In February 2014, CVS Health, a retail pharmacy chain, announced that it would stop selling any tobacco related products in all of its 2800+ stores. It was a decision that would cost the company $2 billion per year in lost revenue. It was a decision they chose to make even though there was no competitive pressure, public demand or an online campaign that forced them to do so.
The news was met with overwhelming support from the general public. But Wall Street and its pundits were not too pleased. They predicted huge loss of business to competitors, followed by fall in earnings per share and stock prices.
But, as per a study conducted by CVS on the impact of its decision, it found that they did not lose their customers to their competitors. But, in fact, cigarette sales dropped by 1 percent across all retailers in the states where CVS had a 15 percent market share or greater.
Turns out, CVS’s decision actually encouraged smokers to quit, leading to an increase in sales of Nicotine Patch by 4 percent.
What happened to the EPS and share price you ask? It’s true that Wall Street isn’t going to buy a company because they are good citizens. But customers and employees do. And more loyal customers tend to translate into more success for the company. And the more successful a company, the more shareholders tend to benefit. EPS and Stock price of CVS did fall initially, but they broke all expectations in years to come.
Key takeaway – It is much easier to tinker with the month, the quarter or the year, but to make decisions with an eye to the distant future is much more difficult. The decision that the leadership team made at CVS did have repercussions in the short run, but as the author puts it, the game of business is Infinite. Decisions that look beyond the finite world are the ones that ultimately pay off.
~Excerpts from The Infinite Game
by Simon Sinek
This article is a part of the July'20 edition of our Startup Newsletter. Here's the complete publication:
