Nov. 16, 2016
Age restrictions, labels and product testing will reshape the world of vaping
After a rough few decades, the tobacco industry is a shadow of its former self. The 1998 Tobacco Master Settlement Agreement and subsequent litigation have cost tobacco companies hundreds of billions of dollars in fines and payouts and substantially curtailed the industry’s ability to advertise its products. On top of that, insurance companies, municipal governments and businesses have all pursued paths that make lighting up costly and inconvenient for consumers.
The bottom line is that there are fewer smokers than ever before. The Centers for Disease Control and Prevention estimates that the current pool of adult smokers in the U.S. totaled 40 million people at the end of 2014, or 17 out of every 100 individuals. Ten years earlier that ratio was 21 smokers for every 100 people.
Pushing against this tide are electronic cigarettes, perhaps the sole factor tobacco giants currently have working in their favor. Modern e-cigarettes are tobacco-free cylinders that use battery power to heat a liquid nicotine solution, releasing vapor when a user inhales. Invented by Chinese scientist Hon Lik in 2003, e-cigarettes and assorted vaping products have catapulted in popularity in the U.S. and are now manufactured by both small businesses and major tobacco companies alike.
One such product is the VUSE Digital Vapor Cigarette owned by R.J. Reynolds Vapor Company, a subsidiary of Reynolds American. In 2014, Reynolds American CEO Susan Cameron told Fortune she believes VUSE is a “game-changing product.” In hindsight, she appears to be right.
According to a Nielsen industry report released in August 2015, VUSE was the top-selling brand in its market, with a 33% dollar share and 44% unit share. In April, VUSE topped IRI’s 2015 New Product Pacesetters report highlighting the most successful newly released consumer packaged goods. The report estimates VUSE sales for the year to be $221 million.
“VUSE continues to see high trial and repeat purchase, in part because of its high-quality standards,” says Brittany Adams, public affairs manager at Reynolds American, in an e-mail. “Unlike many of its competitors, VUSE Solo is designed and assembled in the U.S. and contains a vapor delivery processor that communicates up to 2,000 times a second with a smart memory chip to closely monitor each puff, resulting in the perfect puff, first time, every time.”
In addition to e-cigarettes, alternative vapor-delivery systems have entered the market. These operate using liquid nicotine capsules in a refillable cartridge, whereas traditional e-cigarette cartridges are disposable. Capsule and cartridge products are known as “open-system” vapor products and come with a wide variety of flavors and modification options.
A 2014 CDC report found that 3.7% of the U.S. adult population, or more than 9 million people, use e-cigarettes every day. Much of the demand for e-cigarettes is being driven by smokers and former smokers that view vaping as safer than inhaling smoke from burning tobacco—a claim that is hotly debated. But e-cigarettes and similar products have also made inroads among young adults. More than one in five Americans between the ages of 18 and 24 report having used e-cigarettes at least once, and 5% report vaping on a daily basis. And unlike their older counterparts who see e-cigarettes as healthier alternatives or smoking cessation aids, nearly 10% of young adults who use e-cigarettes report never having smoked tobacco cigarettes at all.
Part of the reason young people are vaping is because, for years, there were no prohibitions against it. Because e-cigarettes were new and didn’t contain tobacco, the escaped they regulatory eye of the FDA. Until recently, state governments were the only bodies stepping in to regulate the e-cigarette industry. And even then, e-cigarette alternatives such as vape pens, are not included in most restrictions. The upshot of this regulatory patchwork was that in several places, minors had access to e-cigarettes or other vape products.
That all changed in August when a new rule went into effect granting the FDA regulatory control over e-cigarettes, as well as other types of smoking products including cigars, hookah tobacco and pipe tobacco. The determination is based on a rationale that e-cigarettes’ active ingredient, nicotine, is derived from tobacco, thus making them subject to traditional cigarette restrictions.
Announced in May, the new rules ban the sale of all types of tobacco products to anyone under the age of 18 and require photo identification to sell to anyone younger than 26. They also prohibit sales of such products in vending machines outside of adult-only facilities and ban businesses from offering free samples of vape products.
The rules also require all product manufacturers—including small vape retailers that mix their own brands of e-cigarette liquid—to register with the FDA to apply for permission to sell their products.
The regulations are strenuously opposed by many e-cigarette advocates, including Greg Conley, president of the American Vaping Association (AVA). A former smoker who traded tobacco for vapor during law school, he now lobbies for friendly policies toward electronic cigarette companies as head of the AVA.
“The FDA’s final rule is not regulation. It is prohibition for all but the largest tobacco companies in the United States. Right now, more than 65% of the U.S. market is controlled by small- and medium-sized businesses that have no relation to the historical ills committed by the tobacco industry,” he says.
Conley alleges that the rules were pushed for the tobacco giants like Altria Group (formerly Philip Morris).
“This entire regulatory scheme was written by, and negotiated by, endorsed by America’s largest cigarette company, he says. “The only reason a Republican congress passed a bill giving FDA regulatory authority over tobacco wasn’t because the public demanded it. It was because Phillip Morris lobbied for it and cut a deal with the largest public health groups in the U.S., and part of that deal was that deadly, combustible cigarettes, which kill 400,000 people each year, get to stay on the market indefinitely.”
Altria did not respond to a request for comment for this story. In 2014, Reynolds American filed a 119-page submission with the FDA calling on the agency to ban open-system vape products. “We believe FDA should not allow such products to be sold or marketed … We believe open-system vapor products create unique public health risks,” Reynolds spokesman David Howard told the Winston-Salem Journal at the time. “These systems are highly subject to adulteration and tampering, they are manufactured largely overseas in facilities that would, as proposed, fall outside regulatory inspection and oversight, and many nicotine liquids are sold in non-child-resistant packaging in flavors that may be appealing to youth.”
However, Conley says Reynolds American actually opposed the latest rule. “Reynolds actually fought it until the bitter end. They put a lot of money in trying to stop it, so it wasn’t like the entire tobacco industry aligned.”
“We will not speculate as to whether our comments may have affected FDA’s final regulations,” Adams says. “It is the belief of Reynolds American Inc. Services Company (“RAIS”) that by releasing the final version of the deeming regulations, the FDA has started a critical regulatory process to dramatically improve the public health of our country by reducing the death and disease caused by smoking. We believe that a pivotal element of achieving that goal is regulation that provides adult smokers with innovative nicotine products that do not burn tobacco.”
“We also believe that smokers should have accurate information and education about products that are potentially less risky than cigarettes. We look forward to discussing with FDA how best to establish a reasonable structure for review and approval of new products so that public health benefits can be expeditiously achieved,” Adams added.
Adams’ note about looking into products that are potentially less risky than combustible cigarettes is telling. While she notes that Reynolds makes no health claims about its products, young vape-lovers aside, the e-cigarette industry is popular because of the belief that they are a healthy alternative to traditional cigarettes. Certainly, Conley believes that to be true.
“The vast majority of users, 90%, are either smokers or ex-smokers. A 2014 survey by the former head of the CDC’s Office on Smoking and Health found that in 2014 there had been 2.4 million Americans who credited vaping with helping them quit, around I believe 1.5 million who were still using the products and another 900,000 who had quit altogether,” he says.
But the new rules might dent that perception because they require e-cigarette packaging to contain a warning label covering 30% of the package that conveys that message that nicotine is addictive. It’s an open question of how those changes might affect the market for e-cigarettes. Fortunately, for e-cigarette marketers, the smattering of research broaching this and similar topics suggests that warning labels won’t dissuade customers.
A recently published article in the Journal of Public Policy & Marketing, suggests placing an addiction warning on an e-cigarette product significantly reduces consumers’ intentions to use the products unless it coincides with marketing copy promoting the products as healthful alternatives to other options.
Noted author and marketing research expert Martin Lindstrom conducted a brain-imaging experiment in 2006 that looked at MRI images of subjects’ brains when they were exposed to cigarette warning labels from different countries around the world, bearing messages like “Smoking Kills” and “smoking causes fatal lung cancers.”
“The study we conducted some time ago, scanning more than 2,000 brains in order to assess to what degree surgeons’ health warnings affect our craving spot confirmed that these warnings indeed have the opposite effect—increasing activity in the Neuclus Accombens—[the brain’s] craving spot, and thus subconsciously encouraging smokers to smoke more, not less,” Lindstrom wrote in an e-mail to Marketing Health Services.
“Several independent studies across the world seem to confirm this observation, and brands such as Marlboro have been quick playing on the embedded power those health warnings hold by crafting designs around these, further tapping into smokers’ craving tendencies and even further linking this with the design of their brand.”
Lindstrom says he believes affixing warning labels to e-cigarettes would lead to similar results.
“There’s no doubt that the health warnings on e-cigarettes will have exactly the same effect, simply because most of today’s electronic smokers have migrated from the old ‘guard’ of smokers, and thus already have been primed by the usage of those symbols”
Conley also believes that, while the new rule may fundamentally disrupt the e-cigarette industry by placing undue burdens on small and mid-sized manufacturers, it will not change how e-cigarettes are currently marketed.
“With the exception of the fact that no new products can come to market, there is going to be very little impact on marketing,” he says. “The certain provisions of tobacco advertising law are not going to have anything to do with the FDA. What passed in the 1970s and 1980s, in terms of television and radio advertising, that is not applicable to vapor products, regardless of what happens with the FDA.”
For Reynolds American’s part, Adams says that the new rule does not change anything about its current VUSE marketing strategy. “R.J. Reynolds Vapor Company is committed to responsible marketing. R.J. Reynolds Vapor Company does not target its advertising or tobacco products to minors or non-tobacco users. We make sure that VUSE advertising is in line with our commitment to reducing youth exposure to tobacco-related products and messaging. VUSE brand television advertising is only placed during programming viewed primarily by adults, according to Nielsen data. VUSE only places advertising in print publications that are similarly targeted to adults,” she says.
But how will the industry upheaval created by the FDA takeover affect future marketing efforts?
“I will not speculate on how our marketing may evolve,” Adams says.
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