Earlier this week, CVS Caremark, the nation's second-largest drugstore chain, announced that it would be taking cigarettes off of its shelves.
CVS said it would phase out tobacco products at all of its stores—more than 7,600 across the country—by October as part of the company's strategy to promote healthier lifestyles. The company told investors the move will cost it about $2 billion a year in lost sales, but it may also give CVS's reputation a boost as the company attempts to morph from largely a retail business into a health care provider.
We caught up with Sylvia Long-Tolbert, an assistant professor at the Johns Hopkins Carey Business School with expertise in brand management and consumer research, to get her take on the announcement and what it means for CVS.
What impact do you expect this decision to have on the CVS brand, both in the near future and in the long term?
The CVS brand is sending a clear signal about its commitment to helping consumers live healthier and better lives. Further, this decision to include wellness as a defining brand attribute will likely appeal to non-consumer stakeholders such as hospitals, health insurers, and physicians, who have become attractive partners in the retail pharmacy value chain.
Do you think the net gain for the brand will offset or exceed the estimated $2 billion in lost sales from tobacco products?
Absolutely, the financial and non-financial benefits to the CVS brand will compensate for short-term losses. However, the impact will be painful and not limited to sales of cigarettes and tobacco products. CVS will incur additional revenue losses from sales of non-routine, convenience, and impulse purchases that fill up hand baskets of typical drugstore shoppers.
Although sales of tobacco products at drugstores such as CVS only account for less than 4 percent of all tobacco sales, CVS must clearly follow up this big strategic move with other marketing initiatives that help maintain or increase share of wallet among current CVS customers. Additionally, a demonstrable shift to brand values that reflect customer values could boost customer acquisition for CVS—attracting new customers or those switching from competitors. There is a real possibility that CVS will attract newcomers, especially as consumers continue shifting their shopping habits and developing preferences for brands that espouse their personal values.
The non-financial benefits of being aligned with a wider array of health partners can build substantial equity for the CVS brand. Creating deeper partnerships and a seamless integration around consumer health and wellness spending might further build credibility for the CVS brand as a "preferred health partner." In an era where consumers are highly distrusting of big business, taking proactive steps to resolve inherent contradictions in brand values (i.e., keeping consumers healthy while feeding addictive habits) and marketing strategies is likely to gain attention among the segment of consumers who intentionally choose brands that share their values and appear authentic and socially conscious.
Do you think other competing brands might follow suit? Is there a risk in being seen as simply following the herd?
It might be difficult for competitors to justify a fast-follower strategy in this situation. Walgreen's, the nation's No. 1 drugstore, certainly has no incentive to follow the No. 2 brand; other industry leaders might find it more difficult to forgo lost profits from tobacco sales without having conceived a promising marketing strategy to retain store traffic and average store sales. Thus, CVS may have given its brand a respite while the industry continues to adapt to the changing marketplace.
I applaud CVS for thinking like the No. 2 player in a dynamic and competitive industry. It has taken a bold and risky step to solidify its competitive standing and perhaps in the process lay a foundation for a strategy to become the market leader.