W4 Video case study

Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-4 Revealing CVS’s New Direction: Tobacco-Free CVS Book Title: Business Ethics: Ethical Decision Making and Cases Printed By: Kennisha Holloman ([email protected]) © 2019 Cengage Learning, Cengage Learning

19-4 Revealing CVS’s New Direction: Tobacco-Free CVS

In order to be consistent with its transition from pharmacy to health care company, CVS has

made some landmark decisions aimed toward helping individuals lead healthier lives. In

2014 CVS announced that it would no longer sell tobacco products. The revenues

generated from selling tobacco products are about $2 billion annually, so this bold decision

sent a strong message to stakeholders regarding the values of the company. A company

that is consistent in its actions will gain a good reputation, which will attract more customers

and generate revenue. This decision also gives CVS an advantage in terms of the ACA. As

the ACA changes the health care landscape, companies are racing to get a stronghold in

the new system to be listed as a preferred pharmacy. CVS’s alignment in defining itself as a

health care provider will likely result in stronger relationships with doctors and hospitals,

creating an advantage of preference. The goal is that referrals for medication will be done

through CVS and serve to boost reputation within all CVS segments. This, in conjunction

with its status as an ACO, puts CVS in a competitive position to attract newly insured

Americans.

This decision spurred 24 state attorneys general to send letters to other pharmacy retailers,

including Walmart Stores, Inc., Walgreens Co., and Rite Aid Corp., highlighting the

contradiction of selling deadly products and health care services simultaneously. The letter

also noted that drug store sales make it easier for younger age groups to begin smoking

and more difficult for those trying to quit smoking. Walmart and Walgreens acknowledged

the letter, but made no indication that they would stop selling tobacco products. Rite Aid

responded by saying it will continue to sell both tobacco products as well as smoking

cessation services, as the practice is legal. While this letter does not seem to have much of

an influence on retailers, some speculate that it increases the pressure on the $100 billion

tobacco industry, which is already facing decreasing sales, rising taxes, and smoking bans.

For CVS, the decision affected its short-term profits and reduced each share by $0.06 to

$0.09 each. Investors did not seem worried, however, as the long-term benefits will likely

make up the difference.

Chapter 19: CVS: “Fired Up” about Social Responsibility: 19-4 Revealing CVS’s New Direction: Tobacco-Free CVS Book Title: Business Ethics: Ethical Decision Making and Cases Printed By: Kennisha Holloman ([email protected]) © 2019 Cengage Learning, Cengage Learning

© 2020 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder.