The e-cigarette industry is among the first rising industries around the world right now. The industry began a while back although was slow to peak. Initially the industry was fragmented with multiple sellers advertising and selling their products online (Satran, 2013). Much of the target market was ex smokers or those who were trying to quit smoking. Theirs is a form of cigarette that is electronically run and has fewer side effects to the common cigarettes thus the name e-cigarettes (Etter, 2012). The cigarette is mainly made up of a battery powered system that burns liquid nicotine to simulate smoking.
Much of the hype of electronic cigarettes was as a result of the negative effects of the normal cigarettes such as addiction and the problems the chemicals caused in the form of cancers. Researchers developed the e-cigarettes which only contain a mixture of nicotine water and in some instances flavors as opposed to the numerous chemicals present in the normal cigarettes. Major companies such as British American Tobacco were slow to take up this venture and as a result were championed by small start up ventures. Such companies did not have the financial might and distribution channels of the major cigarette manufacturing companies and as a result growth of the industry was particularly slow. However, in the past few years, the industry has rapidly grown with 35% of smokers in the United States reporting that they have actually tried out the electronic cigarettes and a further 14% becoming frequent users (Encyclopedia, 2013). This is no mean accomplishment due to the fact that they are in unfair competition with multinational companies that enjoy economies of large scale.
The market has been highly fragmented and a survey showed over 300 small companies that provided e-cigarettes with companies such as BluCigs and Ploom emerging as market leaders with a distinct market share over the years (Pereiro, 2012). A survey released by the financial times in 2013 showed that the industry had grown with a sales volume of $3 billion globally representing a 100% growth from previous years. As a result of these facts and continued usage of these cigarettes major cigarette manufacturing companies have come into the industry all guns blazing and acquiring the most established businesses (Pereiro, 2012). British American Tobacco for one bought off CN creative and launched their e-cigarette Vype in 2012. Lorillard on its part as the third largest cigarette manufacturing company in America bought of BlueCigs for a deal that was reported to be in the range of $135 million also in 2012 (Encyclopedia, 2013). In addition other tobacco and cigarette producing companies have also begun testing of e-cigarettes and are more likely to start production in the near future. All these shows that the industry‘s future is bright. This is as a result of the entry of these major companies with big financial might. They will be able to produce these cigarettes in large scale therefore enjoy economies of large scale. These economies will trickle down to the cost making the e-cigarettes cheaper to the consumer therefore leading to increased consumption and ultimately industry growth (Satran, 2013). In addition, such companies will be able to carry out massive advertising as opposed to the one sided internet approach that had been widely used by former companies.
On the downside of the entry of such firms is that the small firms are now more than ever more likely to close down leaving the market to be dominated by few companies. This is as a result of unfair competition as they cannot compete with the big firms cost wise as they will produce the same goods but at a cheaper price therefore tending to attract customers and leaving the small companies with little market leading to them closing down (Satran, 2013). On the flipside all is not rosy in the industry especially since the FDA announced that it was not quite sure of the side- effects of the e-cigarettes components together although it had approved them separately as safe. However, much hope is that approval will be granted and a green light given for them as safe. This is so since cigarettes are rendered safe and the same constituents in cigarettes are present in e cigs although less in quantity. In addition, a ban on advertising has been effected and a warning of its addictive nature of nicotine. This has been largely due to the increased number of teens and young people who have been found to be using the product bringing much criticism to their advertising strategy.
In conclusion the market is expected to grow rapidly and its sales volume expected to have hit $10 billion by the year 2017 (Satran, 2013). Mores stores are allocating more shelf space to e- cigarettes therefore spelling success for the industry in the near future. Some researchers are even going to the extent of stating that the e-cigarette industry will totally replace the traditional cigarettes in the next decade although it is just a matter of wait and see. All in all, the e-cigarette industry is an industry to look out for in the near future.
Portfolio Matrix Analysis
|Maintain market share
Maintain cash flow
|Keep investment on other cigarettes
Focus on e-cigarettes
Lobby FDA approval
Do not increase investment
Look for market niches
Etter, J. F. (2012). The Electronic Cigarette, an Alternative to Tobacco. Switzerland.
Encyclopedia of emerging industries. (2013). Detroit, Mich: Gale.
Pereiro, L.E. (2012). Valuation of Companies in emerging Markets: A Practical Approach. New York: John Wiley & Sons.
Satran, R. (2013). Money. Retrieved 2014, from the money blog: money.usnews.com