Philip Morris International to Launch the New iQOS 3 to Further Grow Market Share in Japan and South
Philip Morris International will launch the new-generation iQOS, a heated tobacco device. This includes the upgraded iQOS 3 Multi, which can be used for 10 consecutive tobacco sticks. The standard iQOS 3 is more compact than the previous generation, and t
Philip Morris International will launch the new-generation iQOS, a heat-not-burn product. Among the new releases is an upgraded product, the iQOS 3 Multi, which can be used for 10 consecutive tobacco sticks.
The standard iQOS 3 is more compact than the previous generation, and the holder is inserted and removed from the side rather than from the top of the case. Philip Morris International said these changes were made based on consumer feedback.
With previous iQOS models, the holder needed to be placed back into the charger after each tobacco stick for recharging. The new iQOS 3 Multi places the battery directly into the holder that heats the tobacco. However, the holder itself is also larger.
The iQOS 3 Multi
Philip Morris International CEO Andre Calantzopoulos said: “You need to improve products based on consumer feedback and the insights you gather.” He said the main goal of launching the new product is to get more smokers in Japan and around the world to switch from conventional cigarettes to iQOS.
The continuous-use design is intended to compete with products such as British American Tobacco’s GLO and KT&G’s LIL, both of which emphasize the ability to be used continuously.
In addition, Philip Morris International has recently launched the relatively lower-priced HEETS tobacco sticks. Previously, only the more expensive Marlboro-branded tobacco sticks were available for use with iQOS devices. The introduction of tobacco sticks at different price points may be related to disappointing tobacco stick shipment volumes in the previous quarter.
In the third quarter of fiscal 2018, shipments of heated tobacco sticks reached 8.7 billion units, down by 1.1 billion. In its earnings report, Philip Morris International said this was mainly due to Japanese distributors misjudging inventory and product demand, and it did not mention the impact on retail sales. This quarter, these “reduced-risk products” contributed US$823 million in revenue (tobacco sticks + devices), accounting for 11% of total revenue, but down 14.2% year over year. Although shipment volume declined this quarter, Philip Morris International still forecasts that full-year retail sales of heated tobacco sticks will double year over year to 41 to 42 billion units.
In both Japan and South Korea, iQOS faces the problem of slowing growth after rapidly capturing market share. In Japan, it holds a 15.5% share of the overall tobacco market, slightly down from 15.8% in the previous quarter. A year earlier, its market share was 11.9%. In South Korea, its share of the tobacco market is 7.4%, only slightly up from 7.3% in the previous quarter, though this is a major increase from 2.5% a year earlier.
Competition is becoming more intense. In addition to GLO and LIL, Japan Tobacco, which traditionally held a strong position in the Japanese cigarette market, has also launched the vaping device Ploom. However, Ploom works by atomizing e-liquid containing nicotine and other flavorings to create vapor, while iQOS is a heated tobacco product.
In April, Philip Morris International said growth in the Japanese market had “hit a bottleneck”: it is more difficult to convert older traditional smokers to iQOS than younger smokers. But because Japan has strong tobacco control policies and a relatively mature market, Philip Morris International has consistently treated it as a testing ground for new products, in addition to making it the first launch market for iQOS in 2014. This time, the new products will debut first in Japan and South Korea, before entering the European market in mid-November.
iQOS is already sold in 43 countries worldwide. Philip Morris International claims that as of September 2018, 5.9 million people globally had switched from conventional cigarettes to iQOS. According to market research firm Euromonitor, the global market for heated tobacco products was worth US$5.82 billion last year, and it forecasts that the category will reach US$18.66 billion by 2022.
However, iQOS has not yet entered the world’s largest vaping market—the United States. Philip Morris International is still waiting for approval from the U.S. Food and Drug Administration. A similar situation exists in China, where the National Tobacco Standardization Technical Committee is formulating vaping regulations, which have already entered the review stage, under the supervision of the State Tobacco Monopoly Administration.
Although the national standards have not yet been finalized, the trend is toward stricter regulation. On August 30, the State Administration for Market Regulation and the State Tobacco Monopoly Administration jointly issued a notice prohibiting the sale of e-cigarettes to minors. In August 2018, two Chinese students studying in Japan were arrested by public security authorities in Shaanxi for selling iQOS online in China, in a case involving nearly RMB 10 million.
The standard iQOS 3 is more compact than the previous generation, and the holder is inserted and removed from the side rather than from the top of the case. Philip Morris International said these changes were made based on consumer feedback.
With previous iQOS models, the holder needed to be placed back into the charger after each tobacco stick for recharging. The new iQOS 3 Multi places the battery directly into the holder that heats the tobacco. However, the holder itself is also larger.
The iQOS 3 MultiPhilip Morris International CEO Andre Calantzopoulos said: “You need to improve products based on consumer feedback and the insights you gather.” He said the main goal of launching the new product is to get more smokers in Japan and around the world to switch from conventional cigarettes to iQOS.
The continuous-use design is intended to compete with products such as British American Tobacco’s GLO and KT&G’s LIL, both of which emphasize the ability to be used continuously.
In addition, Philip Morris International has recently launched the relatively lower-priced HEETS tobacco sticks. Previously, only the more expensive Marlboro-branded tobacco sticks were available for use with iQOS devices. The introduction of tobacco sticks at different price points may be related to disappointing tobacco stick shipment volumes in the previous quarter.
In the third quarter of fiscal 2018, shipments of heated tobacco sticks reached 8.7 billion units, down by 1.1 billion. In its earnings report, Philip Morris International said this was mainly due to Japanese distributors misjudging inventory and product demand, and it did not mention the impact on retail sales. This quarter, these “reduced-risk products” contributed US$823 million in revenue (tobacco sticks + devices), accounting for 11% of total revenue, but down 14.2% year over year. Although shipment volume declined this quarter, Philip Morris International still forecasts that full-year retail sales of heated tobacco sticks will double year over year to 41 to 42 billion units.
In both Japan and South Korea, iQOS faces the problem of slowing growth after rapidly capturing market share. In Japan, it holds a 15.5% share of the overall tobacco market, slightly down from 15.8% in the previous quarter. A year earlier, its market share was 11.9%. In South Korea, its share of the tobacco market is 7.4%, only slightly up from 7.3% in the previous quarter, though this is a major increase from 2.5% a year earlier.
Competition is becoming more intense. In addition to GLO and LIL, Japan Tobacco, which traditionally held a strong position in the Japanese cigarette market, has also launched the vaping device Ploom. However, Ploom works by atomizing e-liquid containing nicotine and other flavorings to create vapor, while iQOS is a heated tobacco product.
In April, Philip Morris International said growth in the Japanese market had “hit a bottleneck”: it is more difficult to convert older traditional smokers to iQOS than younger smokers. But because Japan has strong tobacco control policies and a relatively mature market, Philip Morris International has consistently treated it as a testing ground for new products, in addition to making it the first launch market for iQOS in 2014. This time, the new products will debut first in Japan and South Korea, before entering the European market in mid-November.
iQOS is already sold in 43 countries worldwide. Philip Morris International claims that as of September 2018, 5.9 million people globally had switched from conventional cigarettes to iQOS. According to market research firm Euromonitor, the global market for heated tobacco products was worth US$5.82 billion last year, and it forecasts that the category will reach US$18.66 billion by 2022.
However, iQOS has not yet entered the world’s largest vaping market—the United States. Philip Morris International is still waiting for approval from the U.S. Food and Drug Administration. A similar situation exists in China, where the National Tobacco Standardization Technical Committee is formulating vaping regulations, which have already entered the review stage, under the supervision of the State Tobacco Monopoly Administration.
Although the national standards have not yet been finalized, the trend is toward stricter regulation. On August 30, the State Administration for Market Regulation and the State Tobacco Monopoly Administration jointly issued a notice prohibiting the sale of e-cigarettes to minors. In August 2018, two Chinese students studying in Japan were arrested by public security authorities in Shaanxi for selling iQOS online in China, in a case involving nearly RMB 10 million.
