By dropping cigarettes, CVS gives its reputation a boost

February 5, 2014

When drugstore chain CVS said today that it would stop selling tobacco products by October, the company also told investors that the move would probably cost it $2 billion a year in lost sales.

CVS says it has figured out unspecified ways to help make up for the profits from cigarettes and other tobacco products.

Still, it's pretty clear that CVS, which also runs a network of 800 in-store health clinics and provides drug benefit services to corporations, has already burnished its image by making the high-profile decision.

While the value to the company's image is hard to measure, there's little doubt that it's big. "They'll end up getting more than $2 billion in reputational capital and kudos," Dartmouth professor Paul Argenti tells Shots. "How often is the president of the U.S. going to come out and say your company is great?" says Argenti, referring to President Obama's praise of CVS this morning.

CVS is one of a small, but growing number of companies that have realized "your reputation is the most valuable asset you have," says Argenti, who studies corporate communications at Dartmouth's Tuck School of Business.

Measuring that value is difficult, he says, but a strong reputation can create a business advantage. He expects CVS' competitors will end up having to follow suit. "The better question is how quickly will others jump on the bandwagon," he says.

"I hope this sends a message to health-care-related companies," says Mike Huckman, a former reporter for CNBC and now chief strategist for Pure Communications. "It's not enough to do PR campaign. You have to walk the walk and talk the talk."

Both Huckman and Argenti say they think CVS made the move mainly for public health reasons. Huckman says the step forward for health at a potential hit to profits shows that CVS is willing to stand up to Wall Street. "It's a seminal moment for corporate America, for corporate responsibility," he says.

CVS Caremark's stock price was down 55 cents, or a little less than a percent, to $65.56 in midday trading.

Amid the feel-good coverage, one critic asked why more news outlets hadn't previously reported on the conflict between CVS' goals as a health care company and its sale of tobacco products.

The American Heart Association, American Cancer Society, American Lung Association and American Pharmacists Association have long been against sales of tobacco products in pharmacies, CVS acknowledged.

"[H]ow did newsroom after newsroom not go after such an obvious story before?" asks a blog post by Karl Idsvoog, a journalism professor at Kent State University. "Why weren't reporters questioning an industry supposedly concerned with health about why they continued to sell death?"

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