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The E-Cigarette Industry
in China
By Roger Luo
Operation Director of CECMOL
1. E-cigarette Industry Association
2. Held the first and biggest E-cigarette Forum in China.
3. Organized the first Vapor Expo in China
4. World No-smoking Day: Press Conference
5. Our next Vapor Expo: October 20-23 2015, Shenzhen
Introduction of CECMOL
Purpose: To promote tobacco harm reduction, improve people’s life quality, and build a smoke-free society.
The 2rd CECMOL China International Vapor Expo
October 20-23 2015
The 3rd CECMOL China E-cig Summit Forum
April 10-11, 2016
Shenzhen Convention and Exhibition Center
Contents
1. Market Environment of E-cigarette in China
2. Market Capacity of E-cigarette in China
3. Consumer Behavior of E-cigarette Market in China
4. Consumer Preference of E-cigarette in China
5. Historical Sales Data of E-cigarette in China
6. Suggestions on Future Development of E-cigarette Industry
In 2003, E-cigarette was invented; in 2004, patent was filed.In 2005, E-cigarette was introduced to Europe by the British.In 2007, E-cigarette entered the US market.
With the reputation of “tobacco alternative” and “smoking cessation product”, E-cigarette attracts the attention of global smokers. Statistics show that in 2011 in Japan and the USA the tobacco sales dropped by 10.8% and 2.8% respectively,
while E-cigarette sales had significant increase. Therefore, when E-cigarette is noticed by tobacco consumers, the market starts transforming and developing.
On the National Tobacco Industry Conference this year, Mr. Ling pointed out that “We should grasp the international tobacco market trends, attach great importance to the research and development of new tobacco products, such as heat-not-burn cigarette, E-cigarette, Snus etc, and take it as the major project for the sustainable development of the industry. The China Tobacco has set up a leading team to work on the planning, designing and major projects of new tobacco products.”
Mr. Ling, the leader of China Tobacco, has attached importance to domestic market of E-cigarette in China.
With such development trend,
what’s the policy
environment?
World Health Organization strengthens supervisionSince 2008, WHO Framework Convention on Tobacco Control (FCTC) has gradually brought E-cigarette and other tobacco alternatives into supervision.
In 2010, according to the 4th session of the Conference of the Parties to the WHO FCTC, WHO published a report: Control and Prevention of Smokeless Tobacco Products and Electronic Cigarette.
On the 5th session of the Conference of the Parties to the WHO FCTC, WHO confirmed regulations on prevention and control of smokeless tobacco products, electronic cigarettes and nicotine alternatives; had health hazard tests on new nicotine alternatives and submitted the results to the 6th session in 2014 for further discussion.
Regulations in Chinaa. China Tobacco regards the contents of E-cigarette as high purity
nicotine extracted from tobacco, so it suggests
State Administration of Work Safety be responsible for the
regulations, according to Hazardous Chemicals Control
Ordinance.
b. State Administration of Work Safety thinks that it’s only
responsible for the safety of production and transportation of
hazardous chemicals, but it’s other regulator’s responsibility for
the possible hazard from consuming hazardous chemicals.
However, there’s no legal restrictions on consuming nicotine at
present in China.
How to analyze the policies?
Legislation Comes FirstTobacco Monopoly Law came into effect in 1991.It’s amended in 2009, but it’s not binding for E-cigarettes.
There should be at least 5 conditions for legislation:1. WHO must confirm whether the smoking conditions of traditional cigarette apply to E-cigarette; 2. WHO must confirm whether E-cigarette is harmful to human health;3. Some countries have legislations on E-cigarette, which can be used as reference in China;4. According to the feedback from domestic market, E-cigarette is growing continuously and exponentially in China.5. Some e-cigarette brands have been involved in the competition of global tobacco market.
The Twelfth Five-year Plan of TobaccoIn the 12th Five-year Plan (2011-2015) made by China Tobacco, the core strategic target is “upper level of tobacco”, and there’s no planning or goal about E-cigarette, which is one of the reasons why it’s not regulated at present.
After the change in leadership of China Tobacco in 2014, the new Leader Mr. Ling’s comments means strategic planning for E-cigarette. However, at the end of the 12th Five-year plan, there’s little possibility of setting clear regulations for E-cigarette. Thus in the near future there will still be lack of regulations.
The 13th Five-year Plan will come to a conclusion(2016-2020)
Two hot phrases before the 13th Five-year Plan:1. New Normal: the new normal of the market segment of traditional cigarette, and the new normal of technological innovation.2. Three Major Issues: a. How to gain bonus from reforming? To adhere to the monopoly system of tobacco. b. How to reach the potential of development? To focus on the new development of global market. c. What is our goal? To aim at reaching global prominence and catching up with the Top 3 multinational brands.
When will E-cigarette be regulated in China?
Analysts conservatively estimate that in 2 years
(2017) the policy will be gradually clear;
at the end of the 13th Five-year Plan, there will be
clear regulations.
Contents
1. Market Environment of E-cigarette in China
2. Market Capacity of E-cigarette in China
3. Consumer Behavior of E-cigarette Market in China
4. Consumer Preference of E-cigarette in China
5. Historical Sales Data of E-cigarette in China
6. Suggestions on Future Development of E-cigarette Industry
The E-cigarette Consumption Rate in major cities of China
The percentage of E-cig consumption in the past half a year (N=2038)
Source: CATI
According to the statistics of the 5 major cities, the E-cigarette consumption rate is 3.4%, among which the rate in Beijing is the highest, followed by Shanghai and Guangzhou;
the rate in Xi’an is close to average, while Harbin’s rate is only 1.7%, much lower than average.
E-commerce (online) Sales
• Taobao.com: 1575 online stores. A level stores: 59; B level: 565; C level: 683.
• Tmall.com: 71 online stores. Mostly are flagship stores and self-owned domestic brands; seldom international brands.
• Main stores: top-ranked stores are from Tmall.com, mainly are self-owned brands made in China.
• Search engine index: the site search index is increasing, and in July 2014 the average number of people who search is 43,000; the industry search index vs. product index of all sites is 1:0.8. The market capacity is huge and the competition is small, indicating a good trend.
Estimation on E-cigarette Market Capacity
• ①This is the first field research on E-cigarette in China, so there’re no other case study data about E-cigarette usage for reference.
• ②This CATI research is based on 500 samples of each city; since the E-cigarette usage rate is low, so that in the sample database the number of people using E-cigarette in each city is too low, plus in the database the frequency of using E-cigarette by consumers is too scattered, so it can’t be regarded as effective reference.
• ③According to the data of consumer questionnaire collected by an entrusting party, the frequency of using E-cigarette by consumers is: 21.5% consume 1 piece or above per day on average, 13% consume 4 to 6 pieces (include refills) per week, 10% consume 2-3 pieces (include refills) per week, 10.4% consume 1 piece (include refills ) per week, 22.6% consume 2 to 3 pieces (include refills) per month, 10.7% consume 1 piece (include refills) per month, 5.25% consume 1 piece (include refills) every 2 months, 6.7% consume less than 1 piece every 2 month on average. Based on this frequency, it’s estimated that the average usage is 118 to 789 pieces (include refills) per person per year; since the data of Beijing, Xi’an and Shanghai are not ideal, it’s conservatively estimated as 118 pieces of E-cigarette usage per person per year in those 3 cities.
• ④This research is based on a small scale of consumer questionnaires, so the estimated average annual use of E-cigarette usage is only for reference.
CityPopulation
(10,000)Percentage of
ppl aging 15 - 64Usage Rate
Percentage of E-cig Usage
E-cig average usage each year
Market Capacity
(10,000)
Beijing 2069 72.70% 27% 4.9% 118 2348
Shanghai 2380 72.70% 26.20% 4.1% 118 2193
Guangzhou 1275 72.70% 25.40% 3.9% 295.5 1083
Xi’an 846 72.70% 22.20% 2.3% 118 370
Harbin 993 72.70% 30.10% 1.7% 130.6 435
Formula: Market Capacity=population * percentage of ppl aging 15 - 64 * usage rate * percentage of E-cigarette usage * E-cigarette average usage each year
Ru Yan2002
JianKangYuan2005
Dekon2005
First Union2005
Kanger2006
Smoore2006
2006
Sai Le Bao2007
DESONIC2007
Kimree2008
Joytech 2008
Boge2008
JSB2009
Tian Rui
JOMO
Aspire
Feng Tian Yuan
Yan Qu
Innokin
Sai Er Mei
LTD
Xing Nuo Kang
Wei Qi
Playboy
Chen Xiang
Si Mo Ke
Fei Yan Tian Xia
GREEN
……..
SIGELEI
BoDi2008
Contents
1. Market Environment of E-cigarette in China
2. Market Capacity of E-cigarette in China
3. Consumer Behavior of E-cigarette Market in China
4. Consumer Preference of E-cigarette in China
5. Historical Sales Data of E-cigarette in China
6. Suggestions on Future Development of E-cigarette Industry
The Characteristics of domestic E-cigarette consumersThe average age of E-cigarette consumers is 33.5 years old, and there are mainly 2 kinds:1. Moderate to heavy smokers (daily smoking is over 15 pieces of cigarettes), trying to quit smoking gradually;2. Young light smokers (daily smoking is less than 8 pieces), regarding E-cigarettes as fashion and fun.College degree or above accounts for 53.6%, overall education is above average; income peaks at 2 levels, one is for low income groups whose annual family income is 10,000 to 50,000RMB, and the other is relatively high income groups whose annual family income is 100,000 to 200,000RMB, among which those with annual family income over 100,000RMB account for 33.9%。
2. 2
0. 70. 7
5. 14. 3
1. 4
5. 1
12. 3
8. 0
15. 2
6. 5
5. 8
9. 4
7. 2
8. 0
8. 0
44. 9
/ /党政军机关 社团 事业单位领导干部 / /党政军机关 社团 事业单位一般干部 / /党政军机关 社团 事业单位科员高级专业技术人员 中级专业技术人员 初级专业技术人员
/企业 公司高层管理人员 /企业 公司中层管理人员 /企业 公司一般管理人员/企业 公司一般职员 /商业 服务业一般职工 /制造业 生产性企业一般职工
/个体户 私营业主 自由职业者 学生其它,请说明
2.90%7.20%
36.20%
26.10%
23.90%
3.60%
Primary School or below Junior High School Senior High School
College Bachelor Master or above
18.116.7
10.1 10.1
7.2
10.1
2.90.7 1.4 0.7 0.7
7.25.1
8.7
02468
101214161820
11.610.98.7
6.5 6.5
12.310.9
4.32.9
1.4 0.7 0.7 0.7
18.1
1.42.2
02468
101214161820
EducationOccupation
Annual Individual Income (10,000)
Annual Family Income (10,000)
Source: CATI
The Reason Why People Use E-cigarette
43.3
20.9
17.9
11.5
16.1
30.6
26.0
28.0
22.5
3.2
2.6
12.1
1.6
5.8
15.8
E-ci g i s heal thi er
Sense ofsati sfacti on
More opti ons
No second handsmoke
Lasti ng l onger
Di ff erent fl avors
Fashi onabl e
Good taste/upscal e
Personal i ty
Manl i ness
Status symbol
Sui tabl e forsoci al si tuati ons
Conveni ent to buy
Many peopl e areusi ng i t
Other' srecommendati on
Reasons for using E-cigarette
• Compared with traditional cigarette, E-cigarette’s unique feature is the biggest attraction for consumers; it’s healthier, less harmful, brings consumers certain satisfaction, which has a great appeal to them.
• E-cigarette is a symbol of identity. It indicates good taste, high-level and individuation, which is another feature to attract consumers.
• E-cigarette products’ diversity is realized by a few people gradually.
• Others’ recommendation is another driving force for consumers to use E-cigarettes.
Division Criteria for E-cigarette by Domestic Consumers
Division CriteriaDivision Criteria
PricePrice
• The most intuitive criterion
Domestic/Domestic/ImportedImported
• Imported is
high level • Domestic is
mid-low level
TechnologyTechnology
• Refill is good• Disposable is
not good
FlavorFlavor
• Better flavor, higher level
AppearanceAppearance
• Woodiness is better;
• On the market there’re more disposable & EGO
BrandBrand
Good brand is good-looking, with better techniques, safe to use.
MaterialMaterial
Battery, atomizer, nozzle, packaging
In the interviews most consumers divide e-cigarettes on a superficial level, they have much blindness on dividing E-cigarettes:
• Price is the most intuitive criterion for consumers;
• Imported E-cigarette is better than domestic ones.
Other consumers have good knowledge of E-cigarette products, and they are more rational when dividing E-cigarettes.
Division criteria include price, domestic/imported, product, packaging, brand, material etc, but for most consumers, price is an important criterion, as well as the popularity and quality of the brand. At present most consumers are emotional for dividing E-cigarettes.
Contents
1. Market Environment of E-cigarette in China
2. Market Capacity of E-cigarette in China
3. Consumer Behavior of E-cigarette Market in China
4. Consumer Preference of E-cigarette in China
5. Historical Sales Data of E-cigarette in China
6. Suggestions on Future Development of E-cigarette Industry
Features of good E-cigarettes – different levels
– More direct need for ordinary consumers•Flavor
– Necessary & basic criterion for mid-end consumers
•Brand (famous, upscale)
– Requirement of mid-end consumers•Packaging
– Criterion of high-end consumers•Technology
Lo
w to
H
igh
Mid
dle
to
Hig
h
Consumers divide E-cigarettes from brand, packaging, technique, flavor etc, but different levels of consumers have different division criteria:High-end consumers are rational, instead of caring about the appearance, they evaluate E-cigarette from its techniques, such as the model, exquisiteness, fashionable taste, volume of cloud or sealability etc. Although such consumers haven’t made clear requirements for brands, their demand for high quality products indicates that for high-end consumers, good E-cigarettes need to be of high quality and created by really good brands.Mid-end consumers care more about brand and packaging, believing that good E-cigarettes should be famous, upscale and with exquisite packaging.Ordinary consumers care more about the product itself instead of the brand; they focus on the flavor and sense of satisfactio, and they have direct & clear requirements about packaging.
Features of good E-cigarettes
•Single Packing
•Appearance
•External Packing
•Techniques
Brand
•Flavor: pure natural flavor of tobacco, original flavor; mellow and soft, a sense of satisfaction. Change to other flavors once in a while.
Portable, fashionable, simple;Upscale, has a deep culture & connotation;Received recognition from most mid-high end consumers (such as pipe model)
Upscale, presents nobility;Color not too bright, better be calm & decent;Has it’s own feature, great visual effect to be easily remembered;Material: most consumers recommend wood box or similar as iPhone packing.
For refillable E-cigarettes, single packing has great sales potential;For disposable E-cigarettes, most consumers regard a pack of 5pcs as the best. But refillable E-cigarettes are more popular among consumers.
Feel great in the hand;Taste great, easy to smoke;Good sealability, no e-liquid leak.
•Specifically, we define good E-cigarettes from the flavor, model, packaging and techniques. Here are the features of good E-cigarettes considered by consumers:•Specifically, we define good E-cigarettes from the flavor, model, packaging and techniques. Here are the features of good E-cigarettes considered by consumers:
Consumer Preference on FlavorFlavor Preference - Overall
Flavor Preference - City
Beijing Harbin Xi’an Shanghai Guangzhou
Origin 89.1 84.3 72 64 80.0
Cocoa 15.2 14 14.3 21 19
Wood 18 8.1 9 16 11
Fruit 10.4 6 9.6 24 20
Coffee 9 7.1 6 28 12.5
Source: Consumer Questionnaire
18-35 36-45 46 or above
Origin 80.3 84.5 85.7
Cocoa 10.2 6.9 6.1
Wood 4.7 34 49
Fruit 8.7 6.9 4.1
Coffee 6.3 3.4 6.1
Specifically, consumers prefer E-cigarette with original flavor, especially in Shenzhen and Beijing, followed by Harbin, Guangzhou and Xi’an; Consumers in Shanghai have great interest in new flavors, such as fruit, wood, cocoa etc.In terms of age, young consumers aging from 18 to 35 prefer other flavors, and easier to accept mixed or additive flavors.
Flavor Preference - Age
Consumer Preference on AppearanceFrom the appearance, consumers prefer portable and pipe model,
between disposable and personalized ones. For pipe model,
consumers preference in Shanghai accounts for 73.8% which is
high, followed by Beijing.
In terms of age, young consumers prefer portable E-cigarettes, while
elder ones prefer pipe model. It can be seen that young consumers
pursue the fashion, while elder ones prefer the cultural charm.
Source: Consumer Questionnaire
Appearance Preference - Overall
Appearance Preference - City
18-35 36-45 46 /above
Personalized 45.7 22.4 10.9
Pipe Model 21 45.4 63.2
Portable 56 30.1 17.5
Disposable 16 19.3 9.1
Appearance Preference - Age
四、宣传与推广偏好
Ordinary ConsumersOrdinary Consumers Mid-high End ConsumersMid-high End ConsumersCultural
Promotion
Brand Publicity
DistributionChannel
TerminalDisplay
Ways ofPromotion
Promote the taste & brand culture of E-cigarette
Fashion magazines, introduce E-cig experts, provide E-cig in high-end
places or hotels. (Brand stories, lifestyle, usage)
High-end hotels, office buildings, clubs, coffee shops
Style: low key, decent
•Introduce the lifestyle, brand history and usage of E-cigarettes.
•No discounts
Not mentioned
•Free tasting•Give away disposables
•Promotional benefits
Websites, supermarkets, tobacco specialty shops, cigarette and wine shop
Advertisements, bars/clubs, websites
(brand awareness; benefits of using E-cig: healthy, flavors)
Great quantity & variety
Consumers hope we will have publicity or promotion about E-cigarettes as currently there’s none. In terms of the category of E-cigarette, it should be based on promoting a healthy and relaxing lifestyle, combined with E-cigarette branding; meanwhile, run promotions like terminal display. However, different consumers prefer different promotions:High-end consumers dislike discounts; they believe we should focus on brand culture for promotions, such as tasting, introducing E-cigarette experts, or providing brands in high-end places etc;Mid-end consumers prefer promotions that promote them more about E-cigarette products & flavors, cultivating them for a better taste, such as giving away E-cigarette professional appliances etc;Ordinary consumers are more pragmatic, preferring promotions like giving away gifts etc.
Contents
1. Market Environment of E-cigarette in China
2. Market Capacity of E-cigarette in China
3. Consumer Behavior of E-cigarette Market in China
4. Consumer Preference of E-cigarette in China
5. Historical Sales Data of E-cigarette in China
6. Suggestions on Future Development of E-cigarette Industry
Analysis on Domestic Market
Total Turnover of the Top 10 Brands on Taobao.com in 2012 to 2014
Source: database of Taobao.com
Unit: CNY
In 2014, the E-cigarette market in China was growing dramatically, the
market sales soared 263% year on year compared with 2013, and the
number of consumers rose by 259% year on year. On one hand,
consumers’ awareness of health increased; on the other hand, the
products spread faster.
In 2014, the total sales of Top 10 brands on Taobao.com reached 140
million yuan. The growth rate of 2015 is the same as that of 2014, which
is estimated to exceed 400 million yuan on Taobao.com 。
Analysis on Domestic Market
Top 10 Brands of Smoking Cessation Products in 2012
E-cigarette Industry in China
No. Brand Turnover No. of Sold Products No. of Buyers
1 Zhen Wei Ru Yan
5,539,645 109,653 48,589
2 Yi Xing 2,869,124 64,695 25,496
3 OVALE 2,782,393 29,647 7,905
4 Wei Er 2,726,360 33,555 14,508
5 Yi Kang 2,332,684 20,404 15,986
6 Ling Ze 1,473,441 15,917 7,726
7 Kingsong 1,049,995 25,395 9,493
8 Kang Jian 566,063 11,208 3,216
9 Han Cao 309,848 9,233 1,544
10 Zhong Yan Ke 295,230 16,094 4,899
E-cigarette Industry in ChinaTop 10 Brands of Smoking Cessation Products in 2013No. Brand Turnover No. of Buyers No. of Sold Products
1 Yi Kang 12,469,385 86,213 112,703
2 OVALE 9,549,986 21,409 79,415
3 Kingsong 7,564,618 50,854 109,892
4 Ru Yan 6,210,293 26,290 54,338
5 Le Xiang 4,318,415 29,984 51,834
6 Sanjods 3,825,200 25,411 55,238
7 Zhen Wei Ru Yan
2,825,998 28,922 65,032
8 Doulton 2,739,338 16,164 34,976
9 Fei Yi Qing 2,427,984 20,947 58,161
10 Yi Xing 1,638,813 11,350 22,417
In Total 53,570,032 317,544 644,006
E-cigarette Industry in ChinaTop 10 Brands of Smoking Cessation Products in 2013
No Brand Turnover No. of Buyers No. of Sold Products
1 Doulton 41,611,078 266,500 452,229
2 Yi Xing 24,221,559 117,922 172,942
3 OVALE 21,243,171 43,892 110,488
4 Yi Kang 10,306,378 67,277 112,995
5 EGO-T 10,135,296 64,989 134,520
6 Ru Kang 9,561,088 58,722 96,069
7 Ru Yan 8,886,244 39,931 79,935
8 Di Ya Si 5,834,896 47,143 63,200
9 CRENTIA 5,528,592 60,870 94,444
10 Zhen Wei Ru Yan 4,078,990 55,798 78,260
In Total 141,387,293 823,044 1,395,082
Analysis on E-cigarette Industry at Tmall.comPercentage of Top 10 Brands on Tmall.com in 2013
Analysis on E-cigarette Industry at Tmall.comPercentage of Top 10 Brands on Tmall.com in 2013
Contents
1. Market Environment of E-cigarette in China
2. Market Capacity of E-cigarette in China
3. Consumer Behavior of E-cigarette Market in China
4. Consumer Preference of E-cigarette in China
5. Historical Sales Data of E-cigarette in China
6. Suggestions on Future Development of E-cigarette Industry
As long as your product is good enough,
people will choose it.
The product is the basis for development of the industry, and continuous
innovation is necessary for leading the industry and products to maturity.
We should seek for combination point between the traditional tobacco
products and electronic heat-not-burn cigarettes, or develop the similar
flavors of traditional tobacco products for E-cigarettes. The flavor, sense
of smoking and satisfaction of traditional cigarettes and individual needs
will be the basis for the innovation of E-cigarette products.
Channel and convenience are the
emphasis of marketing
According to the sales data of E-cigarette distribution channels, the traditional
stores sales account for about 56%, while the sales of tobacco shops and online
stores are only 20%. With the development of modern information technology,
especially e-commerce, there’s wider space for the key enterprises launching
marketing campaigns, building modern marketing network, and reducing
marketing costs. Since 2012, Lorillard Tobacco Company has placed E-cigarette
ads starred by famous actors on the US TV shows which have good results. The
brand operation of E-cigarette not only requires increasing efforts on position
design and tonal development, but also innovations on advertising screen,
advertising channels, advertising language, sales methods, O2O (online and
offline interaction), and crossover marketing etc.
Promotion and Communication
Brand is the basic point
Compared with traditional tobacco products, the prices of E-cigarettes are
generally higher, ranging from tens of RMB to a few thousand RMB, sold as
ordinary products or gifts. Most consumers are high-end, whose habits are
developed for years and difficult to change. Instead of trying to change their
habits, we can cater to them so that the consumers will enjoy the pleasure of
tobacco alternatives and healthy vaping, while they are aware of the harm of
smoking but not able to quit it. Thus they don’t have to change the habits or
suffer from smoking cessation, but meanwhile their demands can be satisfied.
Focus on the domestic market
Look to the international market
In any emerging market, the freedom of development and competition is the greatest. We should grasp the opportunity to do everything possible to build our brands, grow them rapidly, form the scale, and seize the benefits!
1. Within the limited time and space, we should have clear goals of developing brands, build sales network of brands, attract consumer groups for the brands, and create brand value and reputation!
2. Strengthen the brand against any future risk of new policies and regulations. Focus on the domestic market to build the brand, and look to the international market for export!
The 2rd CECMOL China International Vapor Expo
October 20-23 2015
The 3rd CECMOL China E-cig Summit Forum
April 10-11, 2016
Shenzhen Convention and Exhibition Center
Thank you!
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