Pamantasan NG Cabuyao: College of Business Administration and Accountancy

Pamantasan ng Cabuyao
College of Business Administration And Accountancy
LEVEL OF COMPETITIVENESS OF SELECTED SMALL-SCALE DRUG

STORES IN THE CITY OF CABUYAO, LAGUNA
CHAPTER 1
THE PROBLEM STATEMENT
Introduction
Pharmacies tend to be one of the most sought entities of almost everyone. It is
because of the environmental factors, such as pollution and stress, which affect a
person’s health and which makes illness a common enemy to be fought. It is well-
known that being sick requires a lot of money to be spent which is a down side because
not all of the people can afford medicine or go to the doctor. Good thing there exist
pharmacies known as “Generic Drugstores.”
Generic drugstores are very popular nowadays due to the growing demand for
affordable medicine. That is why small-scale drugstores, whether franchised or not,
have sprouted in almost every street corner. Even people who have no background or
that much knowledge in the field of pharmaceutical practice built such stores since they
can just hire the services of a licensed pharmacist. They offer a wide range of
prescription medication and over-the-counter medications at a low price. It has had a
major impact on making medication more affordable.
There is no question that pharmacies could play an even greater role in
providing a wide range of basic healthcare services in a convenient, cost-effective way.
But to reach their full potential to ease the current healthcare crisis, pharmacies will
have to overcome certain barriers. Some of these constraints, such as limits on the level
of service that pharmacies can provide, have been imposed by regulators. Others are
self-imposed and are designed to accommodate physicians and health insurers. In the
current reform climate, these barriers are likely to erode, resulting in new opportunities
for the pharmacy to become a critical partner in the restructuring of healthcare.
(Ahlquist, Javanmardian, Kaura, & Bilokrynytskyy, 2010)
Independent pharmacies have long been the backbone of community services
but, like post offices before them, they risk becoming obsolete as more nimble or better
resourced players shape the market and capture its value. (Anscombe & Thomas, 2012)
Background of the Study

Pharmaceutical products are an important component of expenditure on public
health insurance. For years, a lot of concerned citizens have established generic
pharmacies in order to limit the increase in costs in buying medicines and to gain profit.
One reform has followed another, main objective being to increase competition in the
pharmacy market. It is generally assumed that an increase in competition would reduce
healthcare costs. However, there is a lack of empirical proof of a stronger orientation
of small-scale drugstores towards competition thus far (Heinson & Flessa, 2013).
Therefore the main focus of the study is to determine the level of
competitiveness of selected small-scale drug stores in the City of Cabuyao, Laguna.
Theoretical Framework
Theories are central part of every research study. These are well-established
principle that has been developed to explain some aspect of the natural world. These
are also organized system of accepted knowledge that applies in a variety of
circumstances to explain a specific set of phenomena. Below are theories that were
further explained throughout the study.
Profitability
Porter’s business strategies theory (1985) The business can focus on cost
leadership, differentiation, and focus as strategies to achieve competitiveness.
The cost leadership strategy involves achieving competitiveness through
pursuing the lowest cost of production of a product or service along the value
chain (Porter, 1980). In a pharmacy business, costs can decrease along the value
chain by ordering direct from manufacturers, increasing efficiencies and by
avoiding wastages (Chandra et al., 2013). Zellmer and Walling (2012) proposed
reduction of costs along the value chain delivering low prices on pharmacy
products and better profits. The differentiation strategy involves the creation of
differentiated products, branded and promoted differently (Porter, 1985). Quality
may be used as a tool to provide the differentiation. A pharmacy store leader may
use the strategy to maximum effect and increase profitability. Kamath, Klamath,
Garg, and Prachi (2013) proposed quality pursuit enhanced profitability of any
business. Pharmacies can choose as a strategy, continuous improvement,
leadership, teamwork, and training to enhance differentiation and increase
profitability and sustainability (Brennan, Bosch, Buchan, & Green, 2013). Add
summary to fully conclude the paragraph. The focus strategy involves focusing on
a narrow, defined segment of the market (citation). A pharmacy store leader may
use strategies such as selling generic drugs, over the counter medicines, herbal
remedies and, cosmetic lines to achieve profitability (Shivakumar, Agrawal, &
Gupta, 2013). Such a strategy might involve segmenting the market based on
demographic and economic fundamentals and selling drugs and medicines desired
by the focused and selected segment of the market. I also explored Deming’s
14-step theory (1992) as a conceptual framework for identification of optimal
strategies for profitability of pharmacy stores. The Deming approach to quality
management commonly known as total quality management (TQM) emphasizes
14 points as the basis for success in organizations (Deming, 1992). Pharmacies

can choose continuous improvement, leadership, teamwork, and training to
increase profitability and sustainability. Deming’s 14-point process has had a
profound impact on the Japanese and the American economy (Deming, 2003).
The Deming process entails eliminating short term goals and instituting quality
nurturing leadership (Deming, 2003). Fred, Amaria, and Evelyn (2013) proposed
quality pursuit enhanced profitability of the business. The quality of service,
products, and ambiance of the pharmacy store may enhance profitability of
pharmacy stores (Gorecki, 2011). I also explored Lewin’s (1947) model for
change in examining how pharmacies might adapt to changes in legal and policy
adaptations to the practice of pharmacy in Zimbabwe. Change has three sequential
stages; unfreezing, change, and freezing (Lewin, 1947). Unfreezing involves
getting ready to change and accepting change as necessary and inevitable (Lewin,
1947). Pharmacy leaders need to accept changes in the practice of the profession
for any change to succeed. Change itself is a process, and pharmacy leaders
need to undergo this process of transformation in the practice and delivery of a
reformed pharmacy practice landscape (Toh, Chui, & Yap, 2014). Freezing or
refreezing is about the stability resulting from the changes in the practice of the
profession pharmacists will undergo (Cummings & Worley, 2014). As new
changes ushered by envisaged policy framework, pharmacists need to adopt,
entrench, internalize and promote such changes to achieve profitability and
viability going forward.
CUSTOMER SATISFACTION
1. Confirmation and disconfirmation theory of customer satisfaction
According to confirmation and disconfirmation theory, customers’

expectations about services and service perception experience has plying vital role
in customer satisfaction. Early satisfaction research defined satisfaction as a post-
choice evaluative judgment concerning a specific purchase decision and
satisfaction as an outcome of disconfirmation (Parasuraman et al, 1985; 1988).
The expectation disconfirmation theory suggested that satisfaction is determined
by the intensity and positive or negative direction of the gap between expectations
and perceived performance. Customers‟ expectations are beliefs about service
delivery that function as standard or reference point against which performance
is judged. Customers compare their perceptions of performance with their
expectations and reference point when evaluating service quality (Zeithaml and
Bitner 2003). Parasuraman et al. (1988) defined expectation as „desires of wants
of customers‟ the expectations component was designed to measure customers
normative expectations and it is similar to the ideal slandered in customer
satisfaction and dissatisfaction. Expectations serve as standards with which
subsequent experiences are compared; it is result of previous experience about
service also. There are five types of expectations: Ideal expectations (desired by
customer according to their need and hopes), Normative „should‟ expectations
(is normal expectations it should be fulfill by service provider), Experience based
expectations (this expectation is based on former experience and knowledge about
particular service), Acceptable expectations (It is expectation that can be fulfilled
by service providers naturally and adequate level) and Minimum tolerable
expectations (it is minimum level of expectations, there is very low level of zone
tolerance in expectation and perception). Customers perception is one another
element which plying significant role in the determination of customers
satisfaction. Satisfaction will influence by perception of service quality, price, and
other personal expectations regards to service. It is a judgment that, a product

or service feature, or the product or service itself, provides a pleasurable level
of consumption related fulfillment (Oliver, 1994). Moreover, disconfirmation of
expectations may have an asymmetrical effect, such that negative disconfirmation
is more impactful than positive disconfirmation. However, customer satisfaction
is based not only on the judgment of customers towards the reliability of the
delivered service, but also on customers‟ experiences with the service delivery
process. In other words, customers who appreciate the core and relational
dimensions of service quality provided by a service provider are likely to be
satisfied with the services offered by that service provider (Jamal and Naser, 2002).
A customer satisfaction is strongly linked to impressions of performance,
satisfaction and switching barriers are assumed to be the most important
antecedents of repurchase behaviour, or the intension to repurchase a good or
service (Sharma, 2008). Smith and Houston (1982) mentioned that satisfaction
with services is related to confirmation or disconfirmation of expectations and
satisfaction is related to the size and direction of the disconfirmation experience
where disconfirmation is related to the person's initial expectation. However, the
satisfaction of consumers depends not only on how the service provider performs,
but also on how the consumer performs. By contributing information and physical
and mental effort, consumers contribute directly to their own satisfaction (Bateson,
2002).
2. Exit voice Theory

For providing customers with greater value and satisfaction than their
competitors, firms must be operationally efficient, cost effective, and quality conscious
(Johnson, 1992; Hammer and Champy, 1993). Customer satisfaction is a primary driver
of customer loyalty and subsequent retention especially in a competitive industry. The

positive effect of satisfaction on loyalty follows from Hirschman’s (1970) exit-voice
theory. The theory describes situation in which a client or customer becomes
dissatisfied with the products or services that an organization provides. The
organization describes its failure to provide satisfaction via two feedback mechanisms,
exit and voice. The customer either exists, or stops buying from the firm, or voices its
complaint of dissatisfaction to the firm in an effort to receive restitution. The theory
predicts that the two immediate consequences of increased customer satisfaction are
decreased customer complaints and decreased customer exit (increased loyalty).
Exiting customers either leave the market or purchase from a competitor. The predicted
effect of satisfaction on loyalty is strongly supported across a variety of product and
service industries (Fornell 1992; Fornell et al. 1996).
Exit-voice theory can be associated with the study based on the outcome that
has been identified, and observed. Also, through interviews researchers concluded that
proposed theory about customer satisfaction from Hirschman was resulted relevant to
the study. It was concluded that when the clients are satisfied, complaints and customer
exits were decreased. In the contrary, customer dissatisfaction tends to increase
customer complaints that caused them to exit from the microfinance institution.
Conceptual Framework
INPUT PROCESS OUTPUT
• The demogra-
• Survey
questionnaire
phic profile of
the respondents.
• Competitiveness
of small-scale
• Measurement in
drugstores
the level of
competitiveness
of small-scale
drugstores.
FEEDBACK
Figure 1. The Paradigm of the study
The Conceptual Paradigm

Figure 1 illustrates the paradigm of the present study which equates to tne three
parts: the input, process, and output. The input box includes the demographic profile of
the respondents and the measurement in the level of competitiveness of small-scale
drugstores. The process box accommodates the instruments that will be used in the
study which includes the self-made questionnaires and data analysis. The output box
disclose the possible result of the studt which are the the level of competitiveness of
selected small-scale drugstores in the City of Cabuyao, Laguna. Lastly, inside the box
at the middle bottom is the feedback loop which transmits the evaluative and corrective
information about the action, event or process. The result depends on the information
collected through self-made questionnaires.
Statement of the Problem

The main problem of the study is to determine the level of competitiveness of
selected small-scale drug stores in the City of Cabuyao, Laguna
The following are the sub-problems that contribute to the development of the
study:
1. What is the demographic profile of the respondents in terms of:

1.1 Name of the Respondent
1.2 Name Company
1.3 Location
1.4 Year of Establishment:
1.5 2017 Gross Income
1.6 Legal Set-up of Company
2. What is the level of competitiveness of the small-scale drugstores in terms of:

2.1 Customer Satisfaction
2.2 Profitability
3. What is the level of customer’s satisfaction based on connotation on level of

competitiveness?
4. Is there a significant relationship between customer’s satisfaction and the level

of competitiveness of small-scale drugstores in the City of Cabuyao, Laguna?
5. How does profitability affect a small-scale drugstore’s competitiveness from

other pharmacies?
Objectives of the Study

1. Determine the demographic profile of the respondents in terms of:
1.1 Name of the Respondent
1.2 Name Company
1.3 Location
1.4 Year of Establishment:
1.5 2017 Gross Income
1.6 Legal Set-up of Company
2. Determine the level of competitiveness of the small-scale drugstores in terms of:

2.1 Customer Satisfaction
2.2 Profitability
3. Determine the level of customer’s satisfaction based on connotation on level of

competitiveness.
4. To determine if there is a significant relationship between customer’s

satisfaction and the level of competitiveness of small-scale drugstores in the City of
Cabuyao, Laguna.
5. To determine how does profitability affect a small-scale drugstore’s

competitiveness from other pharmacies.
Statement of Hypothesis
Ho: There is no significant relationship between the profitability and customer
satisfaction on the level of competitiveness of selected small scale drugstores
in the City of Cabuyao, Laguna.
Significance of the Study

This research aims to help understand and discuss the level of competitiveness
and profitability of small scale drug stores and to benefit the following:
• Drugstore owners – this study will give them information regarding small-
scale drugstores’ level of competitiveness in terms of profitability and customer
satisfaction. This study may also give them the idea on how to increase their
business management or strategies in gaining profit.
• Pharmacists – as a practitioner of a profession in line with health services, this
study will be helpful to them by giving them information about a small-scale
pharmacy’s performance
• Accounting and Business Students- As students in line to business, this study
may help them their develop skills, widen their knowledge and give them
deeper understanding about the business’ level of competitiveness that they can
use when they start up their own business.
• City of Cabuyao – This study will be helpful for future studies as a source of
information relating to drugstore competitiveness. If the result is positive, it
may improve the economic development of the City.
• Future Researchers – this study will be helpful for future studies as a source
of information relating to performance of small-scale businesses. This study
may also give them significant idea on how to measure drugstores competency.
Scope and Delimitation

The scope of the study is focused on determining the level of competitiveness
of selected small-scale drugstore in relation to the profitability and customer
satisfaction. The respondents are the owners of small-scale drugstores in the City of
Cabuyao, Laguna. The results of the study are based on the information that gathered
and analyzed by the researchers. Data are obtained from interviews and survey
questionnaire.
Definition of Terms
Capital - equity interest of the owner in the business that is the difference between
assets and liabilities, also called equity or net worth.
Competitiveness - pertains to the ability and performance of a firm, sub-sector or

country to sell and supply goods and services in a given market, in relation to the ability
and performance of other firms, sub-sectors or countries in the same market. As good
as or better than others of the same kind: able to compete successfully with others.
Cost-effectiveness - a process/policy is said to be cost effective when the desired

results/products cannot be produced at a lower cost.
Entrepreneur - individual who has the initiative to start an enterprise with its
associated responsibilities, obligations, and risks.
Financial reporting - presenting financial data of a company's position, operating

performance, and funds flow for an accounting period.
Pharmacist - a person who is professionally qualified to prepare and dispense

medicinal drugs.
Profitability - ability of a business entity to generate net income and the quality of
affording gain or benefit or profit.
Satisfaction - a satisfying or being satisfied, to cause (someone) to be happy or free

from some desire or need by supplying what he desires, needs or demands.
Small-scale Drugstores- business conducted in the purpose of service and trading

which has an asset or income size that ranging P3,000,000 to P15,000,000.
Stock- the goods or merchandise kept on the premises of a business or warehouse and
available for sale or distribution.
Total Quality Management (TQM) - a quality control and managers systems that
demand perfection (zero defects). It is a method by which management and employees
can become involved in the continuous improvement of the production of goods and
services.
CHAPTER 2
REVIEW OF RELATED LITERATURE AND STUDIES
This chapter presents a brief review of literature and studies, both local and
foreign that is related to these studies. It also includes the synthesis it denotes the facts,
concepts, ideas, and knowledge which originally came from the experts and researchers
taken form foreign and local literature and studies that guide the researchers in the
accomplishment of the study. These literatures and studies were carefully scrutinized
after which were believed to be significantly related to the present study.
A Pharmacy is defined in Section 1 of the Pharmacy Act. No. 53 of 1974 as any

place wherein or form which any service specially pertaining to the Scope of practice
of a Pharmacist is provided (Pharmacy Act.1974). The ordinary course of Pharmacy’s
business as defined to provide medicines to patients, thus the sale of goods further, The
Pharmacist is required to provide professional services to the patient. The Pharmacy
will earn income from sales and the provisions of professional services.
In a competitive industry such as the retail pharmaceutical business, if one does

not have the appropriate stock available, customers will simply go to other stalls to find
what they need. This will tend to indirectly prohibit profit for the business. Since there
is a differentiation of strategy of Porter’s generic strategies for obtaining competitive
advantage (Akan et al., 2006). It is suggested that the greater the product diversification
the more likely a firm is to earn a profit (Dubelaar et al., 2001). Profitability of the
pharmacy sector manifests in the availability of pharmacy stores throughout a country
(Chibango 2013). Exploration and identification of strategies for attaining profitability
of pharmacy stores are essential (Grӧber-grӓtz & Gulich, 2010).Sabde et al. (2011) also
called for further inquiry into all factors influencing profitability of pharmacies. A good
basis is Deming’s 14-step theory (1992) as a conceptual framework for identification
of optimal strategies for profitability of pharmacy stores. The Deming approach to
quality management commonly known as (TQM) total quality management
emphasizes 14 points as the basis for success in organizations (Deming, 1992). Fred,
Amaria, and Evelyn (2013) proposed quality pursuit enhanced profitability of the
business. The quality of service, products, and ambiance of the pharmacy store may
enhance profitability of pharmacy stores (Gorecki, 2011).
Profitable pharmacies may have positive social implications for their

employees, their families and society as a whole. Such positive impact on the
individuals may cascade to the community (Sullivan et al., 2011). Hakala (2013)
proposed a combination of entrepreneurship orientation (EO) and learning orientation
(LO) as vital for improving profitability of small-scale drugstore. A growth strategy
involves was key to profitable growth of small-scale drugstore. Munanga (2013) used
of equity capital as a viable source of growing pharmacies. Raising capital through
equity listings requires astute financial management that intending customer scrutinizes
to assess the profitability of the business (Muponda, 2014). Pharmacist drugs
prescribing to the public is a window of opportunity for increasing the profitability of
pharmacy stores. Latif, Pollock, and Boardman (2013) posited the shortage of
physicians in most developing countries hindered accessibility to drugs to the public
and ultimately the profitability of the pharmacy stores. Profit can be considered as the
lifeblood of the business because without profit one cannot expand his business, it is
another capital to sustain the circulation of operation.
Customer profitability analysis is the reporting and analysis of revenues earned

from customers and the costs incurred to earn those revenues (Horngren et al. 2005).
Although matters are improving, there is still very little information available about the
profitability of customers since management is still primarily focused on product
profitability analysis for financial reporting purposes (Noone & Griffin 1997).
Horngren et al. (2008, p. 539) states that customer profitability does not only depend
on the gross margin of the products or services purchased. It also depends on the costs
incurred to fulfill customers‟ orders and to provide other customer services such as
order changes, returns, and expedited scheduling or delivery. Customer profitability
data is also used for segmentation, targeting and positioning. Based on profitability
data, customers can be classified into profitable, break-even, and unprofitable

customers (Van Raaij 2005).
In rural Kyrgyzstan similar cost accounting research was performed to

determined the mark up level required for pharmacies to recoup costs and make
minimal profits to ensure that the pharmacy remained financial viable. They considered
factors affecting pharmacy cost and revenue (Warning et al., 2010). According to
Pioch and Schmidt (2001), unprofitability over a period of time could lead to outlet
closure. Furthermore, downward pressures on prices to levels that do not provide
incentives for pharmacy ownership actually threaten the distribution of medicine due
to the closure of branches (Warning et al., 2010). Competitive advantage, a term coined
by Michael Porter, requires the implementation of generic strategy and this should
result in better than average market returns (Akan, Allen, Helms, & Spralls, 2006). It
is clear from this research that there is some degree of interest in determining the
factors, strategies and microeconomic conditions that will allow an entity to be
successful.
According to Reichheld in 1993, customer loyalty is essential for continued

survival (Wong & Sohal, 2003). Pharmacy leaders should focus on satisfying customer
needs and preferences in order to achieve profitability. Customer satisfaction has been
defined in various ways but the conceptualization, which appears to have achieved the
widest acceptance, is that satisfaction is a post-choice evaluative judgment of a specific
transaction. Fornell (1992) suggest that satisfaction can be viewed directly as an overall
feeling. Customer satisfaction is the study of antecedents and consequences (Anderson
and Sullivan, 1993). Relative retention has been shown to explain profits better than
market share, scale, cost position, or any other variables usually associated with
competitive advantage (Reichheld, 1996). Increase customer retention has two
important effects (1.) it can lead to gradual increase in the firm’s customer base which
is vital in an era of low sales growth, and (2.) the profits earned from each individual
customer grow the longer the customer remains loyal to the firm. Existing customer
also tend to purchase more than new customers (Rose, 1990). For providing the
customers with greater value and satisfaction than their competitors, firms must be
operationally efficient, cost effective, and quality conscious (Johnson, 1992; Hammer
and Champy, 1993). Customer satisfaction is very important because it will be the basis
to determine whether the firm can provide a good service or not.
Customer satisfaction is critically important because it reflects subjective

customer evaluations of the attribute performance associated with the consumption
experience. (Namkung 2008) Customer satisfaction has been operational as both a
single item and a multiple item scale. Cronin et al. measured customer satisfaction
as a one-item scale that asks for the customer’s overall feeling towards an
organization. Other research has emphasized the multi-facet nature of customer
satisfaction and has used multiple item scales to measure customer satisfaction.
(Meng 2009)Customers seek organizations that are service loyal i.e. aim to provide
consistent and superior quality of service for present and long term and
organizations aiming for this are bound to get customers’ loyalty (Dutti
2009).According to Kotler and Armstrong (2010: 33), for businesses to deliver,
customers need satisfying goods and services. They need to meet or exceed the
customers’ expectations of value. As Valdani (2009: 163) points out, enterprises
exist because they have a customer to serve. Service quality and customer
satisfaction are key factors in the battle to obtain competitive advantage and
customer retention. Guzzo (2010: 86) states that in order to achieve customer
satisfaction, it is important to recognize and to anticipate customers' needs and
to be able to satisfy them. Enterprises which are able to rapidly understand and
satisfy customers' needs, make greater profits than those which fail to understand
and satisfy them (Molina, Consuegra and Esteban, 2009: 260). Kotler and Keller,
2006:16) conceptualize customer satisfaction as an individual’s feeling of pleasure
or disappointment resulting from comparing a product’s perceived performance
(or outcome) in relation to his or her expectations. Customer satisfaction is a
pleasurable fulfillment response while dissatisfaction is an unpleasurable one
(Buttle, 2004:212). Customer satisfaction is based on a customer’s cognitive and
affective evaluation of their personal experience across all service within the
relationship (Vibha, Ravichandran and Jain, 2011: 22).
Gremler and Brown (1997, cited in Lee et al., 2003) argue that customer
satisfaction and service quality are prerequisites of loyalty. Although it plays a role in
maintaining customer loyalty, competitive pricing alone is unlikely to generate loyalty
in the long-term (Schultz & Bailey, 2000; Scott, 2001, cited Lee et al., 2003), and can
have an adverse effect on a firm‟s medium-term and long-term viability (Ernst &
Young, 1996 cited in Lee et al., 2003). Customer satisfaction has been defined in
various ways, but the conceptualization, which appears to have achieved the widest
acceptance, is that satisfaction is a post-choice evaluative judgment of a specific
transaction. Fornell (1992) suggests that satisfaction can be viewed directly as an
overall feeling. Satisfaction is related closely to, but is not the same as, the customer’s
general attitude toward the service. The key to distinguishing satisfaction from attitude
is that satisfaction assessments relate to individual transactions whereas attitudes are
more general (in Bitner, M.J. (1990). Similarly, one interpretation suggests that
satisfaction can be distinguished from perceived quality. Parasuraman, Zeithaml, and
Berry (1998) define “perceived (service) quality” as the consumer’s judgement about
a firm’s overall excellence or superiority. This definition suggests that perceived
quality is similar to an individual’s general attitude toward the firm (Zeithaml, 1988).
Another question with customer satisfaction is the study of antecedents and

consequences (Anderson and Sullivan, 1993). They had found that customer
satisfaction is best specified as a function of perceived quality and disconfirmation and
quality has a greater impact on satisfaction and repurchase intentions than quality
which exceeds expectations. More important, they had found that elasticity of
repurchase intentions with respect to satisfaction is lower for firms that provide high
expectations.
Changing the structure of the industry by shifting to outsource core functions

and focusing on marketing and distribution forced pharmaceutical companies to find
new core competencies within this new global value chain in order to be able to
compete. (Hazborun, 2006). Competitive advantage is concerned with the developing
differences that will result in customers ‘clients positively distinguishing the output
from alternatives in market. Sustainable competitive advantage is where the strategic
direction of a company enables it to maintain above-range profitability for a number of
years. (Potter 1998). Businesses seeking to measure competitiveness and maintain
flexibility in order to manage downturns in the business cycle, tend to focus
predominantly on cost-effectiveness (Dixon et al. 1990 ; Banks & Wheelwright 1979;
Hayes & Garvin 1982).
Way back 2003; the Philippine Government has declared a memorandum

regarding affordable drugs to be sold in community pharmacies known as “Botika ng
Barangay (BnBs).” The Botika ng Bayan (BNB) program aims to establish 1 BNB
outlet per municipality, using the franchising business format. BNBs are flagship
outlets of the Cheaper Medicines Program of the government (DOH, 2005). The
eligible applicants are NGOs and cooperatives; trade and labor unions or employees’
associations; corporate foundations and religious groups; senior citizens and women’s
groups; and sole proprietorships, partnerships and corporations. It has rapidly grown in
terms of number but the systems requirements to make them effective, efficient and
sustainable have lagged behind. BnBs were revived in a Presidential pledge in mid-
2005 and the program has since registered impressive growth, reaching 16,000
pharmacies in 2010, serving about 8 million people. About 62 percent of BnBs serve 2
barangays while 38 percent serve 1 barangay, indicating that program target has been
exceeded by 30 percent. However, their geographic spread remains problematic.
Regions worst served with BnB also tend to be the poorest (ARMM, Soccsksargen, and
Mimaropa). Provinces worst served also tend to be the poorest (Basilan, Sulu, Lanao
del Sur, Tawi-tawi, Compostela Valley, Suquijor, Batanes, and Marinduque). Drug
supply replenishment after the initial stock has run out remains challenging. While
BnBs were conceived as drug revolving funds (DRF), this format has not evolved,
weakening the reflow of funds to buy stocks. Moreover, each BnB has been left to
locate its source of drugs, some buying from costlier private distributors or retailers.
Since the P100 program was initiated, the market for generics drugs in the Philippines
has boomed, with the rapid growth of the private-for-profit The Generics Pharmacy as
well as similar generic compliance-pack initiatives of the private pharmacy chain
Watson (using Pharex products) and Rite-Med branded generics (using Unilab
products). Thus, price comparison of the P100 treatment pack should also be made with
these newer initiatives. The P100 program currently has very few access points, with
only DOH hospitals and some LGU hospitals dispensing them. The drug list is also
very restricted. Expansion of the delivery network and expanding the list are being
contemplated, but stock availability needs to be improved. The P100 pilot project of
Oriental Mindoro indicates that the treatment pack program can be sustainable. Data
for the month of December 2008 alone show that sales at cost was Php 459,170 while
sales at selling price was Php 530,610, yielding a net income of Php 71,440 (or an
annualized net income of Php 857,280). While the P100 program can be sustainable, it
requires drug revolving funds (DRF) in health facilities for the program to be truly
institutionalized. Without such DRFs and an accompanying fee-retention policy at the
local level, health staff would not be incentivized to offer P100 treatment packs for
sale. The problem is that not all LGU health facilities have established DRFs, and
revenues for the P100 program are usually plowed back to the local treasury, reducing
the incentive of health staff to collect payments. Despite problems encountered in the
initial phase of the program, the scheme is very innovative and has a large public health
potential, as well as major impact in reducing out-of-pocket household spending on
health especially on drugs dealing with chronic care.
A MeTA study conducted by HAI Global in 2008 showed that BnBs had some
of the highest mark-ups (25-355 percent) even though they are supposed to have a
regulated 30 percent markup. The authors of this study contend that some of the high
mark-ups were a result of the BnB having a minimum selling price of Php 1 per
tablet/capsule – thus the high markups on medicines costing much less than this – and
one BnB increased its price of fast-moving items to recover losses due to expiry of
slow-movers. It must be noted that BnBs have no control over the range of products
initially supplied and cannot return expiring products for a refund (HAI Global, 2008a).
The EU survey (2009) of BnBs re-affirmed the HAI study findings, citing operators’
complaints that the 30 percent markup calculation do not seem to have taken into
account the actual transport costs between the supplier and the BnB. The PHOs and
CHDs interviewed as key informants also confirmed these findings. Even as some BnB
outlets outprice their private competitors, the wide variation in BnB prices means that
some of them are really pricing way above the competition. The EU survey gathered
the prices of three prescription drugs and the results are shown in Table 13. For
amoxicillin, although the median price is Php 3.00, 70 percent of the BnBs surveyed
sold it at a price higher than Php 3.00; indeed, 10 percent of them sold it as high as Php
7.00 or more. Similar patterns of pricing occurred for cotrimoxazole and metropolol.
To be fair, Gloor (2009) notes that the competition that BnBs/BNBs has brought
to the domestic pharmaceutical market – aside from the MRP/GMAP-mandated price
reduction – has brought down the local prices of drugs. Thus, the prices of innovator
medicines have gone down through their generic counterparts in BnB/BNB, or sold by
the private drugstores throughout the country. It is as if the BnBs/BNBs and private
pharmacies selling generics have brought down the once-dominant sellers of innovator
drugs, causing them to lower their prices dramatically. Now, the table is being turned,
with discounted innovator drugs outpricing the BnB/BNBs. It must be noted at this
point that the period 2009/2010 was marked by high instability in drug prices because
of the combined effect of PDI, the sudden emergence of generic pharmaceutical
franchising5 , and the implementation of the MRP/GMAP. The BnBs’ and BNBs’ role
in increasing the contestability of the local drug market is an important role that the
government plays, even if BnBs/BNBs now have prices that may be a bit higher than
alternative private suppliers. Some quarters fear that if BnBs/BNBs withdraw
completely from supplying the local market, private suppliers may raise their prices
again to “pre-contested” levels. This is a strategic consideration that should be taken
into account about the future of BnBs/BNBs (Picazo, 2012).
The BnBs have had important demonstration effects. Realizing that low-cost
retail of drugs can be profitable (as shown by the best BnBs), for-profit drug franchise
operations have mushroomed quickly, most notably The Generics Pharmacy, the first
generics retail pharmacy to franchise in the Philippines. It is now reputed to have 1,100
franchisees nationwide (as of June 2011) and is the fastest growing drugstore in the
country. For-profit franchise upstarts that followed in its wake include K2 Drugs,
Pharmaquick 24, Emmaflor, and Johnston Drugs. The Watsons Drugstore chain has
also branched out rapidly, with 247 pharmacies nationwide. The BnB idea itself
branched out to larger Botika ng Bayan (BNB) which operates on the same franchise
format as its private sector 30 counterparts. Despite the still-precarious situation of
BnBs, the Drugstore Association of the Philippines now views them as undue
competition (Picazo, 2012).
Increased market competition leads to improved efficiency, productivity and

growth (Porter 1990; Porter 1998). The constant entry and exit of enterprises into and
out of markets underlies a dynamic screening process for a more productive and
innovative use of resources in which businesses initiate change and innovation through
their new products. Competition can also have an adverse effect on enterprise
upgrading. In markets in developing countries, large profits are needed to maintain high
rates of investment in product development and technological catching-up.
Competition can negatively impact on demands for investment and lead to price wars
and subsequent slumps in profits (Singh 2002). Aghion et al. (2005) showed that there
is a U-shape relationship between competition and innovation: both very high and very
low levels of competition are bad for growth and enterprise upgrading (Milagrosa,
2014).
Synthesis of the Review of Related Literature and Studies
The researchers related and differentiated the related literature and studies in
terms of the profitability of small-scale drugstores and customer’s satisfaction. Studies
showed that competition of small-scale drugstores has a negative and positive effect to
their customers.
According to Chibango profitability of the pharmacy sector manifests in the

availability of pharmacy stores throughout a country. The quality of service, products,
and ambiance of the pharmacy store may enhance profitability of pharmacy stores.
Based on studies, although matters are improving, there is still very little information
available about the profitability of customers since management is still primarily
focused on product profitability analysis for financial reporting purposes.
Basically, customer satisfaction is critically important because it reflects

subjective customer evaluations of the attribute performance associated with the
consumption experiences. Customer satisfaction was distinguished by Labie and
Szafars conclusions that customer retention should rest upon product simplicity
standardization and the capacity to stimulate customer discipline. This shows that
further improvement are less to be prioritized but focus on such regulations that
promote control over the customer.
Primarily, competition is widespread in the business industry that is why many

businesses are rising but there are certain negative issues to consider affecting not only
the customer but the organization as well.
Subsequently, study shows that the drugstore business is a booming industry

nowadays. Almost every community in the country has at least one stall and even the
government supports that kind of business through Botika ng Barangays which offers
affordable medicines for the people; this developed competition among them.
Probably, studies provide some evidence that competition positively gives customer
satisfaction which can give businesses more profit. Moreover, most of this study use
different measures of competitiveness and the study will examine the result regarding
customer satisfaction and business profitability.
Consequently, it is important to consider every aspect that can contribute for

the improvement of a drugstore business especially the beginners such as the small-
scale entities. Studies mainly focus on how the customers will be satisfied by the
services offered and products sold by the pharmacists and owners of a drugstore
especially services development due to competition is considerably related on
customer’s satisfaction. The study will help small-scale drugstores by relating their
business profitability to their level of competitiveness to other giants in the business
and to their customers by identifying and analyzing their level of satisfaction that is a
great basis for the longevity of the existence of their business and necessary for
continuously providing their customers quality products and services.
CHAPTER 3
RESEARCH METHODOLOGY AND PROCEDURES
This chapter presents the research methodology used in this study,

researchdesign, the subjects and the sources of data, researcher’s instrument
construction and validationof instruments, distribution and retrieval of instruments and
the statistical treatment of data
Research Design
The researchers utilized a descriptive type of research in evaluating the level of
competitiveness of selected small-scale drugstore in the City of Cabuyao, Laguna in
relation to profitability, financial performance and customer satisfaction from the result
of the test that the proponents conducted. The significant factors affecting the overall
level of competitiveness are defined.
Population, Sample size and Sampling technique

The respondents are selected small-scale drugstore in the City of Cabuyao,
Laguna. The researcher used purposive sampling to determine the small-scale
drugstores and a number of respondents in the study. The researchers believed that the
needed information in the study can be answered by the respondents. Furthermore the
chosen respondent is knowledgeable and capable to answer the questionnaire. There
are 14 respondents from selected small-scale drugstores in the City of Cabuyao,
Laguna.
Locale of the Study

The locale of the study was conducted in the City of Cabuyao, Laguna.
Research Instruments
The data gathering tool in this research in this research is a self structured
survey questionnaire; through this questionnaire the research determined the
competitiveness of small-scale drugstore in relation to profitability and customer
satisfaction.
In preparing the questionnaire, the proponents used books, unpublished thesis,
and other reading materials related to the presented study. The survey type
questionnaire used in conducting this study were formulated with the instruction that
can be easily understood by the respondents. This questionnaire was constructed for
the purpose of knowing the level of competitiveness of selected small-scale drugstore
in the City of Cabuyao, Laguna.
Validation of Instruments
Prior to the survey, the self-made questionnaires were distributed to the owners
of selected small-scale drugstore as well as the customer to test if the questions are
comprehensible and sensible to be used. Researchers carefully check the research
instrument before it was presented to the respondents. The researcher sought opinion
from their adviser. They conducted survey to gather comments and suggestions that
would be useful in coming up with more effective survey questionnaire.
The questionnaire was validated by the researcher adviser, panelist and
statistician.
Data Gathering Procedure

The researcher have utilized questionnaire in data gathering process. The
questionnaire was distributed personally to the qualified respondents they were guided
by the researchers as they answer the questionnaire. This is to ensure that they have
understood the question clearly.
After the questionnaires have been answered, retrieval of the scores followed.
The researchers have gathered data from it. Those data have been analyzed and
presented using tables and graphs.
Evaluation and Scoring

The researchers used the Likert Scale in the study. The options and the
corresponding 5 point scores arranged within a continuous of five as follows:
Level of Competitiveness
Score Value Description Interpretation
5 Strongly Agree Highly Competitive
4 Agree Competitive
3 Undecided Moderate Competitive
2 Disagree Less Competitive
1 Strongly Disagree Not Competitive
The Scale is shown as follows: 5-Strongly Agree; 4- Agree; 3- Undecided; 2- Disagree;

1- Strongly Disagree and the respondents check the scale which corresponds to their
answer.
Level of Customer Satisfaction

Score Value Description
5 Never
4 Seldom
3 Often
2 Sometimes
1 Always
The Scale is shown as follows: 5- Very Satisfied; 4- Satisfied; 3- Moderate Satisfied;

2- Less Satisfied; 1- Not Satisfied and the respondents check the scale which
corresponds to their answer.
Statistical Treatment of Data

Statistics in analysis and interpretation of data has helped the researchers to

make the study reliable, valid and meaningful. The application of appropriate statistical
tool was based or the hypothesis for which the research was design.
The data gathered are subject to appropriate statistical tools given as follows:
1. Percentage Distribution (P) or Relative frequency (RF) - Is used in presenting the
profile of small scale drugstore.
Percentage Distribution was computed using the formula:
𝒇
𝑷= × 𝟏𝟎𝟎
𝑵
Where: P: Percentage Value / Relative Frequency

𝑓: Frequency of Response
N: Total number of cases
2. Weighted Mean (x) – is used pertaining level of competitiveness of selected small-

scale drugstore in terms of profitability, financial performance and customer
satisfaction.
Weighted mean was computed using formula:
𝑓 × 𝑖
×= ∑
𝑁
10 n= 1
Where: x: The weighted mean

𝑥1 : The scores
𝑓: Frequency
N: The number of sampling
∑: The summation notation
3. Pearsons or Product Moment Correlation Coefficient – is used to determine the
significant relationship between the level of competitiveness of selected small-scale
drugstore in terms of profitabilty, financial performance and customer satisfaction.
𝑛 ∑ 𝑥𝑦 − (∑ 𝑥)(∑ 𝑦)
𝑟=
√𝑛(∑ 𝑥 2 ) − (∑ 𝑥)2 − √𝑛(∑ 𝑦 2 )(∑ 𝑦)2
Where: r: Pearsons Correlation Coefficient
x: values in first set of data
y: Values in second set of data
N: Total number of values
∑: The summation notation
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LEVEL OF COMPETITIVENESS OF SELECTED SMALL-SCALE

DRUG STORES IN THE CITY OF CABUYAO, LAGUNA
A Thesis
Presented to the Faculty of College of
Business Administration and Accountancy
City of Cabuyao, Laguna
In Partial Fulfillment
of the Requirements for the Degree
Bachelor of Science In Accountancy
Algire, Queenie Grace B.

Alinsunurin, Anthony R.
Cantalejo, Miguel
Cenido, Joycel D
TABLE OF CONTENTS
Page
TITLE PAGE ……………………………………………………….
CERTIFICATION AND APPROVAL
SHEET………….……………….
CERTIFICATION OF ORIGINALITY
………………………………....
CERTIFICATEOF RECOMMENDATION
……………………………..
EDITOR’S CERTIFICATE
……………………………………………….
ACKNOWLEDGEMENTS
………………………………………………. .
DEDICATION
……………………………………………………………..
ABSTRACT
…………………………………………………………………
TABLE OF CONTENTS
…………………………………………………..
LIST OF TABLES
………………………………………………………….
LIST OF FIGURES
………..……………………………………………...
Chapter 1 THE PROBLEM STATEMENT

Introduction……………………………………………………..….. 1
Background of the Study……………………………………..…….. 2
Theoretical Framework……………………………………..………. 3
Conceptual Framework…………………………………..…………. 8
Conceptual Paradigm…………………………………..…………… 9
Statement of the Problem……………………………..…………….. 9
Objectives of the Study……………………………..……………… 10
Statement of the Problem…………………...................................11
Significance of the Study…………………………………………. 11
Scope and Delimitation…………………………………………… 12
Definition of Terms……………………………………………...... 13
Chapter 2 REVIEW OF RELATED LITERATURE AND STUDIES

Foreign and Local Literature……………………………………... 15
Synthesis of the Review of Related Literature and Studies……….. 15
Chapter 3 RESEARCH METHODOLOGY

Research Design ………………………………………………… 27
Population, Sample size and Sampling technique ……………… 27
Locale of the Study …………………………………………….. 28
Research Instruments ………………………………………… 28
Validation of Instruments ………………………………….. 28
Data Gathering Procedure ………………………………….. 29
Evaluation and Scoring ……………………………………. 29
Statistical Treatment of Data ………………………………. 30
BIBLIOGRAPHY

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LEVEL OF COMPETITIVENESS OF SELECTED SMALL-SCALE DRUG

Background of the Study

14 points as the basis for success in organizations (Deming, 1992). Pharmacies

According to confirmation and disconfirmation theory, customers’

other personal expectations regards to service. It is a judgment that, a product

2. Exit voice Theory

of customer loyalty and subsequent retention especially in a competitive industry. The

INPUT PROCESS OUTPUT

Figure 1. The Paradigm of the study

The Conceptual Paradigm

Statement of the Problem

1. What is the demographic profile of the respondents in terms of:

2. What is the level of competitiveness of the small-scale drugstores in terms of:

3. What is the level of customer’s satisfaction based on connotation on level of

4. Is there a significant relationship between customer’s satisfaction and the level

5. How does profitability affect a small-scale drugstore’s competitiveness from

Objectives of the Study

2. Determine the level of competitiveness of the small-scale drugstores in terms of:

3. Determine the level of customer’s satisfaction based on connotation on level of

4. To determine if there is a significant relationship between customer’s

5. To determine how does profitability affect a small-scale drugstore’s

Significance of the Study

Scope and Delimitation

Competitiveness - pertains to the ability and performance of a firm, sub-sector or

Cost-effectiveness - a process/policy is said to be cost effective when the desired

Financial reporting - presenting financial data of a company's position, operating

Pharmacist - a person who is professionally qualified to prepare and dispense

Satisfaction - a satisfying or being satisfied, to cause (someone) to be happy or free

Small-scale Drugstores- business conducted in the purpose of service and trading

A Pharmacy is defined in Section 1 of the Pharmacy Act. No. 53 of 1974 as any

In a competitive industry such as the retail pharmaceutical business, if one does

Profitable pharmacies may have positive social implications for their

Customer profitability analysis is the reporting and analysis of revenues earned

data, customers can be classified into profitable, break-even, and unprofitable

In rural Kyrgyzstan similar cost accounting research was performed to

According to Reichheld in 1993, customer loyalty is essential for continued

Customer satisfaction is critically important because it reflects subjective

Another question with customer satisfaction is the study of antecedents and

Changing the structure of the industry by shifting to outsource core functions

Way back 2003; the Philippine Government has declared a memorandum

Increased market competition leads to improved efficiency, productivity and

Synthesis of the Review of Related Literature and Studies

According to Chibango profitability of the pharmacy sector manifests in the

Basically, customer satisfaction is critically important because it reflects

Primarily, competition is widespread in the business industry that is why many

Subsequently, study shows that the drugstore business is a booming industry

Consequently, it is important to consider every aspect that can contribute for

RESEARCH METHODOLOGY AND PROCEDURES

This chapter presents the research methodology used in this study,

Population, Sample size and Sampling technique

Locale of the Study

Data Gathering Procedure

Evaluation and Scoring

The Scale is shown as follows: 5-Strongly Agree; 4- Agree; 3- Undecided; 2- Disagree;

Level of Customer Satisfaction

The Scale is shown as follows: 5- Very Satisfied; 4- Satisfied; 3- Moderate Satisfied;

Statistical Treatment of Data

Statistics in analysis and interpretation of data has helped the researchers to

Where: P: Percentage Value / Relative Frequency

2. Weighted Mean (x) – is used pertaining level of competitiveness of selected small-

Where: x: The weighted mean