The Whiteboard: CVS dumps tobacco, boosts brand, dares competition to follow
American Studies majors and fans of the TV show “Mad Men” know that cigarette brands were once endorsed by physicians for their health benefits.
"More doctors smoke Camels than any other cigarette," was the headline in one ad. Another read, "20,679 physicians say 'Luckies are less irritating.'"
Now CVS has put the perfect bookend on this cultural shift by becoming the first major drugstore retailer to say this stuff is too dangerous to fit in its business model when it announced this month that it will discontinue the sales of all tobacco products.
The digital idiocracy, hiding behind their anonymous usernames, was quick to ask their usual cynical questions such as, "So are candy bars next?" Some charged that the CVS decision was driven by a social or political ideology that they opposed fervently, sometimes in all caps and more often with hilarious grammar and atrocious spelling.
(Note to shadow posters everywhere: If you seek any credibility at all, spelling counts. Actual ideas are even better, but let's start with the basics.)
Wall Street reacted to the announcement by applying its secret formula of technical business analysis and irrational exuberance. The result: The stock price was largely unchanged for the week.
At a couple of billion dollars annually, sales of tobacco products represent less than 2 percent of CVS's overall revenue — but make no mistake, this was a huge branding move.
With the announcement, CVS's CEO immediately began repositioning the CVS brand.
"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," said Larry J. Merlo, chief executive of CVS. "We came to the decision that cigarettes and providing health care just don't go together in the same setting."
Gee whiz, Larry, when you put it that way, it's hard to imagine why any drugstore would be selling tobacco… Hey, wait a minute!
What makes this a potentially brilliant brand gambit for CVS is what it has done to reposition not just itself but its competition, from Walgreens down to the local independent pharmacy that is hanging on to its business by its fingernails.
CVS has instantly become the good guy, perhaps a little self-righteously, but the change is fundamentally based on an admirable decision. The company isn't saying no one should sell this perfectly legal product. It is simply saying it has examined its mission and its values, found a conflict and made a change. And by doing so, it has likely touched off emergency strategic planning sessions at many of its biggest competitors.
But this move is also about far more than a clean conscience for CVS and a little extra polish on its brand. It puts it in a clear lead for evolving its brand concept into the health services category, where the potential for revenue growth is huge. Flu shots and blood pressure checks are just the beginning. Health maintenance and urgent care are likely to follow.
The demise of the railroad industry in the 20th century has often been blamed on the tunnel vision of its executives, who have been portrayed as believing they were in the railroad business rather than the more strategic view of being in the transportation business. CVS has seen the opportunity to be much more than a drugstore retailer and, by making a big splash with its no-more-tobacco announcement, it has fired a shot across the bow of all the other drugstore retailers.
"We're a health services provider now. We're in a new category. Catch us if you can," is, in a sense, what CVS is saying to the competition.
Other brands have made big moves that cost them revenue initially but repositioned them for decades of growth. In 2005, IBM elected to leave the personal computer business and focus on technology services when it sold its PC business to Lenovo. In 2007, Apple dropped "computer" from its name and took the mobile phone market to a new level.
But this move by CVS is potentially as significant as those, and rings louder because of its moral overtones. And as the first mover in the category, it will be continually credited with leading the way if other brands follow suit.
Touché, CVS. Walgreens? Your move.
David Taylor is president of Lancaster-based Taylor Brand Group, which specializes in brand development and marketing technology. Contact him via www.taylorbrandgroup.com.