BA 3103-015
Critical Analysis Paper: 1

E-CIGARETTE

Big tobacco companies are betting on e-cigarettes. Why are tobacco companies investing in a product that will directly compete with their most profitable product, cigarettes? With the use of these analytical frameworks it will help us to better understand this situation.
PEST
PEST Analysis of Global Trends – 2011-2016 Political * Increased emphasis in healthcare | Economic * Recovering/Growing | Social * Health conscientiousness | Technological * Battery life advances * Material utilization * Portability |

Beginning with the PEST Analysis we can get a macro perspective on the trends. There has been a global emphasis on healthier lifestyles and pharmaceutical companies have already taken advantage. As a social trend it is increasingly popular to look good and be healthier. Food industries are staying away from synthetic ingredients and gyms are packed. The economy has slowly recovered and is now growing. With recent advances in cellphones batteries longevity and size has drastically gotten better and more efficient. Technology has made it easier to extract, mold and use material to our benefit. And with all these advances technology has gotten increasing more portable. Next we will analyze the e-Cigarette industry and try to understand why big tobacco companies want to join.
Porter’s Six Forces Analysis
Porter’s Six Forces Analysis of the E-cigarette Industry | Supplier Power – Low * Intellectual Property | Threat of Substitution –High * Traditional Cigarettes * Cigars * Traditional tobacco * Alternative ways of smoking * Tank systems | Threat of Entry - Low * Expensive initial cost * Competitors have much capital | Industry Rivalry - High * Njoy, Vaper (Krave), Metro, Smoker Friendly, Blu, Others | | | Buyer Power - High * No Loyalty * Lots of competition * Low switching costs | Complements-- Medium * Additional flavors |

Starting with low to high supplier power is the lowest in the electronic cigarette industry. Materials are readily available and due to competition suppliers don’t have much the control in the market. Although one problem that could arise is the intellectual property rights that it takes make these devices. Threat of entry is also low in this industry due to the high initial cost of entering and the amount of competition. Even with growth projected, the market is now saturated with big tobacco companies competing against each other. These companies have very deep pockets that could potentially out-market and out-price the competition. It’s no longer a level playing field for anyone trying to enter the market. The compliments in this industry are medium due to the almost unlimited flavors companies are able to produce and have a competitive advantage on the product.
Industry rivalry is high in this market. There are many competitors with stores offering a large array of different brands to customers. According to statistics Njoy has 32% market share, Vapor (Krave) 16%, Metro 6%, Blu only has 2% while the rest of the market has 41% share with numerous smaller companies competing. Same with buyer power, due to the competition and low switching costs the threat is also high. The highest threat to this industry would the rather large amount of substitutes to this product. Smoking can be done in so many ways with so many instruments including thank systems that pose to be another competitor in the market. With tanks costumers have the ability to buy flavors anywhere without being brand specific. Now we have seen the trends and analyzed the e-Cigarette industry its time to look at they SWOT of why big tobacco companies are betting in this particular market.
SWOT
With the SWOT analysis we can start to form a basis of why tobacco companies moved into the electronic cigarette market. One of the biggest strengths of these tobacco companies is their ability to adapt with the times and seeing how e-cigarettes are becoming increasingly popular even generating over two billion dollars in sales posed as a good investment opportunity.
SWOT Analysis on why big tobacco companies are betting on e-cigarettes Strengths * Immense amounts of capital to invest * Already in a similar industry * Willingness to adapt with the times | Weaknesses * Learning curve of the new product and accessibility | Opportunities * Young and unregulated market * Room for growth and development | Threats * Potential competition with its original market * Health administrations * Other small competitors |

Since they are large tobacco companies they have the funds to tap into the market unscathed regardless how the investment turns out. Another strength for these companies is that they are in a similar market and already have the insight on how to properly enter the market. One weakness with tobacco companies entering the market is the consumers who have yet to try these devices. Being electronic and reachable might deter a skeptic from even trying the product. The lack of regulations (for now) and the ability to market the product in different forms with even the option of television are a great opportunity. The biggest threat faced with e-cigs is the potential competition of regular cigarettes sales. As stated by Bannon of Lorillard, two reasons to invest in e-cigarettes: first as an insurance policy in case e-cigarette sales took off, and second as a self-funding source of research and development into e-cigarette technology. With these devices becoming increasingly popular they pose a threat from numerous health organizations and even the general population who demand regulation. This brings us to the Force Field Analysis to help us understand why.
FFA
FFA Analysis on Why Big Tobacco Companies are Entering the e-Cigarette Market FFA Situation: Big Tobacco Companies are Betting on e-CigsForces Propelling> <Forces Restraining * Growing market * Resources | * Saturated Markets * Low returns * Direct competition * Pending regulations | |

As we can see there are more restraining forces this decisions including an already saturated market and direct competition with themselves. The propelling forces seem to have more momentum though with their capital to invest and the expanding market big tobacco companies don’t want to miss out any longer.
Conclusion
Big tobacco companies have the capital, the lobbyists, and a unique opportunity to make smoking popular again—legally. Maybe not with their traditional cigarettes which have been declining in sales in most developed nations but with a potentially healthier product. Although it’s a niche market compared to their sales, they are recognizing the potential early on and making a choice to jump in now. With the position that these big companies are in, even if they don’t succeed it will not be the end for them. They cannot advertise their regular merchandise anymore and do need a way to revamp their image. With this new market they can do just that with the current lack of regulation. When they do join though, its already a saturated market and the buyer has much more power than he/she would have with traditional smokes. As long as they can change some of their tactics they should do well in their new venture.
References
Richtel, Matt. (2014, June 17). “Why big tobacco companies are betting on e-cigarettes.” New York Times.
Montopoli, Brian. (2013, June 11). “Tobacco Companies bet on electronic cigarettes.” cigarettes/
(2014, July 13). Retrieved from http://www.statisticbrain.com/electronic-cigarette-statistics/