organization also enjoys a good relationship with its partners in the health industry.

Health innovations

CVS also has a healthcare process known as HealthHub, which is one of their innovative healthcare systems. There are health kiosks in HealthHub that offer services such as the sale of products used for treating health problems such as diabetes and durable medical equipment. CVS has been responsible for piloting the technology by using it in several places such as Atlanta, Houston, and Philadelphia.

The technology intends to improve patient care, especially in the case of those suffering from chronic conditions. After the pilot program for this innovation was a success, CVS has established hundreds of more locations across the country. With this constant innovation and expansion, CVS continues to support its clients. They are offering facilities that can attract newer customers as well.

Partnering with companies

Over the years CVS has succeeded in business due to a strategic business mindset. This mindset allows them to take over and merge beneficial rival organizations. This retail giant has taken over and partnered with many companies. It allows them to keep on providing top-quality services to their clients. 

For example, CVS acquired Eckerd Stores and Health Services in 2004. The company took over MinuteClinic in 2006 for providing top healthcare services in their stores. In addition to that CVS also took over Aetna a health insurance company. This resulted in a great boost in profits by using their Medicare advantage plans. This also paved the way for beginning their new schemes such as HealthHub.

Dealing with the competition

CVS has another competitive advantage going into the market. The company continues to expand in these difficult times when other competitors are being forced to close shop. For instance, the CVS rivals such as Walgreens Boots Alliance and Rite Aid had to close many of their stores after taking big losses in their profits. 

At the same time, CVS is planning a steady expansion with close to 100 stores opening every year. In reality, there were a smaller number of stores opening compared to the earlier years however, this is very much a positive sign.

Conclusion

All the business plans and strategies used by CVS are emerging from their plans to win. It allows the company to develop a strong CVS business model with a great foundation. From this position, they are able to grow a chain of stores all across the country. There are certain other factors responsible for the success of the organization such as,

• A huge number of stores in the U.S.
• A massive range of products in the stores.
• A strong brand image.

These factors have allowed the company to attract and retain a massive and ever-growing client base. There are other factors responsible for the success of the company as well. They take part in social benefitting initiatives, and they have acquired useful organizations. This has worked well for the organization and allowed them to stay ahead of the competition. 

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