Image Credit: Lacey Krusmark
Just imagine if you were a cigarette product manager. You are responsible for a product that is both addictive and reviled. You’ve been doing quite well for yourself for a very long time; however, now things are starting to change. Young people seem to getting the message and are less likely to start to use your products. At the same time, a new type of smoking product, vaping, has shown up and seems to be doing very well. What is a product manager to do?
Embracing Change In Cigarettes
So let’s take a look at what it means to be a product manager at the biggest U.S. tobacco company. This company, Altria Group, has made a $12.8 billion bet on another company whose goal is to get smokers to drop cigarettes. Their calculated gamble: the move will help the maker of Marlboro cigarettes keep up with a quickly changing market. The risk to them is that it could hasten their own product’s decline. Facing an accelerating fall in cigarette sales, Altria Group invested billions into Juul Labs Inc., a controversial startup whose sleek, nicotine-packed vaporizers have fueled a surge in the e-cigarette market. The product managers believe that a bold change was necessary. What they have seen is that smokers were switching to vaping, and Altria’s own future e-cigarettes were unlikely ever to catch up to Juul.
The investment for a 35% stake in Juul upended a century-old company known for its steady share price and reliable, generous dividends. There are challenges associated with this move which changes the product manager’s product development definition. The deal also intensified scrutiny of Altria by federal regulators, who blame Juul’s products for an increase in underage vaping and who have already moved to restrict their sales. The problem faced by Altria’s product managers is a dilemma facing many established companies in mature markets. How should they respond to new entrants that are disrupting the status quo, when the classic strategy — buy the disrupter — could potentially speed the decline of the legacy business? The product managers at Altria believe that the leap into fast-growing Juul is the surest way to preserve the profits the company generates today by making 5 out of every 10 cigarettes sold in the U.S. What they realize is that at a time when e-vapor is going to grow rapidly and likely cannibalize the consumers that they have in their core business, if they don’t invest in the new areas they potentially put their ability to deliver financial results at risk.
By Altria’s product manager’s count, there are already 12 million adult vapers in the U.S. , and the number is continuing to grow quickly. Many of those are cigarette smokers looking for a less harmful way to get their nicotine fix. Other vapers are children and teenagers who have never smoked before, and who are acquiring the devices even though sales are legally restricted to adults at least 18 years old. A cautionary note for the Altria product managers is that youth use of e-cigarettes jumped 78% between 2017 and 2018 — to one out of every five high-school students — thanks largely to the popularity of the Juul brand.
An Uncertain Future
The product managers believe that the future is coming faster than anyone expected. They believe that 10 years from now the majority of the tobacco products that are sold could very well be noncombustible products. That would mark a major consumer shift. U.S. sales of cigarettes, cigars and smoking tobacco were nearly $107 billion last year, compared with about $15 billion in sales of smokeless tobacco and vaping products. Vaping products made up $5.6 billion of those sales. If the Altria product managers can tap into that growth, then they’ll have something to add to their product manager resume. Although fewer and fewer Americans smoke each year, Altria product managers have been able to squeeze growing profits out of a market they have dominated for decades. Price increases have offset lower volumes, and the Marlboro brand has kept its grip on a U.S. market that for years has been shrinking by 3% or 4% a year.
Back in 2017, three events stepped up pressure on product managers at the market leader. In January, British American Tobacco struck a $49.4 billion deal to take control of Reynolds American, which sells Camel and Newports cigarette brands. In July, the FDA announced a regulatory overhaul that threatened to turn the tobacco industry upside down. They are seeking to reduce nicotine levels in all cigarettes so they would no longer be addictive and to ban menthol cigarettes, moves that are expected to take years. At the same time, the FDA wants to help manufacturers bring to market less harmful products such as e-cigarettes, which heat a nicotine-laced liquid to deliver a vapor instead of burning tobacco, thereby avoiding many of the compounds in cigarette smoke known to cause cancer and other diseases. Then, late in the year, Juul sales took off.
Juul’s vaporizers used snap-in pods with added flavors such as mango and cucumber, and they looked nothing like cigarettes. The black-and-gray rectangular device was shaped like a USB flash drive and they could be plugged into a laptop to charge. The company’s sales surged. One of the reasons for this was because Juul’s advertising on social media and other platforms pitched the brand as a cool lifestyle accessory with images of people in their 20s and 30s, which critics said made the brand attractive to teens. Later, Juul-related posts on Instagram and Twitter exploded, with much of the content posted by young people using the product. After two decades of declining teen cigarette use, “Juuling” was suddenly a verb for a trendy activity.
One big unknown is how the FDA plans on regulating vaping. Convenience stores and gas stations will effectively be banned from selling most flavored e-cigarettes under the restrictions announced. Now that Altria and Juul are controlling the leading pod-based flavored product that seems to be the most favored product among kids, the FDA is going to be a key to trying to address this crisis. The product managers at Altria support efforts to combat youth use, and they are lobbying to raise the minimum purchase age for any tobacco product to 21 from 18. Juul has strengthened the age-verification tools on its website and also closed its Facebook and Instagram accounts in the U.S. The startup has said it never targeted teens and that its marketing now only features adult cigarette smokers who have switched to Juul.
What All Of This Means For You
I’m pretty sure that everyone would like to have a steady product manager job. We’d like to have an established market for our product and we’d like to have customers who keep coming back for more. Cigarette product managers have traditionally found themselves in this position. However, in the past few year things have been changing for them. Fast paced startups have arrived on the market with a popular product that competes with the cigarette product manager’s core product. They can’t just sit by, they need to look at their product manager job description and take action. At the biggest cigarette company in the U.S., Altria, they have just made a very large investment in one of the fastest growing new startups: Juul. Their bet is that vaping is here to stay and it will only continue to grow over the next few years. Cigarette sales have been falling and this investment in Juul is an investment in the future of smoking. The challenge that they are facing is that Juul is contributing to the decline of the legacy business. Their belief is that that this investment will prepare them for the future. Altria product managers have been able to keep making money by raising the price of their cigarettes. However, things have been changing and it no longer looks like doing things the old way is going to work going forward. Juul created a slick product and effectively used social media to advertise it. Challenges for the future include how the FDA will deal with Juul’s popularity among children and what steps Juul can take to limit children’s access to their products.
The Altria product managers have seen the future coming and it does not look anything like the present. They understand that they are going to have to take steps in order to keep the customers that they have. They’ve decided that with an investment in Juul they’ll still be able to keep their customers even if they switch from cigarettes to vaping. The future is still quite unclear. We’re going to have to keep a careful eye on this market and watch how this all plays out.
– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™
Question For You: Do you think that Altria should have just created their own vaping product?
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What We’ll Be Talking About Next Time
The product managers at Facebook are facing a serious challenge. They have to find ways to expand their product development definition and make Facebook more interesting and relevant to their visitors. One great way to make this happen is to provide Facebook visitors with access to current news. This is easy to do on the national and international scale – there are a lot of sources of that news. However, what the product managers are discovering is that getting local news can be a really tough job.