Linxi enters the e-cigarette price war with a 99 yuan offering

The e-cigarette has been around for over a decade, but it has only recently seen a true explosion in the Chinese market. According to incomplete statistics, since the second half of 2018, nearly 20 e-cigarette brands have received funding, with total financing exceeding 1 billion yuan. Especially since 2019, brands like Fulu Flow, YOOZ, and LINX have emerged, leveraging the internet to reach a broader audience.

Moreover, the "e-cigarette" segment has gained public understanding, and perceptions of its demonization are gradually changing. Discussions and opinions regarding e-cigarette regulation are also ongoing, and competition is intensifying.

As consumer products, the current price range for e-cigarettes is still not low, typically between 200-300 yuan. Just a few days ago, the popular e-cigarette brand LINX launched its second-generation reversible mini cigarette, with a standard set of shots and two bullets priced at 99 yuan. This marks the first time a modified e-cigarette is priced under 100 yuan.

Compared to mainstream industry prices, LINX's pricing is significant, seemingly igniting a "price war" in the e-cigarette market. Is this motivation leading to the arrival of the e-cigarette era?

As the country with the largest number of smokers in the world, China has over 300 million smokers, while the U.S. has nearly 100 million. The total number of smokers worldwide is only 1 billion. However, the penetration rate of e-cigarette users in China is less than 1%, which is significantly different from that of U.S. e-cigarette users.

Additionally, in terms of market size, according to data from the Chinese e-cigarette industry, the global e-cigarette market value was 110 billion yuan in 2011, while the domestic market was only 4 billion yuan.

In the 2018 global e-cigarette sales market ranking, China ranked sixth with 580 million USD, compared to the first-place U.S. at 8.5 billion USD.

LINX founder Zhang Jinyuan estimates that the overall sales scale of the Chinese e-cigarette market in 2019 should be between 30 billion to 50 billion yuan.

He also revealed that the current sales of the domestic e-cigarette brand RELX have exceeded 100 million, with second-tier brands selling millions to tens of millions monthly. Even if RELX's annual sales are calculated at 3 billion yuan, its overall market share is only 10%.

In mature markets like the U.S., single-head e-cigarette brand Juul has captured over 70% of the market share and has shown good results.

From the above data, it is evident that compared to Europe and America, China's e-cigarette market is still in its infancy. Zhang Jinyuan describes the Chinese e-cigarette market as having a "super strong" situation with poor market concentration, which is quite fitting.

In terms of investment, e-cigarette investments and financing were mainly concentrated in 2018 and 2019. This also indicates that the domestic e-cigarette market is currently in a stage of sampling, with a clear windfall effect.

In this context, we will take a look at LINX's pricing and gain a new understanding of it. In the current immature market, the overall price of e-cigarette products is still high, with a significant sunk cost in consumer products. We can compare this to traditional tobacco prices, where 200-300 yuan can already buy a good cigarette.

However, not all brands are willing to try this, as for consumer products, this not only reflects the brand's self-selected product pricing strategy but also showcases the strength of the brand's supply chain.

In the early market, there were many OEM products. At this time, the supply chain was in a favorable position, and the supply chain costs for e-cigarette companies were rising. If equal dialogue with the supply chain can be achieved, costs can be controlled in a more reasonable atmosphere, making price reductions a reality.

According to industry sources, the current price components in the market are almost identical, and product appearances are also highly similar.

Zhang Jinyuan revealed that he has reached a strategic share swap agreement with the supply chain, achieving exclusive cooperation in the e-cigarette industry. This is a prerequisite for achieving price reductions.

It is understood that the supply chain companies have served many companies such as Apple, Huawei, LeEco, and Xiaomi, and have laid out the entire e-cigarette industry chain, possessing complete supply chain manufacturers for e-liquid, molds, and industrial design.

Moreover, Zhang Jinyuan has his own views on the market. He said that although e-cigarettes are booming, they are still a new thing. Users need a lower acceptance threshold, and the cost of user training is still too high.

The difference between e-cigarettes and 3C products is that they have a higher consumption frequency, which requires all products and the entire market to be set within a reasonable price range.

Zhang Jinyuan stated that each brand has its own pricing strategy. He does not believe that LINX is in a "price war" but rather that there is an objective demand from users for cost-effectiveness. Exploration is just a matter of time, and "LINX is used to judge whether it has an advantage in opening the first photo in this situation."

He does not believe that e-cigarettes will enter an oligopoly era, but this price reduction will certainly affect other manufacturers, and market prices will also decrease, but the extent remains unpredictable.

In fact, besides LINX, another e-cigarette brand has begun to explore the sluggish market. On May 21, Beijing Mogu Technology launched a new e-cigarette brand, Xike TAKI, with a price drop to 121 yuan for four pods, attracting considerable attention.

Zhang Jinyuan also revealed that as of 9:00 AM today, the pre-sale of LINX's new 99 yuan product has exceeded 6,000 sets, equivalent to over 600,000 sales, which makes him very satisfied. Tonight at 7 PM, the product will be fully sold on JD, Tmall, and other platforms, and the data volume should increase.

The more you understand the e-cigarette market, the more you will find that e-cigarettes are a very standard consumer product model. Product price/performance and offline channels are important for brands.

Some industry insiders say that the domestic e-cigarette market has shifted from a relatively light Internet model in the past to a channel operation model for some consumer products. Unlike the Internet or media, how to expand, maintain, and develop channels is a very important model.

From the perspective of the mature market in the U.S., the current e-cigarettes have adopted a combination of online e-commerce and offline retail.

However, the current domestic market is still dominated by online e-commerce channels, and many brands' Internet models remain relatively light.

It is understood that in the e-cigarette market, the current self-operated gross profit margin is about 70%, while the channel gross profit margin is about 35%. The prospects for the offline market are very promising.

However, competition among certain brands offline has already begun. Zhang Jinyuan pointed out that LINX has started selling in 3,800 bars and KTVs nationwide and has promoted over 1,000 physical stores in Shanghai. In terms of sales, offline will account for more than half.

In the offline market, convenience stores, KTVs, bars, and internet cafes will become key areas of competition in the near future.

The regulation of e-cigarettes in China is relatively vague, which gives the e-cigarette market development space. Especially for vaporized e-cigarettes, domestic brands are mostly of this type, and the new media communication environment is relatively relaxed.

In the new media environment, the demonization of e-cigarettes is gradually disappearing, and the situation of not discussing the harms of nicotine is also changing. Users' understanding of e-cigarettes is becoming increasingly rational, which is beneficial for the development of the domestic e-cigarette market.

The difference from the strict regulation of heated non-combustion e-cigarettes lies in the fact that vaporized e-cigarettes have more product possibilities.

Currently, many brands have launched nicotine-free e-cigarette products, which are more like a new form of consumer goods.

Zhang Jinyuan pointed out that the brand concept of LINX is "vaporizing everything," and he does not see LINX as merely an e-cigarette brand; nicotine is not the most important part of the product.

"We hope to provide new ways for the public to gain more happiness beyond the traditional mainstream consumption of eating and drinking," Zhang Jinyuan said. The goal of LINX is to vaporize everything.

Vaporized coffee and vaporized watermelon may seem like a very interesting idea. However, this product still faces certain doubts during promotion, as people traditionally associate vaporization with smoking. Whether this vaporized form of the product will guide young people in a certain way still needs investigation and research verification.