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[20 comments]

CVS tobacco decision a lesson in filtering loyalty programs

February 18, 2014

Through a special arrangement, what follows is a summary of an article from COLLOQUY, provider of loyalty-marketing publishing, education and research since 1990.

CVS Caremark's decision to discontinue the sale of tobacco products has triggered positive smoke signals from health advocates and the White House, but what is less clear is how it will affect its loyalty membership.

CVS said its decision to become the first national drugstore chain to pull tobacco products underscores its role in the evolving health care system, and that its purchase data contributed to its decision.

"Now more than ever, pharmacies are on the front line of health care, becoming more involved in chronic disease management to help patients with high blood pressure, high cholesterol and diabetes," said Mike DeAngelis, CVS spokesman in an email interview. "All of these conditions are made worse by smoking and cigarettes have no place in a setting where health care is delivered."

Tobacco purchases are not eligible for ExtraCare savings and offers, Mr. DeAngelis said. But the absence of the products can still turn customers away, said Gary Wright, president of G.A. Wright Inc.

"You'd think that people who buy cigarettes are also people who have a higher propensity to need all kinds of other non-prescription drugs. (They have) more bronchial problems, more colds, more flu, probably buy more cough drops, more antihistamines than the average population," Mr. Wright said. "So I would think that stopping the sale of tobacco products, though it may be an admirable thing to do, may take those customers who are probably good drug store customers to another competitor."

Jeff Berry, COLLOQUY research director, said the key for loyalty operators making a major product decision is to consult their purchase data, which will reveal basket size and frequency of smoking and non-smoking customers.

"CVS has evidently analyzed its customer data before making this decision, and from the well-planned execution of the announcement, I am sure the decision was not taken lightly," said Mr. Berry. "While CVS likely realizes that it may lose some ExtraCare members who are also smokers, the company clearly thinks it is more important to demonstrate its commitment to the mission of healthy living. I also suspect that many of its high-value, target customers have a core focus on healthy lifestyles."

FINANCIALS:     [NYSE:CVS] [ ]

Discussion Questions:

Should or can CVS do anything for its ExtraCare members dismayed by its decision to stop selling tobacco products? How valuable is it for loyalty programs to stress principles of healthy living?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Will discontinuing tobacco sales have more of a positive or negative impact on CVS's ExtraCare loyalty program?

Comments:

Many people (I'm one of them) quit smoking when offices prohibited smoking indoors. Disincentives to smoking work!...and CVS has made the careful decision to remove an unhealthy product from its inventory. I'm guessing that there will be little to no adverse reaction from customers; let's check back next year and see the results.

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Cathy Hotka, Principal, Cathy Hotka & Associates

If you believe that a loyalty program should fundamentally reflect a brand - as we at rDialogue do - then the customer analysis is important to quantify the financial implications of the decision. So the loyalty program and its data inform the business to support the decision, but the decision is ultimately a brand decision. As a brand positioned around wellness, it's entirely disingenuous to sell tobacco products given the black box label they carry.

The loyalty strategy for CVS to use given the decision is to use the data to explain the decision and position itself as a resource around wellness, smoking cessation and other offerings that rationalize the brand decision and the brand value of CVS.

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Phil Rubin, CEO, rDialogue

The snide answer would be to add 2 more feet of coupons to their register tape.

The sensible answer would be to streamline their loyalty program so customers can actually take advantage of earned bonuses and personalized offers. The current CVS loyalty program is cumbersome, at best, for consumers.

A well redesigned loyalty program would help CVS reinforce its principles of healthy living.

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Max Goldberg, President, Max Goldberg & Associates

They can promote their blood pressure checker located in their pharmacy and give their smoker customers an extra % on their extra care cards. This can be used to secure loyalty from these customers to purchase all of the associated products that smokers buy more of as pointed out in the above piece. These "smoker" customers really need an extra financial incentive to make the extra trip into CVS. Yes they will need to buy their cigarettes elsewhere but buying the other categories may cost much more than at CVS.

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Zel Bianco, President, founder and CEO, Interactive Edge

Yes, consistent with its strategy it ought to offer them discounts on smoking cessation products and have addiction counseling programs available through its clinics.

Having drawn a line in the sand on the tobacco issue, there is no looking back. The bigger question is will they continue to sell beer and wine and/or junk food? "Healthy" positioning, after all, can be a slippery slope.

It's important to everyone to stress healthy living but that doesn't mean loyalty members will want to get preached at or constantly reminded of their bad habits and -- in any case -- the definition of "healthy living" varies greatly depending on whom you are talking to.

Will CVS lose customer and sales? Of course ... lots of them.

Will customers begin to look at them as a better alternative to other "less health oriented" drugstore chains? The jury is still out.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

People who elect to smoke will find locations that sell cigarettes. It is unlikely that not being able to buy cigarettes in CVS will have any significant impact on the number of their customers who smoke.

What it will do is force those customers to find another place to buy their cigarettes and perhaps their health care needs. The first is fairly easy to do. The second is a little harder, but still not difficult.

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Steve Montgomery, President, b2b Solutions, LLC

Should CVS do anything for members? Well, on the one hand, offering smoking cessation programs (which they do now) is a start. I would imagine that moving in the direction of being the advocate for the shopper would be the positioning they would adopt.

On the other hand, I was struck by the idea in the question that CVS "owes" smokers something to compensate them for their loss of not being able to purchase the product at their stores. Not sure that was intentional (and it may just be my interpretation). IF that was the intention - I would suggest that the answer is suggesting CVS owes smokers some compensation is akin to asking if auto body shops should encourage texting and driving (well, maybe not exactly...but CVS does not owe smokers anything on the basis of their being smokers per se).

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David Zahn, Owner, ZAHN Consulting, LLC

Another thought. CVS may have seen this as a move to get ahead of legislation and/or social pressure to stop selling cigarettes.

Yesterday a group of seven Democrats sent letters to Walmart, Rite Aid and the National Association of Drug Chain Drug Stores to urging them to stop selling tobacco. It may be that CVS sees the US following Canada's example of not allowing pharmacies to sell tobacco product and thought it would get ahead of the curve.

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Steve Montgomery, President, b2b Solutions, LLC

Deciding to no longer sell cigarettes because they work against a healthy lifestyle was not taken lightly, I am sure. It is a decision consistent with the vision and mission of CVS. There are some unhappy consumers who will no longer be able to purchase their cigarettes at CVS. CVS does need to communicate with those consumers, explain the rationale, and offer them incentives to become healthy (e.g., offer a discount on smoking cessation tools as mentioned earlier). If those consumers agree with CVS's vision and mission, the decision of the company to stand behind their vision and mission will not be a problem. That is a consequence of choosing and vision and mission and standing behind it, but that is what it means to choose a vision, mission, and target market.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

In looking closely at the CVS statement surrounding the decision to no longer sell tobacco products, there is a telling signal of how CVS is evolving in its overall strategy. The brand views itself not just as a retailer, but as a place where "healthcare is delivered." This illustrates a broader brand vision than simply being a store and pharmacy.

In this light, the notion of needing to address dismayed customers who smoke is lacking in merit. CVS is moving down a more ambitious path of becoming a dominant purveyor and provider of healthcare and wellness products and services.

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Jeff Hall, President, Second To None

With store traffic on the down slope in the merry merry land of declining retail sales, tampering with consumer opinion is not something a seasoned marketing executive would normally embrace. I do think that when a return on investment analysis is looked at that the numbers make this product and all of its liabilities a loser and therein lies the reason for abandonment.

This may also be a way of making shelf room for new medicinal products that are on the way to becoming popular, and legal, for recreational use? But only time will tell if there are other products out there to actuate two billion dollars in yearly revenue.

'gjarnoldjr'

I have not seen anything regarding "dismayed" CVS customers! I think CVS acted responsibly and foresee other retailers move in this direction. I would also suggest to the author that the overall consumer impression of CVS vs its competitors may very well lead to an increase in trial and traffic which will mean more sales.

The tobacco sellers in the USA are rather ruthless in their marketing (I have worked for one of them) and they couldn't care less about the consumer's health. The fact that CVS discontinued tobacco sales is laudable. This could have the same impact on the retail community that Bloomberg's ban on smoking in restaurants had on smoking in restaurants across the USA.

When push comes to shove, I believe that CVS examined the situation very carefully and decided that the real risk was to continue to do business as usual. As for the loyalty program, its job is to increase value to CVS customers and as value is defined by the customer, not the media or the merchant. I think CVS has been highly successful operating what is, in my opinion, the best retail loyalty program I have experienced. Consumers do not appreciate having any position shoved down their throat and CVS will continue to mix health messages and products with product discounts and other relevant messages. I do not believe any special offers will be seen for disappointed smokers!

Ed Dennis, Sales, Dennis Enterprises

No, nothing extra needs to be done. CVS made a conscious decision that they don't care about this customer base. On the second question, in that it conforms with your brand message, promote it. Kind of a "choose this, not that" approach.

Now the real question is, is it just in Tuscaloosa, AL less than 5 miles from campus that kegs are sold at CVS and advertised in bright lights? It might be a 3rd party vendor, but...does this dovetail with a healthy living message?

'Stanaggie'

The front page of the 2/23 CVS ad has Pepsi 2 liters, Pepsi 12 pks, Bud and Coors Lt 24 pks, Cadbury Chocolate Mini Eggs. Page 2 has Dreyer's Ice Cream, Chips Ahoy, Tostitos, Pop Tarts, and Pop Secret microwave popcorn.

CVS is positioning the removal of tobacco well, but the reality is CVS took a very low margin category with declining unit sales trends that required premium placement due to theft issues and decided that there were better uses for that space. Their ads clearly demonstrate that they are not that committed to a consumer-health-first branding statement.

'beavertontim'

First and foremost, what are the values they are supporting? If they include contributing to healthy living and to have the utmost regard for their customers health, then it's ExtraCare members are not included. Plain and simple, they are targeting customers who take their health seriously. Makes sense to me.

Tom Borg, Business Expert, Tom Borg Consulting, LLC

I was just so happy to see Max's response that I just had to do a shout out. AMEN!!!

I go to drug store about once a month and my rewards are printed at the bottom of my already paid receipt and guess what? They expire in 2 weeks.

Do I ever use them? Nope! Am I loyal? Nope!

Lee Kent, Let's meet share and succeed in Retail, YourRetailAuthority

Although CVS's decision to stop carrying tobacco products may have a significant impact on the loyalty programs, this is a brand decision overall and one that goes beyond pure revenue and profit calculations. CVS is wise to take the initiative to carefully select what products it sells. CVS stands for health and wellness and if it believes that tobacco is counter to this message, then it will likely not alienate its core target demographic.

Loyalty programs and healthy living are not naturally related, but in the case of CVS, it makes complete sense.

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Jesse Karp, Omnichannel Consulting Manager & Loyalty Practice Lead, Cognizant Business Consulting

@beavertontim makes a tremendous point about the CVS ad; that there is nothing remotely healthy advertised on the front page.

Just maybe CVS analyzed the % of smokers in their loyalty program prior to making the decision. Is it a stretch that smokers, with generally unhealthy lifestyles, continue to have significant demand for the highly profitable pharmaceutical products?

I'll give CVS the benefit of the doubt and say they crunched substantial metrics prior to the decision.

Alan Cooper, Contract Trainer/Training Consultant, Independent/Freelance

The question about whether the loyalty program should stress the principles of healthy living are missing the point. The question is truly one of branding. If the CVS brand is to stand for health, then clearly some products, services, etc. fall within the brand and some do not. After all, if you try to be everything to everyone, you end up being nothing to anyone, which is the case of all the "milktoast" positionings in the pharmacy category.

Kudos to CVS for making the hard choices to stand for something.

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Mark Price, Managing Partner, LiftPoint Consulting, Inc.

Smokers will find other avenues. I believe this is a good strategy for building a brand which cares about health. Yes, there will be losses but it's unlikely that customer base will reduce just because of this. The key question is how will CVS cover up losses in the near term? From a long term perspective, I guess there is definitely a strategy in place. Doesn't this decision allude to the same?

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AmolRatna Srivastav, Asst. General Manager, Analytics and Insights, Tata Consultancy Services

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