A Real-Time Case Study: The E-Cigarette (Vaping) Market
In Marc’s August 27th blog “Case Journal”, he shared the importance of keeping a case journal full of articles, business challenges and opportunities, and frameworks, findings, and takeaways from these articles and your case journey. The e-cigarette market is another case that you should closely watch, deconstruct, and consider the roles of the private sector, public sector, and nonprofits in this ecosystem.
The Private Sector: Profit and Business Incentive
The e-cigarette market was valued at $11.5 Billion in 2018 and is anticipated to register a Current Annual Growth Rate of 21.6% from 2019-2024. Drivers of the market include awareness of the harmful effects of smoking, e-cigarettes serving as a potentially safer alternative to smoking, e-cigarettes being used by current smokers to potentially quit, changing consumer preferences on smoking, and the increasing number of product innovations and distribution channels available.
E-cigarette vendors are investing more R&D dollars to drive innovation, create new flavors, and evolve the products to better meet consumer needs. While consumers may be considering trading in their cigarettes for vaping, the United States market faces many competing tensions. E-cigarette companies have been lit up in the press and in Congress (bad pun intended) for allegedly designing and marketing products to children. Several organizations have labeled the industry “big tobacco 2.0” and called e-cigarettes a “youth nicotine epidemic.” E-cigarette company’s profit incentive and goal to supplant cigarettes as a potentially safer alternative are ushering in a review of the regulatory climate as well as causing several local governments, nonprofits, and philanthropists to enter the fray.
From a business standpoint, you’d want to review the role that Big Tobacco plays in the e-cigarette market in terms of investments, mergers and acquisitions, and competition, the marketing campaigns that e-cigarette companies are running (who is their target consumer and what is their value proposition to that consumer), the partnerships they build or attempt to build with nonprofits, the government, and other commercial companies, and the legislation that they lobby for (for instance, some e-cigarette companies are lobbying for increasing the smoking age to 21 years old, which aligns with the views of several nonprofits who are their biggest opponents of e-cigarettes).
Government: Watchdog and Regulator
A recent Government Accountability Office (GAO) has found that the use of e-cigarettes has increased rapidly over the last 15 years. The government began collecting data on e-cigarette devices, parts, and liquid in 2016 and found that the value of the U.S. market was $2.4 Billion and brought in $120 million in tariff revenue over that period. Additionally, this report found that China accounted for 97% of e-cigarette imports by value and that more than 271 million e-cigarette devices were imported. This government watchdog has captured useful information for the government to consider in regulating the market. What is the government’s role in ensuring quality of the products? How should the government use the $120 million in tariff revenue and is the tariff set appropriately? How can the government ensure these 271 million e-cigarette devices are getting into the hands of end-users who are of age?
A recent congressional hearing centered on the role of e-cigarette companies in marketing to children, their health claims, and their relationship with Big Tobacco. A follow-up hearing is slated to occur in late September.
Moreover, recently nearly 500 (and counting) possible cases of severe lung illness associated with e-cigarette products were reported in 15 states. This has led the Center for Disease Control and Prevention (CDC) to provide consultation to state health departments and the Food and Drug Administration (FDA) is working with state health department and the CDC to gather information on products and substances used, as well as provide laboratory support.
The government is playing an increasingly active role in monitoring this market. The state of Michigan is implementing a ban of e-cigarette flavors, New York, and other states are considering the same. If you are keeping a case journal you would want to follow the government’s role in regulating imported e-cigarette devices, regulating imported or counterfeit pods, reviewing and regulating marketing practices of e-cigarette companies, and the role of the government in ensuring the safety of e-cigarette devices and products. You would also want to follow which states are considering bans and what legislation state and local government is enacting.
Nonprofit: Advocacy and Community Engagement
Organizations like the Campaign for Tobacco Free Kids have made it their mission to “reduce tobacco use and its deadly consequences in the United States and around the world.” This advocacy organization develops strategic communications and policy advocacy campaigns to reduce tobacco use. The organization highlights on their website that high school e-cigarette use rose 78% in 2018, which threatens progress against tobacco. The Truth Initiative is another public health organization seeking to eliminate tobacco use. They combat tobacco through research and policy studies, their truth marketing campaign, community activism and engagement, and other approaches. From a nonprofit standpoint, I’d review their partnerships, major donors, marketing campaigns, legislation and regulation that they support, and their engagement strategies to gain a better understanding of their role in this ecosystem.
Bloomberg Philanthropies is diving into the battle, spending $160 million over the next 3 years to try to ban flavored e-cigarettes.
A Complex Market
The e-cigarette market is a complex business case with numerous stakeholders, motives, and opportunities. Conflict and tension are natural, particularly in such an unregulated industry, and this market provides a fascinating real-time case study on the private sector’s, government’s, nonprofit’s, and philanthropic organizations’ search for common ground.
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