Eco/561 Business Proposal
Ira Johnson, Jr.
November 19, 2012
Dr. Caryn Callahan
In an effort to better serve the CVS Pharmacy consumer base, the need to offer a wider variety of prescription medication selections and options system-wide. In this proposal, assumptions about the elasticity of demand and the market structure for these medications and expanded services will be included. Additionally, how the expansion will increase revenues will be explained. Further, a rationale for determining the profit-maximizing quantity will be provided.
Decisions will be made by using the concepts of marginal costs and marginal revenue to maximize profit. A mix of pricing and non-pricing strategies will be …show more content…
Membership pricing and discounts reward and encourage repeat business. Geographic pricing allows for profit maximization by pricing identical products differently based on regional demographics. Penetration pricing is an effective way of promoting new or unique products at temporary price reductions. Finally, closeouts and bundle pricing can be employed when certain seasonal products must be sold off to avoid a loss (Kimmons, n.d.). Non-pricing strategies should include: advertising, longer opening hours, and enhanced service quality. Advertising draws attention to the brand and makes consumers aware of sales and promotions. Longer opening hours allows for the opportunity to service more customers—the fisherman with the biggest net catches the most fish. Finally, the implementation of the automated dispensing and verification systems will enhance service quality, especially in the pharmacy (CVS’s core competency) because they free up pharmacists to counsel the patients.
Barriers to Entry
The major barrier to entry in the retail pharmacy industry is cost. As an incumbent, economies of scale allow CVS to purchase large quantities at low rates because of long relationships with suppliers and because they are buying in bulk. This benefit gives CVS leeway to lower prices while