E-Cigarettes

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DOCUMENT INFORMATION

AUTHOR 1

• Name                        :  Allison BARRETT
• Student ID                 :  216206544
• Contribution                 :  33.3 %

AUTHOR 2

• Name                        : Stephen O’Byrne
• Student ID                 : 215165898
• Contribution                 : 33.3 %

AUTHOR 3

• Name                        : Sunny Sun
• Student ID                 : 215248073
• Contribution                 : 33.3 %

Word count                  : 2000 Word

Reference style         : Harvard Reference Style 

Table of contents

Executive summary

This report was researched and written by a marketing team from Deakin University, School of Business and Law. It is an analysis of the expanding E-cigarette industry. Our aim is to assess the tobacco industry and the role electronic cigarettes plays in the global market today and the near future.  This study seeks to identify the various controversial issues associated with vaping.   Our research indicates both negative and positive effects of e-cigarettes. We analyzed different points of view regarding e-cigarettes and researched the potential for future growth.

Chapter 1

E-cigarettes have persistently risen in their popularity over the last 8 years, especially among young people.  When e-cigarettes first appeared on the US Market in 2007- everyone considered it a fad.  By 2009, big tobacco companies started paying attention.  

Business Situation Analysis

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(Iacobucci, 2014)

Company

Reynolds American Inc. (RAI) is the second largest tobacco company in the US. They are based in Winston-Salem, North Carolina. RAI has sold over 72.9 billion cigarettes and is the parent company of R.J Reynolds Tobacco Company, Sante Fe Natural Tobacco Company, American Snuff Company, Niconovum USA and Niconovum AB. They are also the parent company of R.J Reynolds Vapor Company who were formed in 2012 to produce and market the product Vuse Digital Vapor Cigarettes which expanded nationally by 2014. At this point in time RAI identified the need to develop further in the E-Cigarette market as they may have considered this as a weakness that needed to be addressed. In 2015, RAI acquired Lorrilard, Inc as part of an external growth strategy in pursuit of becoming the market leader. An external growth strategy is when a company “places an emphasis on acquiring vendors and suppliers or buying businesses that allow a company to expand into new markets” (Kramar, et al., 2015). Aside from RAIs’ strong market share in the tobacco industry, another notable strength is their holistic approach to help resolve some of the issues relating to the use of tobacco which is outlined in their business strategy. The three key areas are Youth Tobacco Prevention, Tobacco Harm Reduction and Commercial Integrity. It appears judging by RAIs’ strategy that they have completed a SWOT Analysis which identifies a company’s “Strengths, Weaknesses, Opportunities and Threats” (Iacobucci, 2014). RAIs’ operating income has increased by 72.4% to $0.72 billion in the 1st quarter in 2016 compared with $0.46 billion in the 1st quarter in 2015. One of the documented reasons for the increase is due to positive sales of Vuse Digital Vapor [pic 5]Cigarettes (Market Realist, 2016).

(Reynolds American Inc, 2016)

Customers & Collaborators

RAIs’ E-Cigarette customer base generally consists of retailers, convenience stores, vape shops and is also sold online direct to the end consumer. E-Cigarettes were considered an opportunity for growth by RAI. In 2014, retail outlets in all 50 states began to carry Vuse. Sources revealed that prior to 2014, about 30-50% of E-Cigarettes were estimated to be sold online via the internet (Zhu S-H, 2014).

Competitors

[pic 6]One of the big threats is the competitors entering in to the ever growing e-vapour market. RAIs’ biggest competitor is the number one tobacco company in the USA Phillip Morris which acquired Green Smoke in 2014 to expand on its e-vapour business. Financially Phillip Morris started poorly in 2016 as they recorded an 8.1% decline in reported revenue in the 1st quarter in 2016 as compared with the 1st quarter in 2015 (Market Realist, 2016). RAI has the largest revenue growth in 2016 compared with its major competitors Altria and Phillip Morris as per below -

 (Market Realist, 2016)

Context

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Another threat for RAI is the uncertain future of the E-Cigarette market. PESTEL (Political, Economic, Social, Technological, Environmental and Legal Factors) (Professional Academy, 2016)

The tobacco industry landscape has certainly evolved as the use of E-Cigarettes has become increasingly popular. There are many challenges that RAI will need to confront such as –

• Political – Growing government, scientific and public health concerns about the safety of the products. FDA regulations can be a potential issue for manufacturers, such as the regulation which has come in on August 8th 2016 that now requires all “tobacco products including E-Cigarettes, and requires manufacturers to report product ingredients and undergo the agency’s premarket review to receive marketing authorization” (Abbasi, 2016).
• Economic – Uncertainty as to whether the E-Cigarette industry will continue to grow. A decision on whether to move full steam ahead or take a more cautious approach is a concern for RAI.
• Social – RAI is uncertain as to the type of attitudes and beliefs that consumers hold towards E-Cigarettes. Another issue is the lack of long-term studies on the effects on people’s health which may cause uncertainty.
• Technological – With many competitors entering into the market and new regulations, there is likely to be many changes in technology that could make it difficult to differentiate from the competition.
• Environmental – Ethical issues will confront RAI, such as ensuring quality control is in place to avoid health risk and legal ramification. Business ethics is “the study of moral or ethical choices that can arise in the running of a business” (Kalliath, 2014).
• Legal – Health and safety, product packaging and advertising are all going to be large factors that need to be considered.

Chapter 2

The Future

The use of e-cigarettes more than doubled among US adults from 2010 to 2013 (according to a study by US Centers for disease control & Prevention).  They are successfully shaking up the market, ousting traditional cigarettes as the preferred method of nicotine consumption.  Yet, the future of e-cigarettes or vaping is uncertain.  According to an article by Jennifer Abbasi (2016), the Food and Drug Administration announced on August 8th, 2016 new laws tightening the regulations on all tobacco products including e-cigarettes, requiring manufacturers to report product ingredients and undergo a extensive premarket review, subject to agency approval before products can be put on the market.  The new law also makes it  illegal for the products to be sold in person or online to people younger than 18 years old.