Titans Clash in Japan - Does Pricing Matter?

On December 18, 2023, in Tokyo, the nicotine-free electronic cigarette product "VUSE Go 700" was placed on the shelves in about 2,300 FamilyMart convenience stores. The flavors for sale include "VUSE Go 700 Mint Ice," "VUSE Go 700 Mango Ice," and six others.

Beyond the flavors, what brought a greater surprise to local consumers was the price. Beneath the colorful products, the price tag showed only "980 yen (about $6.78)."

Local media described VUSE Go 700 as the "trump card" of British American Tobacco Japan (BAT Japan). Since its launch, it has received a positive response.

Seeking Breakthrough in the Japanese and Korean Markets

For a long time, in the European, American, Middle Eastern, and Southeast Asian markets including Malaysia, products from British American Tobacco were often priced higher than similar competing products from other companies and rarely reduced. For example, in November, 2FIRSTS discovered that in the Middle Eastern market, they launched large puff count disposable products "VUSE GO 5000" and "VUSE GO 6000". The official retail price of VUSE GO 5000, with 5000 puffs, was set at 80 dirhams (about $20.78). In contrast, the local comparable product ELFBAR BC 5000 from ELFBAR was priced at only half of that, 38 dirhams (about $10.35).

According to BAT's H1 2022 financial report, its new VUSE product line achieved a market share of 34.7% in the top five markets of British American Tobacco (USA, UK, France, Germany, and Canada). Such a strong performance indeed gave British American Tobacco no reason to lower its existing prices.

However, the situation changed in the Far East. BAT Japan deviated from its parent company's traditional reserved stance and tried to enter the market divided by Japan Tobacco and Philip Morris International's IQOS with a more people-friendly approach. In terms of pricing, compared to RELX MagicGo, which RELX International Japan launched at 1,320 yen, the similarly nicotine-free and 700-puff VUSE Go 700 from British American Tobacco was 1/4 cheaper.

But British American Tobacco continued to test the price floor. After placing their products in chain convenience stores, the next step for British American Tobacco Japan was to carry out various marketing activities. Coinciding with Japan's traditional "New Year's promotion" in the FMCG market, VUSE confidently exhibited the demeanor of an experienced player. During the promotional period, they boldly reduced the price of "VUSEGo700," originally already low at 980 yen, by a substantial 196 yen, to only 784 yen (about $5.45). The promotional event lasted until January 7th.

Besides e-cigarettes, the company has been active in the heated tobacco (HNB) sector. In December 2023, British American Tobacco Japan released its top-end new HNB line product, Glo Hyper Pro. This product features a screen that displays device status and a "flavor selection knob" to change heating modes. In Japan, Glo Hyper Pro is priced at 3,980 yen (about $27.54), while a similar Philip Morris International's IQOS flagship model is priced close to 10,000 yen (about $69.21). In comparison, Glo's price is remarkably friendly.

This modest approach and the value-for-money products have earned Glo widespread market popularity. Since its introduction, the market price of Glo Hyper Pro has consistently been higher than the company's official price, reaching about $41.39.

Not only in Japan, but similar developments are also happening in neighboring South Korea. Earlier than the launch of VUSE Go in Japan, on July 24, 2023, British American Tobacco's Rothmans announced for the first time that it would bring the "VUSE" line to Asia. The VUSE Go 800 introduced this time was released in a limited edition in the Seoul metropolitan area of South Korea and planned to start sales in over 8,500 locations such as convenience stores and tobacco shops in Seoul, with future expansion nationwide. The friendly price was set at 10,000 South Korean Won (about $7.6).

The Big Tobacco Counterattack

Even though e-cigarettes were initially invented to reduce the use of traditional cigarettes, big tobacco companies have incorporated e-cigarettes into their portfolios through acquisitions, mergers, or establishing their own brands, becoming a key driver of growth in the new era. The competition among the three giants shifted from traditional tobacco to the new battleground of alternative tobacco products.

Incomplete statistics show that in 2021 in the UK alone, British American Tobacco and Philip Morris International filed lawsuits against each other over six patents each. In July 2021, the High Court of England revoked four HNB technology patents of Philip Morris International, and in March 2021, Philip Morris International successfully invalidated two British American Tobacco patents. In Germany, the two sides have also sued each other in five lawsuits, including HNB technology infringement.

The struggle has spread to the East Asian market, Japan. At this point, British American Tobacco, which had been tit-for-tat with Philip Morris International, suddenly lowered its stance. The reason is not hard to understand: Philip Morris International's dominance in Japan's new tobacco market was too complete.

Since 2013, Japan has strictly enforced a public smoking ban, continuously expanding the scope of smoking prohibition. Under various anti-smoking measures, the overall sales of traditional tobacco in Japan have continuously shrunk, reaching a low of $32.415 billion in 2015. Japan's drug control regulations strictly limit the sale and import of e-liquids, thus vaporizing e-cigarettes using e-liquids have not gained momentum.

Philip Morris International's IQOS began to make significant inroads into Japan's declining tobacco market at this time. The first generation IQOS was launched in 2014; two years later, in 2016, according to a Philip Morris International spokesperson, by the second quarter of that year, IQOS had captured 2.2% of the Japanese market. With the launch of "HeatSticks" priced at 9,980 yen (about $) and accompanying cartridges (then priced at 460 yen per box, comparable to regular cigarettes), by the end of April that year, IQOS's market share had climbed to 2.7%. By 2022, this figure had risen to about 50%, with Philip Morris International's full line of products achieving a 37.6% market share in Japan.

Having "attacked" its home base, Japan Tobacco, which has long held a 60% share of the domestic market in Japan, also launched its own developed similar product, Ploom TECH, to compete. To this day, Ploom continues to release new products and extend its product line at its own pace. Ploom X, first introduced in August 2021, has already exceeded 10% of the Japanese heated tobacco product market share; but overall, it is still incomparable to IQOS's share.

British American Tobacco, caught in the middle, faces competition from Philip Morris International, which has already established a strong position with IQOS, and Japan Tobacco, which holds a dominant share in traditional cigarettes and is the local market leader. With a 4.5% market share for its Glo product, British American Tobacco's low-profile and stable approach seems reasonable.

A Better Tomorrow?

As for the future, it's not just British American Tobacco; it seems all companies entering Japan abandon their usual strategies, adopting innovative tactics to carve out a share in this relatively self-sufficient market.

Take Coca-Cola as an example. When Coca-Cola entered the Japanese market in 1957, they realized that Japanese people did not consume Coca-Cola like Americans. Thus, Coca-Cola Japan developed "Sokenbicha" and "Aquarius," and later tentatively launched "Lemondo" (a kind of shochu or vodka mixed with carbonated water), all of which were successful.

These "localized" products have been hugely successful, forming part of a larger marketing question: how much should brands deviate from their original strategies when expanding overseas?

There's no clear answer to this. Initially, Philip Morris International might not have deliberately "localized" IQOS for Japan, but unique social factors in Japan indeed contributed to its success: no need for lighting, no ash or smoke, and the exhaled vapor being less pungent. Many analysts believe these features met Japanese smokers' nicotine needs while minimizing inconvenience to others, aiding the product's acceptance.

RELX Japan is another example. When entering the disposable e-cigarette market, RELX was extremely cautious. Besides meeting the "zero nicotine" standard for its e-liquids, it also actively started recycling initiatives. After launching its nicotine-free disposable product RELX MagicGo in Japan in September 2023, RELX Japan initiated the world's first disposable product recycling program, "RELX RECYCLE PROGRAM," in December. In the first phase from December 28 to 30, RELX Japan set up a special booth at the food event "Haruyoshi Bridge Yokocho" in Fukuoka, accepting used RELX products for recycling and later introducing permanent recycling boxes. 

In Japan, community-based waste recycling is considered a part of civic social responsibility. Disposable e-cigarettes, having caused several fires at garbage disposal sites, are required in many places to be disposed of as "small appliances," complicating disposal and deviating from the product's original intent of convenient and safe nicotine intake. RELX Japan's recycling solution for its disposable cigarettes not only practices corporate ESG social responsibility but also eases consumer use, reducing psychological pressure. This effort to integrate into local communities is part of the operating costs for overseas enterprises.

BAT is also accelerating its efforts in this area. According to BAT Japan, in 2021, the packaging of Glo Pro Slim sold in Japan used recycled paper, reducing paper materials, and protective film, and no longer including an AC adapter to reduce waste. In 2022, the launch of Glo Hyper X2 further promoted the reduction of plastic packaging films, achieving more thorough plastic-free packaging. On June 20, 2022, World Refugee Day, BAT Japan visited the largest refugee support organization in Kamakura, Japan, and held an exchange meeting with the refugees.

Distinct consumer profiles different from the Western mainstream, unshakeable local corporate culture, unspoken social rules, and a dense urban population with high income make overseas enterprises, including big tobacco companies, both envious and constrained.

In December 2023, British American Tobacco announced a $31.5 billion impairment on the value of traditional cigarette brands like Newport, Camel, Pall Mall, and Natural American Spirit on its balance sheet, limiting their value to a finite 30 years. This was the first time big tobacco partially wrote down the value of its traditional cigarette business in a key market like the US. BAT attributed this to economic pressure, inflation driving consumers to cheaper brands, the proliferation of black/grey market disposable e-cigarettes, increasingly strict regulatory environments, and health consciousness causing a decline in cigarette sales in certain markets.

Traditional tobacco business faces challenges in the industry's evolution. The ongoing depreciation of traditional tobacco in traditional advantage markets is evident. For British American Tobacco, focusing on new types of tobacco in the yet-to-be-dominated East Asian market as a growth point is likely a future direction.

Due to drug control regulations, only nicotine-free e-cigarettes can enter the Japanese market, besides HNB products. Nevertheless, the market response remains active. In 2022, Japan's national HNB market sales reached 1.4 trillion yen (about $9.7 billion), the largest globally. Even in local "home appliance heat rankings," new tobacco devices often dominate the top five.

Japan Tobacco International, in an earlier interview with 2FIRSTS, acknowledged the rapid growth of the disposable e-cigarette market but has not yet invested resources to compete in this product sale, instead focusing more on the development of a new generation of HNB products (such as With 2, sold in convenience stores and tobacco shops in Japan from September 5, 2023) and nicotine pouches.

Perhaps due to tight policies, disposable products have always had a narrow entry into the Japanese market, allowing Japan Tobacco to maintain a calm "host attitude" at the starting line of Japan's potential future disposable market competition. Meanwhile, British American Tobacco, using VUSE as a forerunner in a low-profile entry into the East Asian disposable market, might experience a surge at some point.