Paper, Plastic or Penicillin?
On the heels of its successful generic prescription drug plan, Wal-Mart announced in 2007 that it planned to open several hundred medical clinics within its retail stores. Wal-Mart CEO Lee Scott believes the number could grow as high as 2,000 by 2014.
The model was simple. Doctors or nurse practitioners provide routine medical care - testing for strep throat or giving flu shots at a fixed rate. CVS, Walgreens, and Rite Aid were quick to follow suit, saying that they were considering similar measures.
It's a classic example of Blue Ocean Strategy. Faced with slowing revenue gains, Wal-Mart decided to curb its expansion plans and focus on deriving more income from its existing stores. Rather than battle Target or CVS and accept diminishing returns, the company set out to get ahead of the curve and launch a retail, healthcare operation.
The clinics were meant to provide a source of rent and also offer a marketing benefit with the possibility of increasing foot-traffic. Wal-Mart made a practical decision to lease space and outsource the operation of the clinics. But CheckUps, the start-up company that staffed and ran 23 of the 72 clinics currently in operation, shuttered its doors in January because of apparent payroll difficulties.
Empty space and a struggling vendor are headaches that a store built on efficient distribution doesn't need. Wal-Mart reacted by announcing it would launch its own brand of stores, "The Clinic at Wal-Mart," and would partner with local hospitals.
Wal-Mart is essentially entering a new industry. Running a health care operation is a very different business model than outsourcing a clinic within a retail store. There is the issue of added liability. And, though the Wal-Mart demographic has patronized the hair and nail salons and McDonald's that have been in the stores for over a decade, the demand for retail clinics is unknown.
In addition, while people want affordable access to health care, they don't want the services to appear "cheap." Wal-Mart is seen as a discount brand, and cheap products are a double-edged sword.
That is why we see this as a problematic brand extension for Wal-Mart.
Aim low, head higher
The success of the clinics will ultimately be determined by how well the concept is integrated into the core brand of Wal-Mart, which has been centered in the idea of relentlessly low prices since Sam Walton opened the first store in 1962. A recent Economist piece noted that Wal-Mart is finding success as America teeters on the verge of a recession because the retailer always seeks the lowest price on items, or at least conveys that message to consumers.
It seems antithetical to expect that an unproven healthcare model could transform a company that is the archetype of the cost-benefit analysis. But Wal-Mart might respond that low prices seemed like a radical idea in 1962 and that 44 million people without health insurance represent just another untapped market.
Wal-Mart's experience has valuable lessons for any corporation considering a brand extension. When bringing in new partners, it's critical that you understand both the risks and current fiscal health of the company on the other side of the negotiation table. The importance of the vetting process is compounded when your partner will be operating in an arena where you have no expertise because you are suddenly beholden to their metrics and ability to convert prospects into customers.
The further you get from your core brand, the more stringent the evaluation you require because there is a heightened danger that you will alienate your customer base or fail to properly integrate a new initiative because it differs so greatly from your business strategy to date. It helps if you can find corporations that have been equally successful in their arena and are at the same point of expansion. This increases the likelihood that your partners will share your goals and exhibit hunger to make sure a new venture is successful.
CEO takeaway? Maybe research your partners better?
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