CVS Sacrifices Billions for Long-Term Delivery on Brand Promise

Feb 07, 2014 11:59 AM  By

“We have about 26,000 pharmacists and nurse practitioners helping patients manage chronic problems like high cholesterol, high blood pressure and heart disease, all of which are linked to smoking. We came to the decision that cigarettes and providing health care just don’t go together in the same setting.”

Like Oil and Water, They Just Don’t Mix

This is a quote from Larry J. Merlo, chief executive of CVS in his announcement that CVS will stop selling tobacco products by October 1st of this year. They will stop selling a product providing more than $2 billion in revenue because it conflicts with the values around health care.

Putting Customers before Shareholders

While the New York Times quipped the $2 billion decision is a “mere dent in its overall sales of $123 billion in 2012,” turning away from $2 billion will certainly have an impact on revenue.

Instead of banking on short-term gains to keep shareholders happy, they are putting their promise of providing health care and the actual health of their customers first.

Here’s why I think it will be a move to serve them long-term.

They are gaining new customers by standing by a strong principal.

People impacted by health issues related to tobacco are already starting to express their new loyalty to CVS on social media.

CVS knows they need to fill the revenue gap from tobacco.

I predict we will see some new, innovative ways they will do that. Expressing their company as one of “providing health care” means they might be looking at ramping up their offerings and services, including the in-store health clinics. Health care is a constant need. Long term, this will serve both their revenue goals and their customers better than selling tobacco.

They are setting the expectation of looking out for their customers.

The best customer experiences are based on strong promises. Promises are only as good as the actions that support them. This strong action shows they are willing to stand by their promise of providing health care.

Worth the Risk, for Brand’s Sake

There is no doubt this is a move with risk. While the $2 billion revenue loss predicted is based on tobacco sales, additional revenue will be lost when those tobacco-seeking customers go somewhere else. They will lose the additional purchases that came with the tobacco purchases.

But understanding who you are as a brand and organization is the first step to delivering a superior customer experience. You don’t have to be all things to all people. You have to be the right things to the right people.

I’ll be watching what happens here closely. What do you think CVS will need to do to make up for the revenue loss?

Jeannie Walters is CEO at 360Connext.