CVS’ $2 Billion Marketing Gamble

February 18th, 2014 by Rob Berman Leave a reply »

'Cigarette Packets - Chesterfield, Peter Stuyvesant Extra Mile, Dunhill Superior Mild, Lambert & Butler Special Mild, Dunhill,  Royal Standard, Embassy Number 1 King Size' photo (c) 2011, Sludge G - license: http://creativecommons.org/licenses/by-sa/2.0/ I was amazed to learn about CVS’ $2 billion tobacco gamble. Is it financial gain or financial ruin?

CVS will no longer carry cigarettes and other tobacco products effective October 1, 2014. Analysts have estimated that the loss of revenue will be $1.5 Billion in tobacco products plus $500 million in impulse sales from smokers choosing other tobacco outlets.

Is the Decision Good or Bad?

Let’s take the decision in the proper light of day. $2 Billion represents about 3% of retail pharmacy sales. And retail pharmacy sales are less than 50% of CVS Caremark annual revenue. Call it 1.5% of overall revenue.

  • For all intents and purposes CVS Caremark is a healthcare company. Is selling tobacco is contrary to good health?
  • There is a definite halo effect. The free publicity must be worth tens of millions of dollars.
  • CVS can redesign how the area behind the cash registers appears, especially compared with other pharmacy chains.
  • About 18% of adults now smoke, down drastically over the last 30 years.

On balance, I applaud the CVS move. The Surgeon General has told us since the 1960’s that cigarettes cause cancer. Raising taxes has helped diminish the sale of cigarettes. Could CVS start a trend toward limited availability of cigarettes?

If I was a marketing executive at CVS I would be jumping for joy at the news.  Stay tuned to see how it ends.

The Takeaway

Bold marketing decisions can be nerve wracking. Big risks lead to big rewards.

Those are my thoughts. Over to you. Please comment below.

1. Do you think other pharmacies like Walgreens and Rite Aid will follow suit?

2. Is CVS really improving its corporate image with this change?

3. If you were a CVS executive, would you have made the same decision?

If you would like to contact me, you may do so by visiting my LinkedIn page, following me on Twitter,  or e-mailing me at rcberman2 (at) yahoo (dot) com.

Be Sociable, Share!
Advertisement

Comments are closed.

© 2009-2017 Rob Berman's Blog All Rights Reserved -- Copyright notice by Blog Copyright