External and Internal Environment
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Walgreens in one of the largest drugstore chains in the United States. Walgreens has always maintained a simple strategy. Although the strategy changed over the years to mention newer innovations, the basic principles of the strategy have remained similar. It has become more than just your ordinary pharmacy it invest heavily in high tech store and distribution systems which drive service up and costs down, and offer an on-line drugstore web site totally integrated with other retail stores. Walgreens also have three Pharmacy Care Call Centers one in Alabama, Florida, and in Tuscan.
Choose the two (2) segments of the general environment that would rank highest in their influence on the corporation you chose. Assess how these segments affect the corporation you chose and the industry in which it operates.
I believe that the two segments of the general environment that would rank highest in influence for Walgreens are the two segments, demographic and technological. If I were to be honest, I believe that all of these segments are important to the success of a drugstore, but because the question asked for which ones I considered being the highest I chose these two. Let me go into details to explain my reasoning for choosing these two.
The reason why I choose the demographic segment is because demographics play an important role in mostly every corporation. Marketers can use the variables that make up demographics to create a demo graphic profile, which helps provide them enough information to create a mental picture of who the typical members of society are. Once these profiles have been constructed, they can be used to develop a marketing plan and strategy. The five types of demographics that corporations focus on for their marketing are age, gender, income level, race, and ethnicity.
As humans, our bodies are prone to get sick every now and then, and when it does we most likely have to rely on taking medicine to get over the illness. It does not matter if it is over the counter or prescription medicine, we just need something to rid us of the illness. That is when we most likely turn to the drugstores to purchase our medication, such as Walgreens. However, while we are there to just go get our medicine, the store has much more merchandise to offer than just that. They have stuff that touch on almost every type of demographics, from: having merchandise for different ages, having products for each gender, cheaper brands of prescription medicine for their lower income customers, and much more. Considering the five (5) forces of competition, choose the two (2) that you estimate are the most significant for the corporation you chose. Evaluate how well the company has addressed these two (2) forces in the recent past. Of the five forces of competition, the intensity of existing rivals within the industry.
The retail drug industry contains many companies, but the most notable are Wal-Mart, CVS, and Rite Aid. These are just a few of Walgreens’s competitors there are other stores like Kmart, Target, Publix and different grocery store pharmacy chains. Pharmaceuticals are a high demand industry, with fairly high margins. The margins are decreasing, and competition constantly adapts to changing approaches. Many competitors now choose to handle customer interaction on the web. Many people have started to do mail orders because it is cheaper for them. Also, insurance companies find it cheaper for the consumer to do mail orders then going into the actual store. The only thing is that some of the mail orders do not make it in time, which causes the consumer to still have to deal with an actual pharmacy. At Walgreens call center they have a mail order department that assist the consumer with mail orders. Walgreens have these call center to be able to assist more consumers then their competitors.
The second of the five forces that is the most significant for Walgreens would be the bargaining power of suppliers. The textbook states, “The bargaining power of suppliers refers to the ability of suppliers to raise input prices, or raise the costs of the industry in other ways-for example, by providing poor quality inputs or poor service.”(Hitt, Ireland, and Hoskisson p.54)The generic market has a lot more bargaining power. If a generic manufacturer decides not to sell to a particular retailer, then the stores could easily pick another generic supplier. Generic drugs have less exclusivity than prescriptions, so suppliers must give-in to the chains’ demands. There are so many medications that you once had to have a prescription for that are over the counter drugs now will hurt the prices on the generic drugs. Walgreens and other pharmacies have come up with ways that customer can save money on prescriptions by offering prescriptions savings cards for people that do not have insurance. Wal-Mart, CVS, and Target offer certain medications at discounted prices. With the same two (2) forces in mind, predict what the company might do to improve its ability to address these forces in the near future.
In the future Walgreen needs to be able to sell their medication at a cheaper price then all of its competitors. The only thing about this is that some customers have learned that some medication that are manufacturer by different companies do not work as well as others. Regardless if it is brand or generic customers will ask for medication by certain manufacturers. While trying to lower prices for consumers the pharmaceutical have to make sure that the medication is working for the consumer. Not having the most requested manufacturers could cause a business to lose business therefore you have to make sure the stock is complete with medication that people need on demand. Assess the external threats affecting this corporation and the opportunities available to the corporation. Give your opinions on how the corporation should deal with the most serious threat and the greatest opportunity. Justify your answer.
In the highly competitive prescription drug market, Walgreen’s biggest threats come from its intertype competitors. With them no longer competing just against other drug stores and pharmacies, retailers such as grocery stores and discounters are starting to increasingly proving to be quite the formidable competitors. Discounters especially, are proving an to be quite a threat when it comes to prices. The emphasis on low cost and economies of scale possible through large companies such as Wal-Mart, mean that Walgreens cannot compete against discounters and their prices.
Walgreens is also at a disadvantage compared to their retail competitors, such as Target and Wal-Mart, because retailers carry a much broader assortment with significantly more SKUs and that they also have more consumers who visit the store on a regular basis.” It is estimated that 138 million Americans shop at Wal-mart weekly and that they find it more tempting to go and fill their prescriptions there as well, so that they can meet all their needs in one place” (Lasnti, 2005). Although Walgreens itself does consist of more than just medicine, their assortment of products comes nowhere as close as Wal-Mart and other popular retailers, so they just cannot compete against them in that department.
Furthermore, Walgreens’ reliance on prescription drugs, a highly regulated and controlled entity, makes it vulnerable to changes in laws and regulation. This is exemplified by recent changes to Medicare prescription drug plans which, while on one hand made the price of prescription drugs the same for consumers no matter where they chose to purchase it, also further regulated dispensing fees thereby decreasing profit margins for shops, like Walgreens. While Walgreens has not been impacted too adversely by these changes, the aging of the Baby Boomer generation and concerns over the future of Medicare mean that further reform will be a topic of continuous debate. Under these circumstances additional modifications and reforms which may potentially 12 reduce the profitability of prescription drugs are not unexpected. Walgreens relies heavily on prescription drug sales, and dependence on a category whose regulation is mainly beyond its control leaves it vulnerable.
As for opportunities, it appears as if Walgreens greatest opportunities to increase their sales lie in changing composition of American population. With the Baby Boomer generation on the verge of hitting a significant demographic shift, they will surely impact the pharmaceutical industry more than any other. “In fact, Walgreens expected a 30% increase in demand from their senior customers’ prescriptions in years on down” (Merrick, 2006).” They had a good reason to think so since 30% of prescriptions and 42% of sales revenue from it came from seniors in 2002, and they were expected to expand up to 95 million by the time it was 2010 (“SIC 5912,” 2006). Increase for the demand of prescription drugs, which is Walgreens’ largest category and is most known for, potentially means an increase in sales and profit for the company.
Further opportunities that Walgreen has is to benefit from lies in international markets. Currently in the United States, only domestic businesses in the market have become saturated, and Walgreens will be forced to look internationally for expansion. While cultural differences and government regulations will likely prove challenging given Walgreens’ nature of its business, international markets provide significant opportunities for expansion in the market. Furthermore, there other main competitors that falls into the same category as them, such as Rite Aid and CVS, have yet to enter the international markets. Beating these competitors to reaching and entering into international markets could ensure that Walgreens stays a step ahead and remain the market leader of the three. This would also help Walgreens stay competitive against the larger chains, such as the ever popular Wal-Mart, with many of them already having a significant presence in the international market.
Merrick, A. (2006, June 21). Walgreens found way to profit drug plan. The Wall Street Journal. Retrieved February 2, 2014 from LexisNexis Academic database on the World Wide Web:http:0web.lexisnexis.com.oasis.oregonstate.edu/universe/document?_m=402elf7d8438 “SIC 5912 Drug Stores and Proprietary Stores.” (2006). Referenceforbusiness.com.Retrieved February 2, 2014 from http://www.referenceforbusiness.com/industries/Retail- Trade/Drug-Stores-Proprietary-Store.
Hitt, M., Ireland, R. D., & Hoskisson, R. (2013). Strategic Management – Concepts and Cases. Mason: Cengage Learning.