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CVS's Expensive Cigarette Ban Shows It Puts Brand Before Profit

The drug chain's big move and name change may lead to the loyalty of a powerful customer segment.
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You might have heard by now about the CVS drugstore chain's recent eyebrow-raising moves. First, it stopped selling all tobacco products, to the tune of a $2 billion annual loss. Then, the company changed its name from CVS Caremark Corp. to CVS Health.

These moves were not simply timed in sync, they were deeply related in meaning. CVS Health Chief Medical Officer, Dr. Troyen Brennan, explained that “The sale of tobacco in a retail pharmacy conflicts with the purpose of the health-care services delivered there. Even more important, there is evidence developing that indicates that removing tobacco products from retailers with pharmacies will lead to substantially lower rates of smoking with implications for reducing tobacco-related deaths.”

This statement represents so-called “brand strategy” stripped down to its most fundamental kernel. The company’s purpose is articulated in a three-point narrative that isn’t an abstraction, but a concrete action: CVS is a health company, so it won’t profit from selling products that kill, and it might actually save lives by not making these product available in stores.

Related: CVS to Quit Selling Tobacco Products

CVS took a staggering yet calculated financial gamble with eyes on the prize of creating a deep emotional connection with customers. The customer segment with which this move will most resonate is an ascendant group who view life as a continual series of changes they want to make to their own habits and behavior, with the endgame of improving their health and personal financial prospects.

I submit that the companies who understand and engage with this group through the lens of what they hold sacred -- their desire to live healthier lives -- are the businesses that will prosper and thrive in the coming era.

These "transformational consumers" are a group whose spending power and influence on other customers cannot be underestimated. Here's why:

  • This is the same consumer group that mentally selected their case and strap preferences for the Apple Watch the moment the product options were presented at the recent launch event -- despite the fact that it will cost over double the average price of a fitness wearable, and won’t even ship until next year.
  • This is the customer base whose shift from processed to whole foods over the last five years caused the CEO of Campbell Soup, Denise Morrison, to explain a lower-than-expected earnings report with the comment that “there’s been a meaningful decline in the packaged food sector.”
  • This is the consumer group whose loyalty to Annie’s Organics in that very same packaged food sector vertical landed the company an $820 million acquisition price by food behemoth General Mills.

Related: CVS' Lesson: Let Your Brand Be Your Guide

What CVS knows about engaging with "transformational consumers" is a core truth of purpose-driven business: brand isn’t something you add on top of your company’s business, it’s something you are at your company’s core. Brand is not just a story about your product. Brand is the embodiment of your purpose, just as your product is.

In the case of CVS, the company’s purpose evolved over time: It once thought of itself as a retail outlet, it now sees itself as a health company with a purpose of promoting health. The cigarette product didn’t fit the company’s brand -- its purpose -- so it had to go. The story was then told and marketed around the company’s actions, sacrifice and ultimate victory -- a hero’s quest of a brand story, grounded in purpose.

While this seems basic, the fact is that many retail pharmacy companies in CVS’s space have not made the same choice. In fact, some have actually sued local lawmakers who tried to ban the sale of tobacco products in pharmacies. The shock throughout Wall Street and the pharmacy vertical is precisely why the CVS decision got such overwhelming media coverage, even in consumer outlets.

The reason we’re so shocked is that we’re just not used to seeing purpose prevail over profit.

The "transformational consumer" segment and the multiple segments they influence are seeking to connect with those companies that boldly declare and walk the talk of their commitment to the same values and priorities their customers hold dear. And they see through BS with laser-beam clarity.

Companies can spin out cause-marketing campaigns, tout their corporate-social-responsibility “divisions” and package beautiful narratives about their purpose, but the power of connecting with this eagle-eyed customer group is in a company’s actions. It’s the power of doing the right thing.

Related: The 5 Essentials for a Corporate Brand Employees Live and Customers Buy