E-Cigarettes Product Business Startup Analysis
Product Description
After years of the tobacco business leading a continuous product line, technology provided a revolution in the marketplace, the electronic cigarette (Kim et al., 2020). E-cigarette products, also known as vapes, were initially developed by a Chinese pharmacist known as Hon Lik in 2004. While the initial product was similar to a standard cigarette only equipped with an LED that ignited whenever the smoker used it, the modern device has been innovated to suit the needs of the consumer as well as provide a distinct feeling. The modernized product is a battery-powered device that heats flavored liquid combined with nicotine, flavoring agents, and glycerol to its boiling point (Kim et al., 2020). An electronic-cigarette is produced in various forms, styles, and types, with the rechargeable and disposable as the major types in the markets. They are also provided in the fashion and structure of a pen and tank rechargeable forms. The electronic cigarette is a device developed with the intent of assisting cigarette addicts in quitting the habit as well as provide them with an alternative of avoiding the various unhealthy effects associated with cigarettes ((Rose et al., 2014).
Scope of Market
Since its inception, the product has significantly risen into the market position as a competitor in the tobacco industry. An E-cigarette has attracted the attention of the millennial. In 2019, the market value of the e-cigarette was 12.41 billion US dollars globally. Also, the market value of the product is estimated to grow in revenue at a CAGR of 23.8% in the year 2020 to 2027 (Grand View Research, 2020). In the United States, E-cigarette in 2014 was valued at 2.5 billion US dollars, with about 40% of the value comprising of cigalikes e-cigarettes and 60% consisting of tank-style e-cigarette. The E-cigarette product is one of the fast-growing markets in the United States as well as internationally. The company has a more significant opportunity to boost its sales. It boasts good profit margins, gets purchased by reputable retailers, and more people are becoming more familiar to the people. Advancing the technology and production of quality nicotine has enhanced the recognition of the consumers. In 2009, the e-cigarette company sold over 4900 million products in the United States alone (Pesko et al., 2018).
Having established a market among the youth in the United States and globally, and the increased demands, e-cigarettes are expected to gain a market expansion that is beyond the traction forecast. Since 2014, the market value of e-cigarette in the United States has grown significantly, owing to the increased demand from the millennial. Grand View Research (2020) further stipulates that the product’s market value and its adoption expansion will grow over the estimated traction period as a result of the different varieties in the market. Additionally, while the product can be retailed in shops, it also has a global market reach through online platforms such as social media. Social media sites such as Facebook, Twitter, Instagram, LinkedIn, and You-Tube, among others, provide a sizeable market for the market since the majority of the users are within its target market.
Market Structure
In the United States, the market structure of the product is mainly competitive, owing to various companies producing and marketing e-cigarettes; as such, it’s a monopolistic competitive market. Also, with the many large players present in the industry, the market is consolidated due to their high shares in the product’s value (Modor intelligence, 2020). The major players in the e-cigarette market include British American Tobacco, Altaria Group, Imperial Brands International Vapor Group, among others. Regardless of the competitive market the product holds, the various competitors have significant differences in their commodities with regards to the company’s differentiation, either in type, form, or structure. However, despite the differentiation incorporated in the product, e-cigarettes have significant distinctions from those produced by other competitors. Also, the market structure is comprised of low entry barriers that provide new entrants with opportunities in the market to establish businesses utilizing minimum investments; as a result, the competition in the market is spiked. However, to increase their competitive advantage and growth in customer base and reach geographically, large companies develop acquisition measures of the smaller ones (Grand View Research, 2020). Through the acquisition, more significant players in the market can maintain their competitive position and grow their profits as well.
Degree of competition, availability of substitute and barriers to entry
Competition
Since 2014, the product has evolved with increased effectiveness and efficiency, such as longer battery life and improved and extended variety of flavors, as a result of gaining a broader market (Grand View Research, 2020). Like any other company, the e-cigarette has to cope with competitors such as Smoke Tip Eking, South Beach Smoke Electronic, V2 cigs Review, The Safe Cig E, and Blue electronic. To manage competition, the e-cigarette company has improved in the provision and accessibility of its products. The e-cigarette use products which are environmentally friendly. 97% of e-cigarette product is vapor compared to tobacco which has more adverse effects to humans and the environment.
Availability of Alternatives
The E-Cigarette is facing rapidly growing competition from the Heat-not-burn (HNB) devices. The devices, which hold similar characteristics as the E-cigarette, heat tobacco leaves at about 500 degrees Fahrenheit, thus producing the inhaled aerosol (Caputi et al., 2017). The devices are a fast-growing product in the market globally. With its improvements, it provides the smoker, combustible smoking feeling other than an electronic effect makes the HNB one of the available alternatives that jointly gives the e-cigarette a run for their money in the innovative tobacco smoking market. Further, as compared to E-cigarettes that are rechargeable, the disposable e-cigarettes sold cheaply in the market are another readily available alternative to the new products in the industry (Williams, 2019).
Barriers to entry
There are various barriers to entry for new entrants in the market. Among these are the major players in the industry who have established their product within the customer base. Also, Poor management has led to low control of quality, un-regularized prices, as well as weak business rules (Wang, 2016). While the cheap and disposable e-cigarettes are available in the market as alternatives to rechargeable electronic-cigarettes, they also pose a barrier to the entry of new products in the market, due to the price difference (Williams, 2019). Further, the market share is still marginalized. The government also controls the E-cigarette, thus making it challenging to advertise the products on television and other entertainment industries. Further, the government is imposing heavy taxes on nicotine products since they are considered as luxury products.
Potential Demand
E-cigarettes exist in the market as trendy and status symbol products among the youth; thus, this provides a potential growth in the demand for the product. Further, it is a socially acceptable alternative to cigarette smoking due to its non-ash and smoke features. Additionally, the target market is readily available and acquired through online platforms such as Facebook and other social media sites. As compared to traditional tobacco cigarettes in the market, electronic cigarettes present a healthier alternative that improves the prevention ratios of the tobacco effects on the smoker (David et al., 2019).
Elasticity
There are various measures applied in demand for tobacco products, thus determining the elasticity of the e-cigarette in the United States. Therefore, when a product’s price increases or decreases, it determines the levels of demand. As such, with the increasing numbers of e-cigarette products currently retailing in the market, a decline in prices for competitive purposes is expected. As a result, this will increase its demand (Stein et al. 2018). However, increases in taxation rates for the tobacco products affect the elasticity of the price and demand, since most non-users decline from using, and also forces producers to increase their prices. Therefore in the current market, the product’s elasticity demand and cost can be characterized as elastic, and the income is regular.
Industry Trends
E-cigarettes are technological devices that have affected the tobacco industry significantly. As such, since they are founded on technological innovation, future advancements may affect them. This because new and improved products will be introduced into the market.
References
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Caputi TL, Leas E, Dredze M, Cohen JE, Ayers JW (2017) They’re heating up: Internet search query trends reveal significant public interest in heat-not-burn tobacco products. PLoS ONE 12(10): e0185735. https://doi.org/10.1371/journal.pone.0185735
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Kim, M., Olson, S., Jordan, J., & Ling, P. (2020). Peer crowd-based targeting in E-cigarette advertisements: a qualitative study to inform counter-marketing. BMC Public Health, 20(1). https://doi.org/10.1186/s12889-019-8126-x
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Williams, R. (2019). The rise of disposable JUUL-type e-cigarette devices. Tobacco Control, tobacco control-2019-055379. https://doi.org/10.1136/tobaccocontrol-2019-055379