Why CVS May Not Get Burned by Its Tobacco Decision (Part 2)
Business Journal

Why CVS May Not Get Burned by Its Tobacco Decision (Part 2)

Looking at CVS' decision to discontinue selling tobacco products in purely dollar terms misses the bigger picture

This story is intriguing because it starts with a bold statement that cigarettes are inconsistent with CVS' brand promise.

As noted in the first article in this two-part series, CVS Caremark's decision to discontinue the sale of tobacco products could strengthen the company's identity in the U.S. marketplace, making customers more likely to shop at CVS. Ultimately, this could lead to increased sales.

Even so, CVS estimates that it stands to lose about $2 billion in revenues annually from tobacco shoppers, and a hit like that can have a profound and potentially damaging impact on any company. But Gallup Global Practice Leader Ed O'Boyle thinks CVS may have more to gain than to lose from its decision. In the following interview, O'Boyle takes an in-depth view of CVS' gutsy leadership move and discusses why he thinks there's more to it than most of us think.

Gallup Business Journal: How are CVS customers responding to the company's decision to stop selling tobacco products? What about people who have never given CVS any thought, much less share of wallet?

Ed O'Boyle: I was curious about that. So we conducted a study to see if consumers had heard about the CVS decision, whether or not it meant anything to them, and whether they were going to do more business with CVS or switch their buying preferences.

What was the reaction?

O'Boyle: A lot bigger than I expected. In terms of brand awareness, the announcement was certainly newsworthy and brand-building. CVS customers, particularly those who are fully engaged with the brand, say they are more likely to shop at CVS as a result of the decision. And about one in three customers of other pharmacies who are disenchanted with those brands are also more likely to shop at CVS. What we're probably looking at is a "share shift" for goods that consumers were already buying. What I mean is that instead of people going to another pharmacy for the things they usually buy, it sounds as if they will give CVS some of those dollars.

Still, this is a pretty big gamble, right?

O'Boyle: Sure, but there may be a lot more to it than meets the eye. Gallup has been exploring an idea called organizational identity. Organizational identity is the harmony of your purpose, your brand, and your culture. CVS' decision provides a public viewing of the many decisions companies make on what they are and how they want to be known.

This study showed us customers' initial view on the news, but I think so much more will happen in the weeks and months ahead. It's rare for companies to state publicly that they are doing something -- or that they will stop doing something -- because it doesn't fit with their purpose. CVS is, at its core, a pharmacy. It wants to be there for the health and well-being of its customers, and its leaders believe that selling cigarettes is inconsistent with its purpose as a company.

The decision to remove tobacco products has implications for CVS' workforce and marketplace. A decision this big needs to have a completely aligned leadership team, and I'm curious about how they came to consensus and how they worked through the implications of the decision. But I am also curious about how this decision will affect CVS' people strategy.

What do you mean?

O'Boyle: How does this decision energize CVS employees? Does it help them feel better about the company they work for? Does it attract workers who want to be a part of the company because of what it's doing? Does this decision make CVS more attractive to somebody who might have chosen to work at Whole Foods or someplace like that? This decision could actually help attract more employees who believe CVS is making the right decision.

This decision also could help CVS' best employees become more engaged with the company. If CVS fails to use this move as a way to further define its employee value proposition, that's a missed opportunity. Basing CVS' organizational identity on health and well-being makes its employees feel good about the company's mission and purpose -- that they're serving customers toward a greater good, which is customers' well-being. This decision signals that CVS leadership will do things now and in the future that are consistent with the company's purpose and principles. Feeling part of the company's mission and purpose is a vital part of employee engagement, and that means a lot to employees, especially the most talented and engaged employees.

Two billion dollars is a lot to spend on employee recruitment and employee engagement, though.

O'Boyle: Yes, but this decision is much bigger than that. It's about positioning CVS in the marketplace as a company that's committed to doing the right thing for its customers. And that brings up a host of interesting questions: Does doing the right thing actually boost the CVS brand? Will it help solidify CVS' relationships with its existing customers? Does it encourage customers of its competitors to consider doing business with CVS? The early indications are all yes.

Then the really fun part begins: How will other companies respond? Other drugstore chains must be thinking about how they will respond, because consumer awareness of this decision is high. Eight in 10 U.S. consumers are aware of this announcement -- and most of the opinions were positive. So what will other brands do? How will they work through this? How will they follow through? Will they do something different? Will they ignore this situation? Because we're talking about some serious money here -- CVS is sacrificing $2 billion. Even altruistic decisions that are consistent with your purpose should inspire growth and profitability and ensure your company's ongoing financial performance.

It will be fascinating to follow this story in the coming months.

O'Boyle: Yes, and I think CVS just opened up a lot of possibilities for itself. There could be expansion opportunities for CVS' health and well-being offerings, and the company could undertake other innovations as a result of this decision. CVS probably has some ideas about things they can do now that they couldn't before while selling cigarettes.

For me, it all comes back to a company's purpose. Companies should be asking themselves why they exist, then taking a hard look at what they are doing to ensure their actions are consistent with their answer. This story -- which is just beginning -- is intriguing to me because it starts with a bold statement that cigarettes are inconsistent with CVS' brand promise. I'll be watching with interest to see how it all plays out.

Interviewed by Jennifer Robison

Gallup http://www.gallup.com/businessjournal/167957/why-cvs-may-not-burned-tobacco-decision-part.aspx Gallup World Headquarters, 901 F Street, Washington, D.C., 20001, U.S.A +1 202.715.3030