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Walgreens: Differentiating to Lead

CASE STUDY, MARKETING MANAGEMENT
ET Cases, 19 pages
AUTHOR(S) : Syed Abdul Samad and Dr. Nagendra V Chowdary

Case Preview

Walgreens: Differentiating to Lead

 

“We have a tremendous opportunity to differentiate ourselves and step out of the traditional drugstore format and create something completely new and unique. In the past we were a pharmacy with a front end that was convenience goods. We don’t want to lose that. We’re on the best corners of America for that reason. But we can move from just convenience to more health, daily living, and beauty.”

– Gregory D. Wasson, President and CEO, Walgreens, 2013


As of July 2013, Walgreen Company (Walgreens), the US’ largest retail pharmacy chain was redesigning its stores and adding primary-care facilities, selling groceries, serving to more economically strapped customers and taking up many more initiatives in its stores to differentiate itself. This move by the company came in the wake of the digital revolution that changed the face of retailing and the approval of the Patient Protection and Affordable Care Act (PPACA) that promised healthcare for all US citizens and transform the healthcare industry in the US.

On March 23rd 2010, the US President Barack Obama signed a Federal Statute known as the PPACA into law. This Act along with the Health Care and Education Reconciliation Act was about to bring in a significant change in the US healthcare system. The PPACA commonly known as the Affordable Care Act (ACA) or ‘ObamaCare’ came into effect from January 1st 2014.

The ACA, which was aimed to expand public and private health insurance, introduced mechanisms to increase the quality and affordability of healthcare in the country. While, the hospitals, insurance companies and other healthcare providers would be affected by the ACA in their own way, the Act would also have its impact on the pharmacies and pharmacists. Because of the cheaper healthcare insurance costs and its availability to more people, the pharmacies would be catering to more patients/customers than ever before. As they were on the front-end of the healthcare system they were also expected to take the responsibility of promoting the ACA and educating consumers about their options under the law. Walgreens was getting ready for these changes in the system and the expected increase in competition in the industry, by offering more convenience services and differentiating itself from its competitors in the US healthcare industry.........

The US Healthcare Industry

Healthcare in the US was provided largely through healthcare facilities owned and operated by the private sector. While 62% were non-profit and 18% were for-profit hospitals, the government owned only 20% of the healthcare facilities in the country. However, 60%–65% of the hospital spends were aided by healthcare programs like Medicare, Medicaid7, TRICARE, the Children’s Health Insurance Program and the Veterans Health Administration (Exhibit I). In addition, the public sector employees in the US were insured by the government, while many others were insured by a family member’s employer, few purchased health insurance on their own and the rest remained uninsured........

The Patient Protection and Affordable Care Act (PPACA)

Commonly known as the Affordable Care Act (ACA) or Obama Care, the PPACA was a healthcare reform bill in US that was signed into its law on March 23rd 2013. This was the major overhaul of the country’s healthcare system since the Medicare and Medicaid legislations came in 1965 as the Social Security Amendments16. It included many healthcare provisions like expansion of Medicaid eligibility, subsidizing insurance premiums, incentives to businesses that provide healthcare benefits to its employees, establishing affordable health insurance exchanges, prohibiting denial of coverage, claims and annual spending caps by insurance companies............

Impact on The US Healthcare System

Almost 50 million23 aged and disabled people in US depend on Medicare each year. The new law makes Medicare stronger with new benefits and improved care, and reduce fraudulent practices in the US healthcare system with tougher screening procedures, stronger penalties and new technology. It would also save on an average of $4,20024 per every enrolled person over the next 10 years (by 2024). Earlier, one in four of elder citizens could not afford the high prescription drug costs..........

Impact on Pharmaceutical Industry and Pharmacies

“Health care in America presents a fundamental paradox. The past 50 years have seen an explosion in biomedical knowledge, dramatic innovation in therapies and surgical procedures, and management of conditions that previously were fatal. Yet, American health care is falling short on basic dimensions of quality, outcomes, costs and equity,” stated a report from an 18-member panel of medical experts of the Institute of Medicine.............

The Walgreen Company

With 6.3 million customers visiting its stores daily, the Walgreen Company was the largest drug retailing chain in the US. It was instituted in Chicago, Illinois, in 1901 and was headquartered at Deerfield, Illinois. As of early 2014, the company provided access to pharmacy, consumer goods and services and health and  wellness services in the US through its retail drugstores, Walgreens Health Services division, and Walgreens Health and Wellness division (Exhibit IV)..........

Reinventing Over the Years

After acquiring the store, Walgreen Sr. experimented with his ideas to improve the ambience of the store. He installed bright lights to create cheerful and warm ambience in the store. Aisles were widened to create enough space to give a welcoming feeling to customers. Merchandize was improved and broadened to even include pots and pans. The drugs were reasonably priced and met high standards for purity and freshness............

Customer Service

Walgreens’ thrilled its customers by providing an incredible service. Each customer was personally greeted by Walgreen Sr. or his colleague and personally attended to. When customers ordered for non-prescription items over the telephone, most of the times Walgreen Sr. ensured that the items reached the customer before the customer put the receiver of his telephone down...........

The Soda Fountain in Winter

By 1910, Walgreens had two stores and was in constant search for ways to please his ever-increasing customer base and outshine his competitors. During the 19th century, bottled soda water and charged soda water were considered health aids and thus the soda fountain had become an essential part of every drugstore in the US...........

The Milkshake

During the next decade, by 1929, Walgreens expanded to 52548 stores in various cities including New York, Florida, etc. The core management team was assembled during this decade, which included William Scallion, A.L. Starshak, Willis Kuecks, Arthur C. Thorsen, James Tyson, Arthur Lundecker, John F. Grady, Roland G. Schmitt, Harry Goldstine and Robert Greenwell Knight, who were responsible for the growth of the company Later, flavored syrups and ice creams were added as soda fountains grew in popularity..............

Fighting the ‘Great Depression’

On October 29th 1929, the US stock market crashed and marked the beginning of the Great Depression which lasted through the early 1940s, until the US entered into World War II. Though Walgreens was not immune to the dire effects of the tumbled economy, it persevered and came up with new ways to serve customers and employ thousands of people.............

The Store Model

The Walgreens stores were designed such that they were connected to local groceries (Exhibit V). The company teamed up with Eagle Food Centers or Dominick’s Finer Foods in Chicago. The Walgreens store generally had a ‘walkthrough’ to the adjoining store and often shared serving personnel. The concept was invented by the company to compete with the popular dual store format used by its competitor Jewel-Osco/Albertsons-Sav-On.............

Other Initiatives

During the World War II, the company opened a not-for-profit drugstore in the Pentagon and was a marketer of War Bonds as a part of war effort. The company was recognized by then President Dwight D. Eisenhower, for its efforts during war times. It was the first US company to have a profit sharing and pension plan for its employees.............

Acquisitions

Though the company expanded rapidly, it went mostly in the organic way by expanding its stores on its own till 1980. However, in 1986, it acquired the MediMart Chain from Stop&Shop. In 2006, Walgreens acquired the Happy Harry’s chain which had its presence in Delaware, Pennsylvania, Maryland and New Jersey. The company acquired a chain of more than 100 stores called Option Care in 2007. It also bought Take Care Health Systems, a leading convenient care clinic chain operating 51 clinics in Chicago, Kansas City, Milwaukee, St. Louis and Pittsburgh...............

Differentiation Strategies of Walgreens

For the past three decades, Walgreen’s success came through expansion of its retail footprint, through its strategy of ‘seven by 10’ The strategy meant that the company wanted to have 7,000 stores by the end of 2010. Walgreens was successful in making this strategy come true, from 4,250 stores in 2003 to 7,000 stores in 2009...........

Challenges and Road Ahead

ACA was open for enrolment since October 1st 2013. By January 2014, more than 2.1 million US citizens had selected private health plans through healthcare.gov and state-run websites and 1.6 million more were judged eligible for Medicaid. Women and elder citizens were enrolled in greater numbers and almost 30% of new enrolees were under the age of 35 years (Exhibit VIII)............

Assignment Questions

I. What is a differentiation strategy? What is the purpose of a differentiation strategy? How does it help a company? In what different ways can a company differentiate itself from its competitors?

II. What is Affordable Care Act? How would this Act affect the healthcare system of the US – the hospitals, the insurance industry and drug stores?

III. ..............

Exhibits

Exhibit I: US Healthcare Industry Statistics

Exhibit II: Healthcare Expenditure of Few OECD Countries (as % of GDP)

Exhibit III: Major Areas of Wastage in US Healthcare System

Exhibit IV: Walgreens Company Structure

Exhibit V: Walgreens Old Store Model

Exhibit VI: Walgreens in US – Drugstores State-wise (through August 30th 2013)

Exhibit VII: Walgreens New Store Model

Exhibit VIII: ObamaCare Consumers

Teaching Note Preview

Walgreens: Differentiating to Lead

 

Synopsis

On March 23rd 2010, the US president Barack Obama signed a federal statute known as the Patient Protection and Affordable Care Act (PPACA) or Affordable Care Act (ACA) into law. Commonly known as ObamaCare, this was about to bring significant changes in the US healthcare system impacting the whole value chains from hospitals to pharmacies and customers as well. It aimed to expand public and private health insurance, and introduced mechanisms to increase the quality and affordability of healthcare in the country. Because of the healthcare insurance costs getting cheaper and its availability to more people, the pharmacies would be catering to more patients/customers than ever before. And as they form the front-end of the healthcare system they were also expected to take the responsibility of promoting the ACA and educate consumers about their options under the law. This would increase competition between pharmacies to grab a share of the grown market.

Increased customers, in addition to increased competition and responsibility set the clock ticking for Walgreens, the US’ largest pharmacy chain. It started redesigning its stores and was adding primary-care facilities, selling groceries, serving more economically strapped customers, and taking up many more initiatives in its stores to differentiate itself from other players. Walgreens was getting ready for the increase in competition in the industry by offering more convenience services and differentiating itself from the competitors in the US healthcare industry. Would its differentiation payoff and keep it ahead of competitors? Would it be sustainable?

Prerequisite Conceptual Understanding/Before the Classroom Discussion

This case study presupposes a conceptual understanding of the business implications of the following concepts enabling an effective discussion leading to more practical solutions than a mere intellectual exercise. The participants were asked to read the following concepts from 14th edition of Marketing Management textbook to help them better connect the concepts:

  • • Philip Kotler, et al., “Chapter 2: Developing Marketing Strategies and Plans”, Marketing Management, 14th Edition (Indian Adaptation), Pearson Education Inc., 2013 – To understand how Walgreens used Michael E. Porter’s Differentiation Strategies (generic) to stay ahead of competition
  • • Philip Kotler, et al., “Chapter 11: Setting Product Strategy”, Marketing Management, 14th Edition (Indian Adaptation), Pearson Education Inc., 2013 – To understand the differentiation in products and services
  • • Philip Kotler, et al., “Chapter 12: Designing and Managing Services”, Marketing Management, 14th Edition (Indian Adaptation), Pearson Education Inc., 2013 – To understand about differentiating with services

 

Expected Learning Outcomes

  • • Walgreens’ serving business model/operating model during the last 112 years and illustrate the building blocks of its continued performance i.e., the CSFs of its enduring success
  • • The External business environment/forces that have either prompted/compelled Walgreens to alter its business/operating model
  • • The Differentiated business model of Walgreens and its sustainability

 

Positioning/Case Setting

This case study can be used for the following modules/topics in the Marketing Management Course:

  • • Differentiation
  • • Competitive Advantage

 

Assignment Questions

  • I. What is a differentiation strategy? What is the purpose of a differentiation strategy? How does it help a company? In what different ways can a company differentiate itself from its competitors?
  • II. What is Affordable Care Act? How would this Act affect the healthcare system of the US – the hospitals, the insurance industry and drug stores?
  • III. ..................

 

Case Analysis

The classroom discussion and analysis for this case study could be summarized through the Board Plan [Exhibit (TN)-I]. However, the classroom discussion was facilitated under three broad sections as explained in Exhibit (TN)-II....................

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Abstract


This case study enables an interesting analysis of the Critical Success Factors (CSFs) and the building blocks of the serving business model of Walgreens and its new differentiated business model. With the US President Barack Obama signing the Patient Protection and Affordable Care Act (PPACA) and instituting it into the federal law on March 23rd 2010, significant changes were expected in the healthcare system of the country. Apart from introduction of mechanisms to ensure that healthcare is driven by quality and affordability parameters, the law was also expected to increase pressures on the pharmacies as they were the front-end keepers of the value chain. Walgreens, the US' largest retail pharmacy chain, known for its customer service and innovative merchandise, as of 2013, was redesigning its stores and adding primarycare facilities, selling groceries, serving more economically strapped customers, and taking up many more initiatives in its stores to differentiate itself from its competitors. However, would Walgreens be able to create a competitive advantage with this differentiation? Would it be able to stay ahead of the pack? Will the new 'differentiated' model be sustainable?



Pedagogical Objectives

  • To understand Walgreens' serving business model/operating model during the last 112 years and illustrate the building blocks of its continued performance i.e., the CSFs of its enduring success
  • To discuss and debate on the external business environment or forces those have either prompted/compelled Walgreens to alter its business/operating model
  • To analyze the new ‘Differentiated’ business model and debate on the sustainability of its new model



This Case Pack Includes:
- Abstract
- Case Study
- Teaching Note (**ONLY for Academicians)
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