To paraphrase a famous saying of Michael Porter, “the essence of strategy is as much about what you will not do as it is about what you will do.”  Say this to a room full of business people, as we often do during our marketing strategy workshops, and you’ll see lots of heads nodding in agreement.  But the actual practice of a business making a stark choice that risks leaving even one dollar on the table is rare indeed.

That’s why CVS’ $2 billion decision to stop selling cigarettes in their pharmacies is so incredibly newsworthy and interesting.  Is this a brilliant move, or an impractical decision that will put the chain at a huge disadvantage versus its competitors?

Our decades-long study of marketing success suggests that this will be a winner.  In our upcoming book, we reverse-engineer some of the greatest marketing success stories of all-time into 10 key principles.

CVS’ move models at least 3 of these principles, which we will outline in a 3 part blog post.  As you will see in Part 1, the strategy follows in the footsteps of companies like Apple when it comes to bold targeting and disciplined focus.  In Part 2, we’ll show you how the CVS approach emulates some best practices we’ve seen modeled by medical device companies and airlines when it comes to unspectacular-but-unambiguous brand differentiation.  And, in Part 3, we’ll highlight how CVS takes a new tack when it comes to effective positioning.  All of this bodes well for the pharmacy chain:  the best strategies we’ve researched often trip several of our principles, leading to huge increases in profits.

Bold Targeting Is On the “Endangered Strategies” List

In our book, we describe the growing reluctance of marketers to make choices that leave any potential revenue opportunity on the table.  This avariciousness leads to watered-down value propositions at the expense of focused excellence for specific target segments.

For example, we often help our clients creatively segment their market into 4 groups, each with different attitudes, behaviors and needs.  Then, we rigorously analyze the segments to define which ones would make good targets.

Using a tool we call The PrioritizerTM, we rate the segments based on their attractiveness to our client and on our client’s capability to fulfill the segments needs (which we call the “Ability to Win.”)  Typically, there are 1-2 segments of the 4 that rate high on both attractiveness and Ability to Win, 1 segment in the middle, and 1 that rates low on both accounts.

Without hesitation, our clients agree that the segments scoring well on both the attractiveness and Ability to Win scales of The PrioritizerTM should be targeted.  But when we ask the same marketers what they should do with the laggard segment, they often resist what is usually the right answer.  They refuse to ignore the low-rated segment, or to at least radically reduce resources allocated towards it.

The reasons are understandable, but can’t stand up under scrutiny.  The quest for revenue growth in organizations is so strong, the thought of ignoring any potential source of sales seems to be heresy.

But ask these same marketers what’s keeping them from having a truly differentiated value proposition for the high-ranking segments, and they’ll cite limited investment resources.  And where is a decent chunk of those potential investments going?  To support marketing and sales activities for customers in the lagging segment!

The most successful marketing companies often make bold targeting moves, ignoring significant segments to be exceptional with customer groups they can win big with.  Our book breaks down the targeting success of several well-known companies, as well as some lesser-known cases, from Enterprise Rent-A-Car to an Aids-drug marketer in the 1990’s.

Perhaps the most notable example of world-class focus is Apple.  Under Steve Jobs, Apple refused to dilute its value proposition in order to cater to anyone outside of its design-conscious, techy-looking countercultural rebel segment.

But the company’s focus on designing products for its target market was so pure, it translated into fabulous, clearly differentiated products.   Target and non-targeted customer segments were attracted to their products and sales boomed.

We call this hugely beneficial, counter-intuitive attraction of non-target segments to a company’s products or services “the magnetic effect of focus.”  It’s one of the reasons that Apple is such a rare bird – a mature growth company that was still producing close to 20% quarterly sales growth through last year.

So does CVS’ move qualify as bold targeting?  Let’s attempt to answer this question using the previously described logic of The PrioritizerTM.

If smokers were considered a segment, are they attractive to a company like CVS?  Are they a sizable segment?  Does CVS have what they want, i.e., what is CVS’ Ability to Win with smokers?

If you assume smokers are less healthy and thus more likely to consume prescription drugs, they are fairly attractive to a retail pharmacy.  This attractiveness is somewhat mitigated by the fact that the smokers segment is reasonably small and shrinking in the US.  In other words, the smoker segment is probably of medium attractiveness to CVS.

If you asked smokers where they like to buy their cigarettes, a retailer like CVS would score high for convenience, but be thought of less favorably when it comes to their price (not the cheapest) and availability of promotional deals (not as many promos.)  So assume the segment would plot somewhere in the middle of the Ability to Win scale.

The net result is that a smoker segment would probably place somewhere in the middle of The PrioritizerTM for a company like CVS.  Choosing to radically reduce resources or ignore a segment in this area is not a slam-dunk decision for any business, especially given the significant dollar amount CVS is walking away from.  Therefore, the move definitely trips our bold targeting principle that many of the world’s best marketers practice.

 

Stay tuned for Part 2, Innovation by Subtraction.  We’ll discuss how CVS’ strategy models a simple-yet-powerful, often-overlooked innovation principle that many of our clients are using with great success.    


Tom Spitale and Mary Abbazia are the authors of The Accidental Marketer, Power Tools For People Who Find Themselves in Marketing Roles, to be published by Wiley in March 2014.

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