This report provides an analysis, explanation and conclusion to the article of Philip Morris entering the electronic cigarettes market. Methods analyzing this article include, Porter’s five forces, products from marketing mix, branding, and finally product life cycle. Threats of new entrants and competition between rivalries of porters five will be done on what the article has described as its competition within industry. Products from marketing mix and Product life cycle will also be used as an internal analysis.
Philip Morris, a tobacco company has been facing a downfall in shares of up to 7% this year. A drop in tobacco demand had cause the company to lose share and many other companies to adopt a different strategy. To curb with this problem, Philip Morris chief executive have decided to venture into the electronic cigarette market in late 2014 which was speculated to be worth billions of dollars. As an indirect threat to the tobacco industry, “e-smokes could outsell conventional cigarettes within a decade” (CAVALE, 2013) and leaving it as a threat of substitute. Product Life Cycle
One marketing model that can be applied on this article would be the product life cycle. The product life cycle generally categorize a specific product in its product line into four primary stages namely, introduction, growth, maturity and decline. Using the information given by the article, this marketing model allows managers and marketers to identify which stage the product is in and how much resources are needed for an allocation. Philip Morris had decided to enter the electronic cigarette industry as market for their regular tobacco product was assume to had hit maturity and possibly enter decline. Two reasons supporting this claim are the large amounts of competitor in the market and at the end of the article as a loss in share is describe. In a perfect scenario, where everything else remain constant, lost in profit will be a good sign to identify products at its peak hitting decline. Another signaling factor will be the large amount of firms competing in this red ocean industry stretching its supply to its peak. Philip Morris decision to enter the electronic cigarette market could be due to a large growth potential from the stages of introduction to growth. Reasons supporting this statement would be little firms within industry and small but growing market awareness. Evidence is shown as an unknown analyst from article claim that electronic cigarette might take a decade before reaching market shares of regular Tabaco. Another evidence from the article is that only small firms are now in the Electronic cigarettes market and larger firms are still to enter, if large competition represent a mature market, the reverse might also be true signaling that “E-ciggs” might still be in introduction to growth.
In this current market, bargaining power are shifting towards consumer as more firms are now giving consumer more choices, hence firms are force to make strategic decision based of the consumers demand feeding their every need and wants. In article it’s stated that there’s a growing demand for a healthier alternative to regular tobacco product. The electronic cigarettes will satisfy the demand of customer wanting a healthier options of tobacco product at the same moment differentiate themselves from other competitors who only sells regular tobacco product. The product will also prove better reliability compared to other electronic cigarettes company as Philip Morris is one of the bigger company in the market, which will reduce the concerns of health wary consumer.
There are many health issues against tobacco products and smoking is one habit that most consider an unhealthy habit. André Calantzopoulos the chief executive of Philip Morris announce that “The world's largest listed tobacco company will launch a new range of products, called "Reduced-Risk" (CAVALE, 2013). Using the brand “reduce risk”, the company is trying to brand and position the electronic cigarettes as a healthier option in the consumer mind and making consumer perceive Electronic cigarettes a healthier option in contrast to their tobacco stuff cousins. To have a strategy form in entering the electronic cigarettes market, Philip Morris in the article have also identified the intensity between rivalry and the threats of new entrance in this particular industry . According to the article, the intensity between rivalries would be placed under “medium – low” as the company’s sees competition from companies from two establish players in the market namely imperial tobacco group and Lorillard. Also according to external research done, there are other smaller pioneer company who had enter the electronic cigarette business who are competing in the same industry. The threat of new entrants in this industry will also be considered “moderate” as “British American Tobacco (BATS.L) and Camel cigarette maker Reynolds American (RAI.N), are also placing their bets on e-smokes.” (CAVALE, 2013). This two company have seen falling share prices and are also following into the electronic cigarettes industry. This would be considered a medium threat and not a high threat as companies like Reynolds are not the considered the big five Tobacco Company and British American tobacco have only an international market share of 12% according to tobaccoatlas.org.
In conclusion, the change of the market demands have pushes not only Philip Morris but other companies within its industry to move into a newer market. The high competition and falling market shares in regular cigarettes had left it lying in the red ocean making in unfavorable for smaller companies and bigger companies alike. As the electronic cigarettes are seemingly popular, Philip Morris may also need to keep other external factors in mind, for example legal and political factors by health agency and activist. To end the essay and conclude, all factors in the above frameworks and analysis seem favorable for Philip Morris entering the electronic cigarette market and all pros outweigh the cons.