Tobacco Industry: Big Tobacco vs Juul Amanda Rushton Jesse Prent Jonathan Faerman Winnie Hu

Traditional Cigarettes Vaping Products Hybrid Products Three primary product categories in tobacco industry Traditional Cigarettes Vaping Products Hybrid Products Tobacco has developed substitute products to appeal to smokers looking to switch/quit

Tobacco Industry has faced a change in trends for the past 40 years Health Consciousness Perception Convenience R&D on hybrid products: IQOS Mesh in development Phillip Morris Second movers: Released hybrid and vapes British American Tobacco Fast Followers: Hybrid products & Vape in the US Japan Tobacco Tobacco Industry reaction: Traditional companies have reacted slowly and waited for market signals

Marketing Society Consumers Market and regulations are changing rapidly Marketing Society Consumers Direct communication with customers is no longer possible Tobacco is becoming against new lifestyles and smoking is no longer free Health conscious consumers are looking for alternatives Traditional companies have not adapted to the new environment

JUUL’s success threatens Big Tobacco’s ability to compete in vaping market Juul: 80% of market share Technology Nicotine salt formulation Discrete Size Flavors “Clean” Marketing Social Media Style Not as much regulation “Meme” culture Inconclusive medical studies Others Juul Declining tobacco sales means long-term success in vaping or further diversification is necessary

How Big Tobacco has reacted to JUUL R&D Product innovations that can compete with JUUL Acquisition Altria purchased 30% stake in JUUL Altria investing in cannabis industry Marketing Leveraging marketing budget and distribution capabilities  convenience and awareness

British American Tobacco Tobacco companies must adapt to changing perceptions of tobacco and vaping Approach Strategic Phillip Morris (+ Altria) Managerial Japan Tobacco Inc. British American Tobacco Compliance Risky Red Zone Defensive Issue Maturity (in public realm) Latent Emerging Consolidating Institutionalized Focus on

British American Tobacco Tobacco companies must adapt to changing perceptions of tobacco and vaping Approach Strategic Phillip Morris (+ Altria) Managerial Japan Tobacco Inc. British American Tobacco Compliance Risky Red Zone Defensive Issue Maturity (in public realm) Latent Emerging Consolidating Institutionalized

British American Tobacco Tobacco companies must adapt to changing perceptions of tobacco and vaping Approach Strategic Phillip Morris (+ Altria) Managerial Japan Tobacco Inc. British American Tobacco Compliance Risky Red Zone Defensive Issue Maturity (in public realm) Latent Emerging Consolidating Institutionalized Focus on developing ethical leadership that can sustain organization beyond tobacco

(Between 1 and 2 packages daily) Why Tobacco companies should care? Because there is a lot of money involved Tobacco Smoker Size of the market: 1 in 10 adults smoke 2M Yearly Spend LTV (40 Years) Margin (30%) $5,000 $200K $260K (Between 1 and 2 packages daily) $120Bn Adults are rapidly switching to Vape and is already penetrated on younger population

How Big Tobacco initially reacted to the disruption Slow product innovation Increased R&D spend, acquisitions Imperfect products pushed to market Product Innovation Exploited lack of regulations No ethical use lobbying power Regulatory Environment Lifestyle marketing Unsubstantiated health claims Marketing

Tobacco industry needs to reinvent itself Tobacco alternatives meeting the market demands of present and future consumers Market Strategic Focus Product Innovation Boring product Lack of innovation in tobacco industry has stayed the same for centuries Adaptation Long history of success for tobacco without need for change Market Next generation of consumers looking for exciting and healthier product Tobacco industry needs to reinvent itself

Invest in product development Criteria Feasibility Profitability Sustainable Growth Enter New Industry Innovate Product Ethical Leadership

Public backlash for hypocrisy Risks can be mitigated! Risks Mitigation Contingency Public backlash for hypocrisy Invest marketing and rebranding campaign Spin off Regulatory limitations Invest in lobbying Develop additional products Expensive to innovate product Invest in more R&D Acquire smaller player

Big Tobacco should have taken an ethical leadership approach Technology to improve safety: app-based age verification Partnerships with independent labs for health studies Medical applications: aerosol administration of medicine Product Innovation Work with governments to shape regulations Collaborate with other regulating bodies to explore medical applications Regulatory Environment No lifestyle marketing Use substantiated claims only Increase transparency to improve public relations Marketing