Five Lessons You Can Learn From CVS’s Recent Announcement

CVS announced last week that it will stop selling cigarettes and other tobacco products in its stores as of October. It will be a while before all the implications play out, but on the face of it, this looks like a great case study for some of the principles we have been talking about in this blog for the last few months. Here are five lessons we can learn.

Credit: pixeljones via Compfight cc

Credit: pixeljones via Compfight cc

1. Make a strategic choice. Business strategy is about making choices. CVS is making a strategic choice between real options. Much of the press coverage has focused on the goodwill and political value of the choice, but CVS is focused on its business strategy. With more than two-thirds of its revenues coming from subscription drug sales and only about 15% from retail merchandise, CVS is choosing its answer to the question – what business are we in? CVS is positioning itself squarely in the healthcare business.

2. Test the choice with an experiment. The results of CVS’s ongoing experiment to expand into providing direct healthcare services through their Minute Clinics are apparently encouraging. There seems to be a growing market for a better alternative to long wait times in doctors’ offices for minor health issues. Many people apparently value the convenience of being able to walk into a neighborhood location without an appointment, see a nurse practitioner or physician assistant after a short wait, and get their prescribed medicine before they leave. CVS is using a proprietary medical records management system to link its clinics and to ensure clinical practice consistent with national guidelines.

3. Play to your competitive strengths. Our family increasingly relies on Amazon and other online stores with free delivery to supply retail items. Our local CVS stopped carrying our preferred brands of a few items and we shifted to Amazon for these. I suspect we are not alone. CVS quite likely sees the handwriting on the wall for the future of bricks and mortar retail for many of the items it sells.

CVS’s Minute Clinics by contrast can leverage its neighborhood locations, many of which are already open 24 hours. This is a better bet than going up against Amazon and its cousins long term to sell retail items that only account for 15% of CVS’s revenue anyway. Like many chains, CVS must figure out how to make its investment in bricks and mortar pay off. Neighborhood walk-in clinics could be one answer.

4. Make your strategy customer-centered. What currently drives customer traffic into CVS stores and what will drive it in the future? How much retail business is needed to bring those shoppers into contact with CVS’s healthcare business? Or will it be enough to extend the value chain from the “prescription filling”  into the “prescribing” by bringing the examination by a nurse practitioner or physician assistant into their one-stop service. For example, can they persuade families with kids, who have already had good experiences with urgent care clinics on vacation for minor health issues, that walk-in clinics should be a fundamental part of their healthcare choices on a regular basis?

5. Reach out to stakeholders and partners. Ultimately the choice to stop selling cigarettes is part of a larger campaign to re-position CVS as it continues to ask what business are we in and who are our customers. Will the aisles currently filled with high fructose corn syrup drinks and candy bars be replaced with health foods? It will be interesting to see what other moves CVS makes to connect with health advocacy stakeholders? How will CVS extend its partnership with other healthcare providers? What other partners should it seek out? Maybe in urban areas CVS should strike a deal with Amazon to host their new Amazon delivery lockers.

How could you do apply these lessons to your own business strategy?

2 Responses to Five Lessons You Can Learn From CVS’s Recent Announcement

  1. Joseph February 27, 2014 at 8:26 am #

    On the one hand, they will eliminate tobacco products. On the other hand, they continue to sell potato chips, candy, soda, etc. They will need to revisit this strategic choice, depending upon the outcome of the tobacco decision.

    • Giles Hopkins February 27, 2014 at 11:04 am #

      And no matter what, they have to deliver good service. I notice that in Consumer Reports’ recent ranking of pharmacies that CVS and most of the big names rank toward the bottom compared to local independents for customer satisfaction.