National E-Cigarette Standards Are Coming, and Many Industry Players May Disappear
For China’s e-cigarette industry, 2019 was destined to be an extraordinary year. From manufacturers to distributors and retail stores, the sector was set to face the biggest reshuffle in its history. On one hand, regulatory management through national e-c
2019 will be an extraordinary year for domestic e-cigarettes. From manufacturers to distributors and stores, the industry will face the largest reshuffle in history. On one hand, policies will regulate e-cigarette national standards, and the "E-commerce Law" will officially take effect on January 1, 2019, requiring all e-commerce practitioners to obtain relevant licenses and qualifications. On the other hand, market trends and e-cigarette models are quietly changing, and many people may be swept out before they even understand the changes, similar to the day Nokia was acquired by Microsoft when CEO Jorma Ollila famously said, "We did nothing wrong, but for some reason, we lost." After that, dozens of Nokia executives were moved to tears!
The Red Queen hypothesis describes a situation in "Through the Looking-Glass" where "you must run as fast as you can just to stay in place." In ancient terms, it means "to go against the current, if you do not advance, you will retreat." In today's increasingly fierce market competition, business will only become more challenging, and profits will continue to shrink. Merchants must continuously adapt to market changes and keep pace to avoid being eliminated.
At the Cheung Kong Graduate School of Business founded by Li Ka-shing, three core ideas are emphasized: "Understand the situation, choose the right path, and optimize methods." Understanding the situation means having a broad perspective to see trends. As the "I Ching" states, establishing virtue and business, small business owners handle everything personally; medium-sized business owners follow market trends; while large business owners seize opportunities from the prevailing trends. Choosing the right path refers to the business model and profit model; if the model is correct, it will yield twice the result with half the effort. In terms of e-cigarettes, the era of pure offline profits has passed, and the chaotic pricing model online has also basically disappeared. A new model is urgently needed for survival. Optimizing methods means improving products, management, costs, and promotions.
From 2010 to 2018, e-cigarette sales increased nearly 20 times, with over 35 million users. China produces over 90% of the world's e-cigarettes, yet domestic market consumption only reaches 6%, far less than in the US and EU markets. Nevertheless, the domestic e-cigarette market still exceeds 50 billion! In terms of consumer demographics, the e-cigarette consumer base is gradually shifting from recreational users to those seeking to quit smoking, closely related to the development and banning of IQOS and the rise of nicotine salt technology. Search index data shows that the user groups searching for e-cigarettes and those searching for quitting smoking have become highly overlapping, indicating that the future market will primarily focus on the quit-smoking and substitute market, with small quit-smoking devices becoming a major trend.
In the quit-smoking small device category, there are three mainstream types: disposable small devices, pod-based small devices, and refillable small devices. The design of small devices is primarily aimed at the largest novice user group. The e-liquid in the pods needs to match the small device, and testing the compatibility of one e-liquid flavor with the device's output power, resistance, oil absorption, and airflow requires hundreds of trials. An open refillable small device cannot adapt to most nicotine salt e-liquids on the market; even if it does, the taste and experience will be significantly compromised, making open refillable small devices more suited for experienced users, which does not align with the major trend of the quit-smoking market.
Secondly, from the perspective of currently mainstream small device products, whether domestically or internationally, market practice has proven that pod-based small devices dominate the market. For example, Juul's pod-based small devices have annual sales in the tens of millions, and while domestic sales are not as rapid, they have reached the million level.
Due to the unique characteristics and superior experience of pod-based small devices, they create a strong closed-loop repurchase consumption, prompting consumers to continuously purchase pods, thereby increasing customer loyalty and directly boosting store revenue and profits. From a marketing strategy perspective, merchants are also more inclined to recommend these simple and practical quit-smoking kits, fostering a prosperous market for pod-based small devices. After experiencing the painful lessons of domestic e-liquids, the custom nicotine salt e-liquids and custom e-liquids are essentially the same, just a change in name without real improvement. Therefore, after the decline of large cloud e-liquids, nicotine salt e-liquids have flourished again, but the low entry barrier poses a significant risk for the future.
In terms of market development, the domestic small device market will return to traditional channels. The reason traditional industries can endure is due to strict enforcement against market disruption, strict price control, preventing cross-selling, and ensuring the interests of all levels of operators. Without profit support, stores cannot provide good service and after-sales support, ultimately passing the consequences onto consumers. Without profit, there are no promotional and operational expenses, making it difficult for brands to grow, leading to inventory buildup and unsold products. The essence of business is profit, not sentiment; however, both a very large and very small profit margin are detrimental to brand and market development. A large profit margin can be unbearable for consumers and is not sustainable in the long run.
New small devices are constantly being introduced, seemingly returning to last year's large cloud era, with new boxes and atomizers appearing every few days. These products lack long-term planning and aim to capitalize on market trends for quick gains; creating a short-term hit product is not difficult, but such products are often short-lived. Short-lived products inevitably face issues in supply control, product quality, and pricing systems. Therefore, to maintain long-term brand development, the mindset of short-term hype must be abandoned. E-cigarettes have now entered a stable era, with national standards about to be introduced and the e-commerce law soon to be implemented. A small device needs to have a good brand, quality, price control, and capital to survive and thrive. Products with incorrect positioning, poor quality, and inadequate price control will inevitably fail. The product itself determines whether it can succeed, the model determines how far it can go, and capital determines how wide it can expand. Consequently, various capital will enter the e-cigarette industry, and brands lacking funds will increasingly feel pressure; a deposit system is the most effective way to eliminate chaotic pricing and cross-selling issues.
Currently, the e-cigarette market has low brand recognition, but as time progresses, new users will gradually increase their awareness of brands, leading to a reshuffle of traditional online and offline stores. The integration of online and offline models will be a major trend, with online directing traffic to offline and offline promoting online. By enhancing customer loyalty, clients can locate the nearest online or offline store for purchases, or directly contact the store for local delivery. This method of integrating online and offline greatly facilitates both types of stores, while also allowing end customers to easily purchase pods as consumables. The traditional model primarily focuses on online stores and offline specialty shops, and the convenience of end purchases is one of the biggest obstacles to brand development.
For brands to succeed, they should focus not on how to sell their products well, but on how to help distribution stores sell well. Spending significant resources on promoting products and directing traffic to official retail stores is akin to killing the goose that lays the golden eggs. Instead, finding ways to direct traffic to offline and online stores to help them sell well is the best strategy.
In summary, the future development model of the domestic e-cigarette market will undergo a complete transformation, and accurately grasping market trends and choosing the right model and methods will be crucial.
The Red Queen hypothesis describes a situation in "Through the Looking-Glass" where "you must run as fast as you can just to stay in place." In ancient terms, it means "to go against the current, if you do not advance, you will retreat." In today's increasingly fierce market competition, business will only become more challenging, and profits will continue to shrink. Merchants must continuously adapt to market changes and keep pace to avoid being eliminated.
At the Cheung Kong Graduate School of Business founded by Li Ka-shing, three core ideas are emphasized: "Understand the situation, choose the right path, and optimize methods." Understanding the situation means having a broad perspective to see trends. As the "I Ching" states, establishing virtue and business, small business owners handle everything personally; medium-sized business owners follow market trends; while large business owners seize opportunities from the prevailing trends. Choosing the right path refers to the business model and profit model; if the model is correct, it will yield twice the result with half the effort. In terms of e-cigarettes, the era of pure offline profits has passed, and the chaotic pricing model online has also basically disappeared. A new model is urgently needed for survival. Optimizing methods means improving products, management, costs, and promotions.
From 2010 to 2018, e-cigarette sales increased nearly 20 times, with over 35 million users. China produces over 90% of the world's e-cigarettes, yet domestic market consumption only reaches 6%, far less than in the US and EU markets. Nevertheless, the domestic e-cigarette market still exceeds 50 billion! In terms of consumer demographics, the e-cigarette consumer base is gradually shifting from recreational users to those seeking to quit smoking, closely related to the development and banning of IQOS and the rise of nicotine salt technology. Search index data shows that the user groups searching for e-cigarettes and those searching for quitting smoking have become highly overlapping, indicating that the future market will primarily focus on the quit-smoking and substitute market, with small quit-smoking devices becoming a major trend.
In the quit-smoking small device category, there are three mainstream types: disposable small devices, pod-based small devices, and refillable small devices. The design of small devices is primarily aimed at the largest novice user group. The e-liquid in the pods needs to match the small device, and testing the compatibility of one e-liquid flavor with the device's output power, resistance, oil absorption, and airflow requires hundreds of trials. An open refillable small device cannot adapt to most nicotine salt e-liquids on the market; even if it does, the taste and experience will be significantly compromised, making open refillable small devices more suited for experienced users, which does not align with the major trend of the quit-smoking market.Secondly, from the perspective of currently mainstream small device products, whether domestically or internationally, market practice has proven that pod-based small devices dominate the market. For example, Juul's pod-based small devices have annual sales in the tens of millions, and while domestic sales are not as rapid, they have reached the million level.
Due to the unique characteristics and superior experience of pod-based small devices, they create a strong closed-loop repurchase consumption, prompting consumers to continuously purchase pods, thereby increasing customer loyalty and directly boosting store revenue and profits. From a marketing strategy perspective, merchants are also more inclined to recommend these simple and practical quit-smoking kits, fostering a prosperous market for pod-based small devices. After experiencing the painful lessons of domestic e-liquids, the custom nicotine salt e-liquids and custom e-liquids are essentially the same, just a change in name without real improvement. Therefore, after the decline of large cloud e-liquids, nicotine salt e-liquids have flourished again, but the low entry barrier poses a significant risk for the future.
In terms of market development, the domestic small device market will return to traditional channels. The reason traditional industries can endure is due to strict enforcement against market disruption, strict price control, preventing cross-selling, and ensuring the interests of all levels of operators. Without profit support, stores cannot provide good service and after-sales support, ultimately passing the consequences onto consumers. Without profit, there are no promotional and operational expenses, making it difficult for brands to grow, leading to inventory buildup and unsold products. The essence of business is profit, not sentiment; however, both a very large and very small profit margin are detrimental to brand and market development. A large profit margin can be unbearable for consumers and is not sustainable in the long run.
New small devices are constantly being introduced, seemingly returning to last year's large cloud era, with new boxes and atomizers appearing every few days. These products lack long-term planning and aim to capitalize on market trends for quick gains; creating a short-term hit product is not difficult, but such products are often short-lived. Short-lived products inevitably face issues in supply control, product quality, and pricing systems. Therefore, to maintain long-term brand development, the mindset of short-term hype must be abandoned. E-cigarettes have now entered a stable era, with national standards about to be introduced and the e-commerce law soon to be implemented. A small device needs to have a good brand, quality, price control, and capital to survive and thrive. Products with incorrect positioning, poor quality, and inadequate price control will inevitably fail. The product itself determines whether it can succeed, the model determines how far it can go, and capital determines how wide it can expand. Consequently, various capital will enter the e-cigarette industry, and brands lacking funds will increasingly feel pressure; a deposit system is the most effective way to eliminate chaotic pricing and cross-selling issues.
Currently, the e-cigarette market has low brand recognition, but as time progresses, new users will gradually increase their awareness of brands, leading to a reshuffle of traditional online and offline stores. The integration of online and offline models will be a major trend, with online directing traffic to offline and offline promoting online. By enhancing customer loyalty, clients can locate the nearest online or offline store for purchases, or directly contact the store for local delivery. This method of integrating online and offline greatly facilitates both types of stores, while also allowing end customers to easily purchase pods as consumables. The traditional model primarily focuses on online stores and offline specialty shops, and the convenience of end purchases is one of the biggest obstacles to brand development.
For brands to succeed, they should focus not on how to sell their products well, but on how to help distribution stores sell well. Spending significant resources on promoting products and directing traffic to official retail stores is akin to killing the goose that lays the golden eggs. Instead, finding ways to direct traffic to offline and online stores to help them sell well is the best strategy.
In summary, the future development model of the domestic e-cigarette market will undergo a complete transformation, and accurately grasping market trends and choosing the right model and methods will be crucial.
