The growth of the e-cigarette industry comes with a proliferation of new language used to describe it; vaping stands in for smoking and cig-a-likes have replaced cigarettes. But perhaps the most telling vocabulary change is the appropriation of the term “digital” to describe vaporized nicotine use and “analog” for the combusted version. One might take these descriptions to be figurative but the descriptions could be taken quite literally.
The e-cigarette industry has come of age in the digital era and it is enabled by the internet. Retailers, brands, manufacturers, and suppliers are using digital communication to connect online while minimizing geographic distance. Perhaps more importantly, consumers are finding information on products and opportunities to purchase them online. Thus understanding the role of digital communication in the vape market is essential to understanding its current and future state.
A Market of Niches
Understanding the role of digital communication in vape has practical applications for marketers and other industry participants. Namely, with this understanding we can apply the digital commerce framework known as the “Long Tail” to studying the vape industry.
In his 2006 book “The Long Tail: Why the Future of Business Is Selling Less of More”, Chris Anderson writes that online retailers are changing markets by serving previously underserved niche markets more effectively than traditional retailers can. In aggregate, the collective size of these niches can be greater than the so-called “Mainstream” market. Thus an entirely new market place has been opened; one that caters more to unique tastes.
But in order for online retail to be more effective, two conditions must exist; wider bandwidth and better discovery. First online retailers must have wider bandwidth. To understand this, let’s first take a step back and review the difference between brick-and-mortar retail and online retail. One of the most important differences between the two is that internet retailers house goods centrally and maintain a virtual, digital store front. Aggregating inventory in a central warehouse, rather than in stores, lowers per SKU cost of holding inventory while a digital storefront offers a virtually limitless number of goods. So a digital bookseller like Amazon is able to offer millions of titles while a physical retailer would only be able to offer a fraction of that. This ability to offer more goods is what Anderson refers to as “wider bandwidth”.
Secondly, with the abundance of additional variety, consumers must be able to find the products that they want. This process, which Anderson calls “discovery”, is enabled by digital technology. Today, we commonly use digital technology to find the products and services we buy. Search engines, user review websites, and social media have enabled discovery such that it is difficult to imagine a consumer life without them.
The Vape Market as a Long Tail
One of the main advantages that vaping has over smoking is that vaping enables more consumer choice. In particular, with open systems, vapers can customize flavor, nicotine content, amount of vapor, throat hit, and draw, to name only a few attributes. By using different combinations of batteries, tanks, juice, and other accessories a vapor can create thousands of different experiences and find the ones that suit him or her best. These varieties of experiences demanded by consumers are an example of the niche demands that Anderson describes. And the vape industry, being born in the age of online, has developed to meet these niche demands.
By comparison, smokers have fewer options when it comes to smoking cigarettes. Traditional cigarette retailers carry a much smaller number of SKUs and once purchased, the experience of smoking is much more limited. Only traditional flavors of tobacco and menthol are available (though there may be some variation within these categories) and cigarettes are engineered more so for consistency of experience, not variety. With less variety, it makes sense that traditional tobacco products sell well in traditional retail outlets like convenience stores where bandwidth is narrow.
The open system segment of the market is a natural match for online retailing. Online retailers can carry all varieties of batteries, tanks, accessories, and e-juices. A cursory look at some online vape shops reveals that they have a much wider bandwidth than a c-store or other mass channel would be able to offer. As well, online vape shops often include digital media that explains how to use devices or online customer reviews that enable discovery.
Though Anderson was writing about the digital environment, vape shops provide the same advantages that online shops do as compared to c-stores and other mass tobacco retailers. A store solely devoted to vape has more room to display products thus they have more bandwidth. As well, consumers can get recommendations on products, instruction on how to use devices, and sample juices or try batteries. Low-touch environments like c-stores and other mass channels typically cannot facilitate this level of service.
Like online retailers, vape shops are enabled by the internet because many vapors find out about new products from sources on the internet but purchase them in vape shops. These might include peer reviews on e-cigarette forums or reviews from popular Youtube vape personalities. As well, there are a number of specialized vape media outlets on the internet.
Applying the Frame Work
Once we understand how the Long Tail framework fits the vape industry, we can use it to begin examining marketing issues and industry challenges. What follows is more a list of questions than answers.
The most important question that this comparison begs is, what is the future market structure of the vape industry? The digital origins of the vape industry create a propensity towards fragmentation but does this mean that there will be no blockbuster brands as there are in tobacco or other consumer goods categories? And without blockbuster brands, can the industry attract the capital required for the industry to grow?
Online discovery is the engine behind the growth of the vape industry but will this help the industry attract mainstream smokers? As well, how can brands most effectively influence the discovery process online when they don’t “own” that conversation or process?
Effect of Regulation
FDA regulation will certainly raise the barrier to market entry and increase the price of offering a SKU on the market. To what degree will this disrupt service of niche markets and the industry as a whole? Or will long tail demands attract products and commercial models that subvert regulation?
Blockbusters and the Long Tail 10 Years Later
Today, the long tail model is not as ground breaking as it was a decade ago. Rather it is a widely accepted concept upon which many successful businesses, like Netflix and Amazon, are based. However, despite the proliferation of niche markets, the media business still makes lots of money by producing hits. Whether it’s the latest Avengers movie or the Super Bowl telecast, consumers still want to participate in shared experiences, not just stay in their rabbit warren. By giving them the option to be part of both the mainstream and niche markets simultaneously, consumers gain higher utility.
For generations smoking was a shared social experience. And we know that vaping can appeal to niche tastes but can it also be a widely shared experience? For those who spend hours in online chat rooms or in vape shops, this may be true. But it will be a much bigger challenge for the vape market to attract baby boomer smokers who may not have a proclivity for participating in subcultures.