Video Case Study

12/28/2020 Print Preview

https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=5835051934529006900868413293&eISBN=9781337614467&id=1034289158&nbId… 1/1

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.

© 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.