Short transcript of a YouTube video discussing a New York Times article about CVS Health’s decision to stop selling tobacco products. Speakers describe CVS’s two value propositions—pharmacy/drug services and general retail essentials—and note that cigarette sales historically contributed to revenue margins.
Hi. I'm going to illustrate an article I read yesterday from the New York Times on CVS Health, which is a major drugstore chain that decided to stop selling tobacco products. So CVS initially offered two main value propositions. One centered around drugs and another one around essential products such as shampoo, fruits, toilet paper, etc.
And until recently, it used to sell.
Cigarette packs as well.
CVS main customer segment is sick people, along with some convenient shoppers. And its revenue sources are the margins.
It makes on drug sales on essential products.
And since it used to sell tobacco products, margins on cigarette packs were also.
Included in its revenues.
CVS then introduced a new value proposition. It created in store clinics for sick people that offered cheaper primary care services. It was a very powerful value proposition because not only did it introduce a new revenue source from selling primary care services, but this value proposition also boosted drug sales and home essential sales. So let me give you an example. Say you've been diagnosed with the flu at CVS in store clinic, you can immediately purchase the medicine you'd need on spot. And why not purchase some tissues or orange juice to get better faster. And to illustrate this with a number, According to CVS CEO, in store clinics increased same store sales by 38% in the last quarter of 2014. So it's a pretty good increase. But now CVS is pulling out the tobacco products from its shelves. Why would they decide to cut out the margins they used to be making on those sales? Well, CVS realized there's a bigger opportunity coming with the Affordable Care Act. There are millions of Americans that have now enrolled in health insurance and they will be seeking health care services. So CVS decided to completely rebrand the company, which is by the way, now called CVS Health, and to reposition it as a major healthcare player. So CVS pharmacies in store clinics and home essentials can attract to a wider audience of sick people, but also employers and health insurances. I hope this video helped you digest your morning news better with the Strategizer tools. Thank you for watching.
