iQOS vs. iFuse: Which Does Better in Next-Generation Electronic Cigarette Products?

Electronic cigarettes have the potential to become the future of the tobacco industry. Although they have experienced a surge in popularity in a relatively short time, there are still some obstacles to overcome on the path of electronic cigarette trade. Some are from regulatory agencies, while others stem from the manufacturers themselves.

Currently, it appears that the trading trajectory of electronic cigarettes is beginning to show a downward trend.

Between 2012 and 2015, electronic cigarette sales quadrupled to $2 billion, and this year they are expected to double again to $4 billion. However, after years of triple-digit growth, electronic cigarette sales have started to decline. Earlier this year, sales dropped by about 3%, but new FDA regulations led to a 25% increase in sales over the past three months, as consumers stocked up before products were banned.

In addition to increasing regulation and social pressure, the lack of broader acceptance of electronic cigarettes can be traced back to the devices themselves. While reduced-risk products do not produce the same toxic chemicals as traditional cigarettes, they also do not provide users with the same experience as smoking.

Because electronic cigarettes heat nicotine-flavored e-liquid rather than burning tobacco, users take longer to achieve the nicotine hit compared to combustible products, and the taste is inferior. Electronic cigarettes lack the tobacco flavor that smokers are looking for, and many users ultimately choose to return to smoking after switching to electronic cigarettes.

Electronic cigarette manufacturers must rethink their devices to improve them and make electronic cigarettes produce a more palatable taste.

Philip Morris International (NYSE: PM) and British American Tobacco (NYSEMKT: BTI) are trying to do just that, having released competitive iQOS and iFuse devices, respectively. Both remain heated, non-combustion products, and while they share similarities with other electronic cigarettes, they enhance the user experience. The striking differences make them exciting alternatives to smoking.

Philip Morris's iQOS was first tested in major cities such as Switzerland, Italy, Russia, and Romania, and was launched nationwide in Japan earlier this year, where it received a significant response. By July, it had captured over 2% of the market, and this figure jumped to over 4% by the end of September.

Similar to traditional e-cigs, iQOS includes a rechargeable pen-like device and a short, cigarette-like product branded as Marlboro HeatSticks, which are inserted for use. The tobacco-filled units are heated enough to produce a tobacco-flavored, nicotine-infused vapor. HeatSticks contain tobacco, not just flavored liquid nicotine, making it closer to the experience of smoking a regular cigarette, but without secondhand smoke, odor, and toxic chemicals.

British American Tobacco (BAT) has taken a slightly different approach to achieve the same effect. Marketed as iFuse, it also uses the flavor of real tobacco, but instead of heating tobacco to produce vapor, it heats nicotine e-liquid into an inhalable vapor like a traditional electronic cigarette, but with a tobacco flavor.

It has also tested other reduced-risk products. Earlier this month, BAT announced it would begin testing a new device called "glo" next month, which is very similar to iQOS and Heat Sticks. To produce vapor, it heats tobacco in a device called Neostik, which is sold under BAT's Kent brand. However, BAT initially branded it as iFuse, which could potentially confuse customers. BAT also sells traditional electronic cigarettes, Vype, which heats flavored nicotine liquid.

All major tobacco companies are also developing similar devices. For example, Japan Tobacco (NASDAQOTH: JAPAF) has Ploom Tech, which heats tobacco-flavored e-liquid, while Reynolds American (NYSE: RAI) has put its previous products, Reynolds and Eclipse, on hold. However, your consumer marketing director would say that future products are challenging and must "stick with it because it is totally worth it"; when you are ready to abandon it, you may need to try again. Reynolds also sells the current best-selling traditional electronic cigarette, Vuse, which has nearly 36% market share.

As Philip Morris states, the future of cigarettes is "smokeless," which is somewhat ironic as tobacco companies become the leaders. Most notably, they still rely on tobacco to help us find our place.