What Can Product Managers Learn From Japanese Cigarettes?

Is there an opportunity to enter the U.S. market for cigarettes?
Is there an opportunity to enter the U.S. market for cigarettes?
Image Credit: flickr.com/volver-avanzar !!!

No matter how you personally feel about smoking, you have got to admit that the market for cigarettes is huge. You can hardly go into a gas station without being confronted with an entire wall of different brands of cigarettes all of which have just slightly different product development definitions. With so many different types being available and with all of the lawsuits that have happened over the past few years, you would think that this would be a closed market. Well, at least one Japanese company would beg to differ with you.

What Japan Tobacco Is Doing

If you are not a smoker, you might not realize that there are big changes going on in the U.S. cigarette market. If you just happen to live in either North or South Carolina you would have discovered that you now have yet another type of cigarette available for you to choose from: LD. This is a new brand that is being introduced into the U.S. market by the very large Japanese company Japan Tobacco.

The initial introduction is limited to two states (North and South Carolina), but if it goes well then Japan Tobacco plans on rolling it out nationwide. Japan Tobacco realizes that they are entering a crowded market where their potential customers may already have a preferred brand. In order to win over new customers, they are pricing their cigarettes lower than all of the other brands. Packs of LD cigarettes are being sold for US$2.81 while more traditional brands such as Marlboro ($4.92) are being sold for more.

In the U.S., there are brands of cigarettes that have been designed to occupy the low end of the market. These brands such as L&M ($3.69) and Paul Mall ($3.49) still cost more than the new LD cigarettes. Japan Tobacco is a huge 22 billion dollar company, but it currently has a tiny fraction of the U.S. cigarette market: 0.34% — not something to brag about on your product manager resume. Japan Tobacco has increased its staff by 20% and has also invested heavily in an e-cigarette company. They are here to stay.

Why Now Is The Right Time To Enter The U.S. Market

The product managers at Japan Tobacco has decided that now is the time to expand their presence in the U.S. There are a number of different reasons why they feel this way. LD is the first global brand that the company has introduced into the U.S. For the past five years, most international tobacco companies have been unwilling to invest in the U.S. because of all of the civil lawsuits. However, those are starting to die down and the U.S. is once again looking more attractive.

Another reason why the Japan Tobacco product managers are willing to make an investment in the U.S. is because of the first amendment. In a number of other countries, Britain being one of them, the government is putting pressure on the tobacco product managers to change how they package their product. In these other countries, companies are being forced to use either generic packaging or to apply graphic warning labels to the outside of packs of cigarettes. However, in the U.S. if such a rule was ever created, the companies could appeal it based on their first amendment rights.

Finally, the U.S. market for cigarettes has undergone some significant changes lately. Reynolds America, the number two player in the U.S. market, purchased Lorillard which was the number 3 player. The number 3 player, Imperial Brands PLC then went and purchased the Kool and Maverick brands. The result of all of these changes is that Reynolds had more pricing power and could raise its prices while Imperial Brands had weak brands that had not been marketed. All of this provided Japan Tobacco with a unique opportunity to enter the U.S. market.

What All Of This Means For You

Cigarettes can be a controversial topic, but there is no denying that they are a big business. This means that product managers have to do all of the standard things that are in their product manager job description: grow their market and defend against the competition. Over at Japan Tobacco, the product managers have decided to expand their presence in the U.S. by introducing a new brand of cigarettes: LD.

The product managers plan on gaining market share by pricing their cigarettes much lower than their competition. Japan Tobacco is starting out in two states, but will expand nationally if they are successful. There are other cigarettes that compete in the low end of the market, but Japan Tobacco thinks that they can be successful. The reason that the Japan Tobacco product managers are willing to expand in the U.S. market is because there are not as many civil lawsuits. They can also advertise as they wish without having to worry about government limitations in how they decorate their product’s boxes. Recent changes in the U.S. market in terms of who is #2 and who is #3 has opened the door for Japan Tobacco to try to increase their market share.

When we attempt to enter a market that is already full and has a number of existing players with deep pockets, we are looking at a significant challenge. The Japan Tobacco product managers are not going to have an easy time trying to grow their share of the U.S. market. However, by going after the weakly defended bottom portion of the market, they now have the best chance to succeed. If these product managers keep their eyes open and make the right decisions, then Japan Tobacco just might become the next big American cigarette provider.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™

Question For You: Do you think that a low price will be enough for LD to succeed or will Japan Tobacco have to do a lot of advertising?

Click here to get automatic updates when
The Accidental Product Manager Blog is updated.

P.S.: Free subscriptions to The Accidental Product Manager Newsletter are now available. It’s your product – it’s your career. Subscribe now: Click Here!

What We’ll Be Talking About Next Time

It turns out that if you are a product manager who works for either Coke or Pepsi right now, things are not going so well for you. The market for their diet sodas is starting to tank. Last year sales of Coke and Pepsi diet drinks fell by 4.6% and 7.7%, respectively and that can’t look good on anyone’s product manager resume. However, the news is not all bad. Brash startup Talking Rain Beverages has a hit on their hands with their Sparkling Ice line of drinks. What are they doing right?