Part 2 of 3: Innovation By Subtraction
Make no mistake about it – great marketing moves aren’t about PR victories. They must contribute strongly to the business’ ongoing viability. Taking the marketing high road doesn’t pay the bills or satisfy stockholders.
Speculation amongst industry watchers is that CVS will replace the lost cigarette revenue – and then some – by allocating more resources towards growing its walk-in clinic business.
This makes sense. U.S. laws that have made smoking more difficult and expensive have led to a significant decline in the percentage of people who smoke in this country. Contrast this decline with the expected rise of healthcare spending to 20% of GDP, driven largely by new people entering the healthcare system via the Affordable Care Act.
It’s not a stretch to think that CVS can parlay its banishment of cigarettes into more walk-in clinic business and more contracts with hospitals and health insurers to provide patient care. With this perspective, it’s easy to see that this move by CVS is much more than a PR strategy.
When our company reverse-engineers marketing success, we classify strategies so that our clients can see how to apply them uniquely in their own businesses and industries. We call what CVS is doing with cigarettes “innovation by subtraction.” It’s an often-missed aspect of corporate creativity that can yield quick and substantial business results.
The concept turns the notion of innovation on its head. Many think of innovation as the act of developing completely new products and services. Yet many profound, creative new strategies can come from simply stopping doing the things that don’t make sense to a company’s target customers.
For example the most successful medical device makers have been “de-featuring” their machines to make them more affordable as they expand into emerging markets. De-featuring is the practice of removing some advanced but non-essential features and functions of an offering, to reduce cost.
Most emerging economies healthcare payers don’t have the deep-pocketed resources of their counterparts in the U.S. So these lower-priced, lesser-featured medical devices have done well. Some manufacturers sold their de-featured equipment under different brand names, to protect the premium image of their high-end offerings.
Innovation by subtraction such as this isn’t just happening in the medical device industry. Entire companies are springing up with business models that de-feature traditional products. Spirit Airlines unbundles every aspect of the air travel experience in order to provide the lowest ticket prices possible. The airline charges for carry-on bags (other than very light items like purses), checked bags, drinks and snacks on board, and more.
Spirit’s ticket prices are rock bottom, and their target market seems to like the value proposition. The company’s sales in the 3rd quarter of 2013 grew 33%, and earnings per share leapt 126% over the same quarter in 2012. Investors have taken notice as well: Spirit’s stock price (symbol: SAVE) nearly tripled last year.
Our study of marketing leaders shows that every success story includes an innovation that positively differentiates the company from its competitors. The mantra should be “innovate to differentiate” — meaning companies should seek new ideas that set them apart in ways that matter to their customers. The business world is littered with interesting ideas that failed because they didn’t fulfill needs that mattered to customers.
So while CVS’ decision isn’t what one might call a classic innovation, it does separate it from its competitors. It’s primary target market does care about health. Therefore, we can say that CVS strategy definitely meets our “innovate to differentiate” principle practiced by big marketing winners of the past.
Stay tuned for Part 3, A Believable Positioning. We’ll discuss how the consumer brain processes information – and why the CVS strategy is likely to carve out a unique, favorable position that will allow it to “own” the positioning its competitors all want.
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.