CVS Health Rebranding Strategy: Dropping Tobacco for Healthcare

CVS Rebranding Strategy and Healthcare Repositioning

CVS removed tobacco from its store shelves one month earlier than originally planned. This move, combined with the alteration of the company's corporate name, was targeted at helping the company rebrand as a healthcare company. With a name such as CVS Health, the company believed that exiting the tobacco distribution system was good for its long-term future and aligned with its new focus on health. CVS Health also announced that it would launch a campaign against smoking. Observers were surprised when CVS Caremark Corporation (NYSE: CVS) made its announcement concerning tobacco. The announcement was accompanied by a large banner proclaiming the new logo and name of the company across the NYSE (Sheets, 2014).

Company officials stated that the rebranding was aimed at helping people achieve better health. The rebranding also positioned the company for a larger role in the provision of healthcare services — services going beyond the common business model of retail pharmacy. Because the company had always been at the forefront of innovation, officials said it would continue delivering innovative products, enabling businesses, individuals, and communities to manage their health more effectively and affordably through programs in specialty pharmacy, medication adherence, and walk-in medical clinics. Earlier, the company had announced that having tobacco on its store shelves conflicted with its mission and its stance on good health. Officials noted that it was not mere coincidence that this decision was made at the time of rebranding (Cheney, 2014).

The company noted that its new name aligned with its goals as a new entrant in the healthcare service provider market. Officials stated that they were actively involved in shaping the outlook and future of healthcare by rolling out medication adherence programs, operating walk-in medical clinics, and providing support to patients with complex or chronic conditions. Some of their offerings include:

• Programs for the management of chronic conditions
• Programs connecting patients and pharmacists to assist them in adhering to prescribed medications
• Digital capacity to support those programs

The company also planned to liaise with health plans and physicians to provide medication, clinical support, monitoring of chronic conditions, and wellness programs.

CVS was offering programs to manage chronic conditions as a way of expanding its revenue stream. With the high cost of medical care, these offerings gave patients an affordable way to manage their conditions, since CVS accepts most insurance plans and its rates are generally more manageable. Healthcare costs in the United States grow each year and have become prohibitive for a majority of the population. CVS customers could take advantage of the affordable offerings and realize savings in healthcare. In fact, the company was positioning itself to benefit from opportunities brought about by the Affordable Care Act. The Act led to many Americans seeking access to healthcare, and CVS positioned itself to capture this new group of customers by expanding its product offerings. With its new name, CVS Health, the company became a more appealing destination for health services. More people could visit a CVS store not just to purchase drugs but also to receive other health services not offered at a typical pharmacy.

CVS partnered with various providers in the health space to broaden its offerings, consistent with its new focus on health. Several industry players applauded the decisions CVS made, particularly the move to remove tobacco from its shelves. It was in CVS's interest to partner with health institutions in order to support its programs.

Digital programs were identified as a crucial supplemental offering to the various programs now available. Competitors were running smoking cessation programs, and CVS sought to improve its own. Competitors categorically stated that stopping tobacco sales was unnecessary, arguing that reducing smoking in America cannot be accomplished simply by reducing tobacco availability. They promoted their programs targeting the root problem as more efficient and useful.

Company officials stated that the rebranding efforts would help CVS align with the larger roles it was to play in its expanded business model. Because of its culture of bringing forth innovative products, the company needed to strategize effectively to serve its clients and meet their needs (Cheney, 2014).

The rebranding was expected to help CVS in two principal ways. First, health-conscious consumers and those seeking to stop tobacco use were likely to get the support they needed at CVS and shop at its stores. Second, because of its commitment to healthcare, the company would be taken more seriously by other market players and potential partners. Because partnering with various players in the health sector is a key component of CVS's business model, this decision was expected to smooth future efforts considerably. The company was affiliated with over 41 health providers and was making efforts to grow that number, particularly since the Affordable Care Act grouped healthcare providers into accountable care organizations. While CVS may have been the first pharmacy chain to halt tobacco sales, Target was the first major retail store to do so, back in 1996. Several other smaller retailers followed, including Wegmans Food Market Inc. in 2008 (Sheets, 2014).

The company's decision was regarded as a significant public health win. It was also a shrewd business move that could generate profits as CVS positioned itself as a major player in the healthcare provider space. The company's new name, CVS Health, signaled that it was aligning its operations with the Affordable Care Act. The Act brought forth great opportunities for CVS to grow — not just in pharmacy but also through the expansion of MinuteClinics that offer basic primary care in-store. Plans existed to grow the number of stores offering this service from 900 to an estimated 1,500 by 2017. The company was continually opening new clinics each quarter and its revenues were growing. A key component of these openings was partnering with hospitals and insurance systems, and stocking cigarettes directly contradicted this goal. New customers brought in by the decision were likely to remain loyal and fill their prescriptions at CVS. This strategy was expected to generate more revenue than tobacco ever had. Positioning CVS as a place where customers could both receive healthcare and purchase healthcare products was seen as a stronger long-term business model (Friedman, 2014).

Porter's Five Forces Analysis of the Pharmacy Market

Porter's Five Forces provides a useful framework for understanding the competitive dynamics of the retail pharmacy industry as CVS undertook its strategic shift.

1. Threat of Entry: There is a low threat of entry into the pharmacy market because of the prohibitive cost of entry. Entering a single market such as Memphis is somewhat easier, since opening just one store is not as difficult (Itorbett, 2013).

2. Threat of Rivalry: There is a high threat of rivalry, as pharmacies can be found on nearly every corner. Price cutting is a competitive strategy at the store front, though this is less common in the main pharmacy, where prices are often set by the wholesaler. Promotions such as gift cards and price matching are common, however.

3. Threat of Substitutes: Substitutes exist for front-store products in various locations such as supermarkets and gas stations. Prescription medications, however, cannot be substituted (Itorbett, 2013).

4. Threat of Suppliers: Company operations are dependent on suppliers. Without medication, there is no pharmacy. Displays also play a role in attracting customers. Suppliers alone are not the only concern, as shortages can also occur at the manufacturing plant (Itorbett, 2013).

5. Threat of Buyers: The buyer count for pharmacy benefit providers and pharmacies is limited. Smaller pharmacies are continually being acquired by larger chains such as CVS and Walgreens (Itorbett, 2013).

The inherent financial risk in CVS stopping tobacco sales was thought to be offset by the public relations benefit that would be created. This differentiation could help the company win new business in other areas of the corporation, such as prescription drug administration (Ziobro, 2014).

Conclusion

Considering the mounting pressure from campaign groups on other pharmacy chains to follow CVS's lead, it may not be long before Walgreens and Rite Aid bow to that pressure and make a similar shift. CVS is the pioneer. The support the company has received — including a public commendation from President Obama — suggests that the other companies will eventually be compelled to join them. The strategy is both a public health win and a sound long-term business decision, positioning CVS Health as a genuine leader in the evolving American healthcare landscape.

References

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