… of the electronic cigarette market

If we look back to the turn-of-the-century the electronic cigarette market was miniscule, a very niche arena and one which received very little in the way of attention from the mass media. Indeed, in the early days the number of electronic cigarette users was very small and very few experts predicted it would grow to be anything but a niche market. However, if you look at the electronic cigarette industry today it is forecast to hit US sales of $5 billion a year by 2015 and the number of electronic cigarette users around the world is now numbered in the tens of millions.

It is very easy to wonder how the electronic cigarette industry managed to sneak under the radar of the tobacco cigarette companies and pose such a challenge as it does today. So, how did the tobacco cigarette companies lose control of the electronic cigarette market?

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Tobacco cigarette markets emerging around the world

It is estimated that the tobacco cigarette market is worth in excess of $700 billion per annum and indeed even the onset of various smoking restrictions in Europe and America did little to hamper the sector. As one door began to close, it seems another one opened with Asian markets proving to be very resilient and very welcoming of tobacco products. This is perhaps one reason why the tobacco cigarette companies took their eye off the ball and failed to notice the sudden growth in demand for electronic cigarettes.

The regulatory hurdles

There have been rumours and counter rumours of backdoor deals between tobacco companies and politicians around the world but nothing has been proven. In many ways it was automatically assumed that if electronic cigarettes became popular and a potential threat to tobacco cigarettes, then perhaps governments, who rely upon income from tobacco taxes, would do their best to protect the industry. However, the cracks began to emerge in the relationship between governments and tobacco cigarette companies with the introduction of an array of smoking restrictions and smoking bans.

Even now the likes of the Food and Drug Administration (FDA) is still yet to rule on the regulatory framework for the electronic cigarette industry despite undertaking a review which has now taken more than two years. There has been speculation and counter speculation about an “imminent announcement” but so far nothing has materialised leaving the electronic cigarette industry relatively untouched in the US.

Simple growth in demand

While it is very easy to look back over the last 10 years and criticise the tobacco cigarette companies for missing out on an opportunity to control the emerging electronic cigarette industry, nobody predicted the growth we have seen over the last three or four years. The growth in electronic cigarette use across many parts of the world has been exponential and while it will slow in the short to medium term, the long-term situation is still very upbeat.

This growth in demand is being fuelled by perceived medical benefits, cost savings and the array of flavours and products now available. The industry itself is now attracting enormous investment from companies and corporate investors which is giving the sector more firepower and more influence than ever before. Many of these corporate investors look on electronic cigarettes with no emotion and no feeling as they are simply playing a numbers game.

A perfect opportunity missed?

If we review the last few years it does seem as though the tobacco cigarette companies have now lost the fight against electronic cigarettes. The opportunity to bring in a “healthier” option to tobacco cigarettes as a means of “helping” tobacco cigarette users may have been the perfect marketing opportunity. Instead, some tobacco cigarette companies are alleged to have attempted to influence electronic cigarette regulations and introduced an array of potentially misleading “facts and figures” into the media.

Perhaps the hope was, in the early days at least, that the tobacco cigarette companies could stub out the threat from the electronic cigarette companies. If this was the strategy of the tobacco cigarette industry then it has backfired spectacularly. Many companies have now been forced to invest heavily in their own brand of electronic cigarettes and indeed takeovers and mergers are now commonplace in the industry. What should have been a relatively simple and relatively inexpensive “takeover by proxy” of the electronic cigarette industry in its early years has now turned into a multibillion dollar battle.

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Court Cases

Last week’s revelation that Imperial Tobacco Group is taking a number of US electronic cigarette makers to court for alleged intellectual property right infringements is perhaps the next step in the evolution chain. The industry has now become such a big threat to the tobacco cigarette sector that delaying tactics, internal fighting and an array of court cases now seem inevitable. The Imperial Tobacco Group court case revolves round the purchase of an electronic cigarette company which came with an array of intellectual property rights.

It will be interesting to see how this court case develops and indeed whether we are now looking at a prolonged period of legal action between tobacco and electronic cigarette companies and others with a vested interest in either sector. At this moment in time there is little evidence of a reduction in electronic cigarette investment and indeed the most optimistic forecasters suggest that the number of electronic cigarette users will outnumber their tobacco cigarette counterparts in the US by 2030.

Conclusion

Looking back the tobacco cigarette companies of today will be kicking themselves that they failed to stamp their authority and their control over the electronic cigarette industry when it remained a relatively niche market. It is unclear how the industry as a whole failed to recognise the growth in electronic cigarette sales and instead seemed to be focusing upon maintaining market share in a declining sector.

There have been rumours that tobacco cigarette companies tried to influence politicians against electronic cigarettes and indeed “secret memos” seem to suggest that a number of pharmaceutical companies with a vested interest in smoke cessation aids have also been flexing their influential muscles. The initial plan of questioning the relative health benefits of electronic cigarettes seems to have backfired and all of the major tobacco cigarette companies are now introducing their own brand of electronic cigarette. However, one of the greatest marketing challenges of recent times awaits the tobacco cigarette industry, finding a way to promote their own electronic cigarette products over tobacco cigarettes, which many now see as “unhealthy”.

This in itself could be the greatest challenge ever to face the tobacco cigarette industry and that is before we even begin to look at the problems awaiting governments around the world which have grown ever more dependent upon tobacco tax income.

 Mark Benson

Bio

Mark Benson is a contributing author for Spinfuel eMagazine. His continuing columns will bring a level headed approach to the dynamics involved in realizing a positive future for the e-cigarette industry. For more information on electronic cigarettes and the various products available please visit the OKCigs website

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