Competing in Japan’s new tobacco market: Can British American Tobacco’s low-price strategy work?

Competing in Japan’s new tobacco market: Can British American Tobacco’s low-price strategy work?

On December 18, 2023, in winter in Tokyo, the zero-nicotine e-cigarette product "VUSE Go 700" was put on the shelves in about 2,300 FamilyMart convenience stores. The flavors on sale include "VUSE Go 700 Mint Ice" ( Eight types including Mint Ice), and "VUSE Go 700 Mango Ice".

In addition to taste, what brings a bigger surprise to local consumers is the price. Underneath the colorful products, the price tag shows only "980 yen (approximately US$6.78)".

VUSE Go 700 was described by local media as the “ace” in the hands of British American Tobacco Japan (BAT Japan). Since its launch, it has received a good response.

Seeking breakthroughs in the Japanese and Korean markets

For a long time, the prices of British American Tobacco's products that can be found on the market in Europe, the United States, the Middle East and Southeast Asia, including Malaysia, have often been higher than the prices of similar competing products from friends and manufacturers, and they have rarely been loosened. Taking the Middle East market as an example, in November, 2FIRSTS (Two Supremes) discovered that it had launched large-volume disposable products "VUSE GO 5000" and "VUSE GO 6000" in this market. The official price of VUSE GO 5000 with a capacity of 5,000 is set at 80 dirhams (approximately US$20.78). The 5,000-port product ELFBAR BC 5000 sold by ELFBAR, the local benchmark, is priced at 38 dirhams (approximately US$10.35), which is less than half of that.

According to BAT's 2022 H1 financial report, its new VUSE has a market share of 34.7% in the top 5 British American Tobacco markets (the United States, the United Kingdom, France, Germany, and Canada). Such a strong performance does give British American Tobacco no reason to make any concessions on existing prices.

However, in the Far East, the situation changed. BAT Japan changed its parent company's traditional reserved style and tried to enter the market divided by Japan Tobacco and Philip Morris' IQOS with a people-friendly attitude. In terms of pricing, compared with the RELX MagicGo launched by RELX International Japan for 1,320 yen, with similar zero-denier configuration and the same number of 700 puffs, British American Tobacco's VUSE Go 700 is 1/4 cheaper.

However, British American Tobacco continues to test the bottom line of prices. After being put on the shelves of chain convenience stores, British American Tobacco Japan's next step is to carry out various marketing activities. Coinciding with the traditional "New Year Sale" in Japan's fast-moving consumer goods market, VUSE looked like a seasoned player. During the promotion period, the price of "VUSEGo700", which was already as low as 980 yen, was significantly reduced by 196 yen, you can get it for just 784 yen (approximately $5.45 USD). The promotion lasts until January 7th.

In addition to e-cigarettes, the company is also making frequent moves in the field of heat-not-burn (HNB). In December 2023, British American Tobacco Japan released the new top-of-the-line Glo Hyper Pro product of its HNB line Glo brand. This product is equipped with a screen that displays the status of the device, and a "flavor selector button" that can be turned to change the heating mode. In Japan, the guide price for Glo hyper pro is 3,980 yen (approximately $27.54). The price of Philip Morris International's IQOS flagship model with similar specifications is astonishingly close to 10,000 yen (approximately US$69.21). In comparison, the price of Glo is not unfriendly.

Such a "humble" attitude and high-quality and affordable products have made Glo popular in the market. Since its launch, the market price of Glo Hyper Pro has been rising, and the price on the trading platform is higher than the company's pricing, reaching approximately US$41.39.

Not only in Japan, but also in neighboring South Korea, similar things are happening. Earlier than VUSE Go landed in Japan, British American Tobacco Rothmans announced on July 24, 2023 that it would bring the "VUSE" line to Asia for the first time. The VUSE Go 800 brought this time will be released in limited quantities in the Seoul metropolitan area, South Korea, and is planned to be sold in more than 8,500 places such as convenience stores and tobacco shops in Seoul. It will be expanded nationwide in the future, and the price is an affordable 10,000 won ( 7.6 USD).

Double attack

Even though e-cigarettes were originally invented to reduce the use of traditional cigarettes, big tobacco companies have also included the e-cigarette business in their territory through acquisitions, mergers and acquisitions or setting up their own brand lines, becoming a key driver of their growth in the new era. . The competition between the three giants has long since moved from traditional tobacco to the new cigarette battlefield.

According to incomplete statistics, in the UK in 2021 alone, British American Tobacco and Philip Morris sued each other over 6 patents. In July 2021, the British High Court revoked Philip Morris's four HNB technology patents, and Philip Morris also successfully invalidated two British American Tobacco patents in March 2021; in Germany, the two parties also used patents in five lawsuits against each other. The other party was sued to court for infringement, including HNB technology.

The resistance spread to the East Asian market, Japan. At this time, British American Tobacco, which had always been "fighting" with Philip Morris, suddenly lowered its stance. The reason is not difficult to understand: Philip Morris has too complete an advantage in this country's new cigarette market.

Since 2013, Japan has strictly implemented the ban on smoking in public places, and the scope of the ban has been continuously expanded. Under various anti-smoking measures, the overall sales of traditional tobacco in Japan have continued to shrink, reaching a minimum of US$32.415 billion in 2015; while Japan's drug management regulations strictly restrict the sale and import of e-liquid, atomized e-cigarettes that use e-liquid have therefore It has been slow to gain momentum.

It was at this time that Philip Morris' IQOS began to conquer the sluggish Japanese tobacco market. In 2014, the first generation of IQOS came out; two years later, in 2016, according to a spokesman for Philip Morris Group, as of the second quarter of that year, IQOS had captured 2.2% of the Japanese market; with the group’s launch of the product priced at 9,980 yen (approximately US dollars) "HeatSticks" body and supporting cigarette cartridges (currently priced at 460 yen per box, equivalent to ordinary cigarettes), by the end of April that year, IQOS's market share had climbed to 2.7%. By 2022, this number has risen to about 50%, and Philip Morris International's full line of products has a market share of 37.6% in Japan.

Having "attacked" its base camp, Japan Tobacco joined the battle without hesitation. Japan Tobacco Company, which has accounted for 60% of Japan's domestic market share for a long time, also launched its own similar product Ploom TECH during the same period to compete. To this day, Ploom still releases new products and extends product lines at its own pace. Ploom The share cannot be compared with IQOS.

British American Tobacco is sandwiched in the middle. On one side is Philip Morris, which has already completed its layout with IQOS, and on the other side is the host Japan Tobacco, which has a favorable geographical location and an absolute advantage in the share of traditional cigarettes. It holds Glo with a market share of 4.5%. Keeping a low profile and seeking stability seems to be a reasonable choice. .

or a promising future

Not only British American Tobacco, it seems that all companies have abandoned their base camp steps in Japan and used some novel tricks to squeeze into this originally relatively "self-consistent" market and get a share of the pie.

Take Coca-Cola for example. The Coca-Cola Company entered the Japanese market in 1957. Overall, Japanese people don't drink Coke like the average American. Therefore, Coca-Cola Japan developed "Shuangjiantea" and "Aquarius"; later, it also tentatively launched "Lemon Hall" (an alcoholic drink mixed with soju or vodka and carbonated water), both of which achieved outstanding results.

These "domesticated" products have achieved great success locally and have become part of a larger marketing proposition: how far brands going overseas should deviate from their original strategies when tailoring their national strategies.

This is a question with no clear answer. Perhaps Philip Morris did not deliberately "localize" the product in Japanese style when it first developed IQOS, but apart from the institutional fact that Japanese atomized e-cigarettes cannot use e-liquid containing nicotine, there are indeed social factors unique to this country. What drives its success is that it does not require ignition, produces no ash or smoke, and the smell of exhaled gas is lighter. During the review, many analysts believed that these features of IQOS, while meeting the nicotine needs of Japanese smokers, It also takes care of the mentality of trying not to cause trouble to the people around you. This has helped the product become accepted by local consumers.

RELX Japan is another example. RELX is not careless when it comes to prying this market away from the disposable e-cigarette market. In addition to meeting the "zero denier" standard for e-liquids, it has also actively started recycling activities in the community. After RELX's zero-ni disposable product RELX MagicGo landed in Japan in September 2023, RELX Japan launched the world's first disposable product recycling program "RELX RECYCLE PROGRAM" in December. In the first phase from December 28th to 30th, RELX Japan will accept used RELX products for recycling at a special booth at the food event "Haruyoshibashi Yokocho" held at the Haruyoshibashi Bridge Plaza in Nakasu, Fukuoka City , and permanent recycling bins will be introduced in the future. After consumers recycle 10 used RELX products, they will receive a RELX MagicGo as a gift.

In Japan, garbage recycling is a community-based approach and is regarded as part of civil society's social responsibilities. Disposable e-cigarettes, which have caused several fires in garbage disposals, are required to be discarded as "small household appliances" in many places in Japan: they are relatively difficult to dispose of, which also makes the product deviate from the original intention of "a convenient and safe way to ingest nicotine" . RELX Japan provides recycling solutions for its disposable cigarettes. On the one hand, it fulfills corporate ESG social responsibilities, and on the other hand, it also facilitates consumers and reduces their psychological pressure when using them. This kind of effort to integrate into the local community is part of the operating costs of overseas companies.

British American Tobacco is also stepping up its efforts in this regard. According to BAT JAPAN, the product packaging of glo pro slim sold in Japan in 2021 uses recycled paper, reducing paper materials and protective films, and no longer comes with an AC adapter to reduce waste; while the glo hyper launched in 2022 Starting from X2, we will further promote the reduction of plastic packaging films and achieve a more complete plastic-free policy. In 2022, BAT Japan also visited Japan's largest refugee support organization in Kamakura on "World Refugee Day" on June 20, and held an exchange meeting with the refugees.

Consumer portraits that are clearly different from the mainstream of the West, unshakable local corporate culture, unwritten social rules, and a high-income population of 100 million in high-density cities - all make the overseas companies that come here feel jealous and constrained. Big Tobacco is no exception.

In the past December 2023, British American Tobacco announced that the value of cigarette brands such as Newport, Camel, Pall Mall and Natural American Spirit on the British American Tobacco balance sheet would be adjusted to a limited period of 30 years, resulting in a reduction of US$31.5 billion. value.

This is the first time Big Tobacco has taken a partial write-down on the value of its traditional cigarette business in an important market like the United States. BAT attributes this to economic pressures, inflation as consumers are switching to cheaper brands, as well as the proliferation of black/grey disposable e-cigarettes, an increasingly stringent regulatory environment and health awareness, which has led to a decline in cigarette sales in some markets. Decline in sales.

The traditional tobacco business faces challenges in the evolution of the industry. It is obvious that the continued impairment of traditional tobacco in traditional advantageous markets has arrived. For British American Tobacco, if it wants to make steady progress, using new tobacco in the East Asian market that has not yet gained the upper hand as a growth point may be one of the inevitable directions in the future.

Due to the existence of drug management regulations, other than HNB, only Lingni e-cigarette products can enter the Japanese market. But even so, the market's feedback is still active. For the whole year of 2022, Japan's national HNB market sales reached 1.4 trillion yen (approximately US$9.7 billion), the largest in the world; even the top five in some local "home appliances hot lists" are often replaced by new models. Tobacco equipment "dominates the list".

JTI said in an earlier interview with 2FIRSTS that the company is fully aware of the rapid growth of the disposable e-cigarette market, but it has not yet invested resources in competing for the sales of this product. Instead, it is focusing more on new generation HNB products (such as With 2, Sales in convenience stores and tobacco shops in Japan starting September 5, 2023) and the development of nicotine pouches.

Perhaps because under the tightening policy, the entrance of disposable products in Japan is always in a narrow state, so JTI can maintain an unhurried "master posture" and start the potential competition for the disposable market in Japan in the future. Don’t grab the gun and don’t sneak away from the front line; and BAT, which is using VUSE as a pawn and entering East Asia with a low profile, will explode at some point in the future?
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