Integrating CVS into China

1. Integrating CVS into China By: Lee Rubin, Stephanie Creamer, and Marla Jaffe

2. Introduction • Marketing is “a social and management process by which individuals and groups obtain what they  need and want through creating and exchanging products  and value with others.” • An essential aspect of marketing is thus consumer behavior: the understanding of what consumers need and what exactly influences their buying behavior. • The Chinese consumer market is evolving very fast and it happens often that new products have been accepted before their forerunners have succeeded in penetrating the market. • By inspecting elements such as consumer preferences, shopping habits, and cultural issues a company can determine the level of success they might have in entering a foreign country.

3. Competitors • China Jo-Jo Drugstores • Prescriptions, OTC drugs, nutritional supplements, traditional Chinese medicine, personal care products… • China Nepstar China Drugstore Ltd. • Largest retail drugstore • 2,582 stores across 74 cities • 13 regional distribution centers

4. Target Size and Location • Shanghai • largest number of convenience stores in China with 4100 shops • Most populous city in China (14.57 million permanent residents) • Largest commercial and financial center • Central Shanghai divided into 2 areas: • Pudong-economic and business zone • Puxi-other side of Huangpo River

5. Target Size and Location Cont. • Foot traffic primary factor in choosing CVS location • Diversified location profiles such as subway stations, petrol stations, office buildings, schools, entertainment venues • Active social activities can lead to increase in consumer demand

6. Industry Issues • Rising income, urbanism and change in consumer attitude, conveniences stores on rise in large cities of China • Chinese convenience store industry not yet sophisticated • Profit in Shanghai started only in 2006 • Small franchise chain sizes, low levels of franchise connection, and lack of unified procurement leads to high store costs • High operating costs = High product prices • Many ignored office areas, schools and parks, they are not utilizing location freedom Shanghai, China

7. Format • CVS operations have to be franchised • Can utilize reputation to issue equities and bonds to attract capital • Employee ownership, mergers, acquisitions or licensing agreements also can be used to bring in capital

8. Innovation • Establish own uniqueness, provide comprehensive and diversified service • For financed areas have fax machines, printers, public phones, and lotteries • Possibly sell bus ,ferry or flight tickets • CVS should run 24/7 to maximize convenience

9. Shopping Behavior • Consumers are willing to pay premium of 2.5% for branded products • Chinese consumers more wary in 2008 to buy unfamiliar products, so more difficult to launch new products • Chinese prefer domestic brand names • However, new generations in China adopting Western styles in clothing styles and forms of entertainment • Teenagers in particular wear styles and designers from the West

10. Shopping Behavior Cont. • Advertising on TV very important medium, followed by newspaper ads and sponsorships • 78% decide in store what they are going to buy • 37% easily susceptible to promotions, only 22% stick to original idea before entering store

11. Expansion throughout China • Challenges • Consistent population growth • Consumer behavior varies in many dimensions throughout regions • Overcoming Challenges • Differentiated strategy • Research and product trials • Focus on one regional market like China’s major cities

12. Works Cited • http://fransgiele.be/freematerial/2009chineseconsumerbehaviour.pdf • http://www.cvs.com • http://www.shanghaihighlights.com/essential/ • https://solutions.mckinsey.com/insightschina/default/en-us/about/our_publications.aspx#aug2010