Why do brands have to push the 9.9 yuan vapes at a loss?
In the end, the e-cigarette industry has reached this stage.
In the opinion of many people in the e-cigarette circle, the “online sales ban” half a year ago was destined for the industry to reach this stage today. I just didn’t expect that the price war and dumping war would come so fast.
With YOOZ launching a 9.9 yuan device, some mainstream brands have also quickly followed up, launching disposable vapes of the same price. At the same time, in order to make products more “handy”, some brands are also fully expanding new offline sales channels. An e-cigarette agent revealed that since the Spring Festival, its agent brand has authorized hundreds of distribution stores nationwide, and the offline sales network has covered nearly 80% of the second, third and fourth tier cities.
So, the e-cigarette industry, which has already started the price war, channel war and dumping war, will it break through the difficulties and make a comeback? What challenges and crises are hidden behind the industry’s breakthrough price bottom line?
Low-cost products do not make money: Just for more conversions
“Before these 9.9 yuan devices, the cheapest on the market was disposable vapes.”
Zhang Feng ’s commerce company has signed three well-known brands of e-cigarette products. Currently, he is mainly responsible for authorized franchise and promotion operations of stores in Fujian. He told me to understand that after the release of 9.9 yuan devices by YOOZ at the end of April, some major brands also quickly followed up, and the retail price of related products dropped from 39 yuan “cliff style” to 9.9 yuan.
According to his understanding, an electronic cigarette device that only sells for 9.9 yuan is theoretically absolutely at a loss. As for a disposable electronic cigarette of 9.9 yuan, it is basically no profit. “Whether it is a device or a disposable, it must have a built-in battery, the control chip, circuit board, the actual cost is not low. ”
So why do companies have to push the 9.9 yuan e-cigarette at a loss?
Zhang Feng analyzed that these companies are pushing low-priced products. On the one hand, they are trying to attract more smoker users to try to increase the number of users; on the other hand, they are robbing users of other brands and opening a hole in the downturn market to offset the negative impact caused by the “online sales ban” of e-cigarettes.
“To put it bluntly, it is a zero-sum game. The extra users you have are lost by others.” In his view, mainstream brands have been doing e-commerce sales at the earliest, because of the low online marketing costs and wider user coverage. However, after the “online sales ban” was officially implemented, the sales of electronic cigarettes began to shift from online to offline. “The best reason to attract smokers to go online to experience and purchase e-cigarettes is that the price is low enough.”
Zhang Feng said that the price of a device of 9.9 yuan and a pod of 9.9 yuan are even cheaper than a pack of ordinary cigarettes. When consumers pass by stores, counters and experience stores, they are likely to buy or try as soon as they arise.
“What really makes money on e-cigarette products is the follow-up pods. The industry’s default pod or cartridge profits are around three to four times.” Zhang Feng told me to understand the notes, as long as curious users bought 9.9 yuan cigarette rods and disposable vape, after experiencing the taste, they have the opportunity to recognize the brand and even become a loyal consumer of the brand. Therefore, this is the most effective means of drainage in the offline market, and it is necessary to work hard to lose money.
“The 9.9 yuan loss price is to convert traditional smokers or users of other e-cigarette brands into their own users. The follow-up to make money is the self-introduced pods.” Zhang Feng revealed that low-cost products are not only for traditional cigarettes, the temptation of the people is great, and it also attracts many users who have not consumed e-cigarettes. Early non-smokers have become loyal users of e-cigarettes after the early adopters. “Our company originally did not have many smoking employees. After joining the job, they were also attracted by pod vapes and became a fan of e-cigarettes. ”
In fact, in order to make low-cost e-cigarettes “handy”, let traditional smokers and consumers have as much contact as possible, and understand the products of the brand, more brands and agents have started to make a name for themselves in stores and counters. And strive to penetrate into the daily lives of more users.
Sales network penetrates the community: visible when going out
“After the Spring Festival, the company’s business team is running offline, basically no rest on the weekend.”
Zhang Feng said that as early as the e-cigarette “online sales ban” was announced, the company’s brands all coincidentally emphasized that the expansion of offline sales channels as the focus of the new year’s work. Coupled with the impact of the epidemic, users reduce the need to go out. If they want to make their e-cigarette products “handy,” they need to establish a “last ten meters” sales outlet.
However, after the Spring Festival, due to the unclear policies of the e-cigarette industry and the uncertain consumption environment, the demand for e-cigarette stores to join has declined, and many small and micro investors (distributors) have begun to wait and see. “Some brands have not even have new store opened, in order to make more sales outlets, they can only find chain supermarkets and even husband and wife stores to cooperate in consignment sales. ”
Zhang Feng told us that since the beginning of March, they have reached cooperation with three large supermarket chains in the province. They have put e-cigarette products in the stores of these chain supermarkets, mainly consignment of starter kits and cartridges. Some brands of disposable electronic cigarettes of 9.9 yuan have recently started to be sold in supermarkets. “Now the competition of many brands is actually the competition of channels, from relying on online to offline expansion in the previous two years.” Zhang Feng emphasized.
“The company’s CEO feels that the current e-cigarette sales network is still not dense enough to penetrate the” last ten meters “of smoker users, so it is still raising the stake in gambling.” He emphasized that after these supermarkets began to sell e-cigarettes, consumers did not need to go to the franchise stores a few kilometers away to buy e-cigarettes, but because of the limited density of large and medium-sized supermarket chains, it is still difficult to cover all their ideal target communities. “So, a while ago we have negotiated cooperation with more community shops and restaurants, hoping that these shops can also put on shelves and consign electronic cigarette products.”
Negotiations with small convenience stores and husband and wife stores around the community, they also use consignment. Because these small shops do not require additional investment costs, besides the considerable profits of distribution of the pods, many community restaurants and husband and wife shops are also willing to cooperate, but the company’s offline channel staff costs have increased a lot.
“As long as a display rack for e-cigarettes is placed in the store, consumers can get a 15-20% share if they buy a product.” Zhang Feng said that only if the agent’s products are really covered in community shops, is it possible achieve the same purchasing efficiency as traditional cigarettes.
“From the current effect point of view, the practice of consignment selling e-cigarettes in small convenience stores and small husband and wife stores has indeed brought some new users.” Zhang Feng told us, from the survey data of the official feedback of the agent brand, since Since March, the average number of new members on its official APP day has been nearly doubled from January to February this year.
However, with the increase in new users and the increased demand for cigarette cartridge products, e-cigarette brands and agents are also facing new challenges. These challenges have also led to the sudden emergence of ultra-low-cost or even loss-making products.
Online prices are in chaos, and it is difficult to eliminate fake products
“Actually, e-cigarettes and cartridges are still available online.”
Zhang Feng told, although the regulation for e-cigarettes has been implemented and all e-cigarette products on regular e-commerce channels have been removed, as long as you search for “e-cigarettes” on some second-hand e-commerce platforms and social platforms Keywords such as “vape protective cover” can still find e-cigarette merchants who “hang sheep’s heads and sell dog meat”.
In the past six months, there are not many businesses that quietly sell devices and cartridges online. What makes these agents even more troublesome is that the prices of devices and cartridges sold online are much lower than those of offline retail channels.
“Businessmen who quietly sell electronic cigarettes through wechat methods have a price of only two-thirds of the official recommended price, which makes the market very chaotic.” For example, Zhang Feng said, a brand of three pods in a box, the official recommended retail price is 99 yuan / box, but it is only 60 yuan / box to buy through the so-called Wechat channel; even for the 300 yuan electronic cigarette kit, some Wechat merchants only sell 200 yuan.
The low price of Wechat has attracted a large number of vapers to buy devices and cartridges from them, and it has also disrupted the market mechanism. “There have been sales outlets that some customers will use the price of the Wechat channel when buying products. Based on the low price, they feel free to bargain. ”
Obviously, the price chaos has seriously affected the sales of offline channels. So, why are the cartridges sold by WeChat so cheap?
Zhang Feng analyzed that although some merchants quietly sell e-cigarette products online in a wechat model, the source of goods is also from agents at all levels. “In the early stage of industry development, some brands authorized multi-level franchisees in various provinces and cities in order to quickly establish a sales network.” Among them, some speculative franchisees and agents, on the one hand, develop store authorization, on the one hand, use merchandise to take the advantage of price to develope the Wechat channel. In addition, the cost of investing in online sales of goods is much lower than that of offline stores and consignment outlets, so that the price has dropped a lot. “In addition to the impact of the epidemic, some Wechat-businesses have provided express door-to-door services, winning consumers’ favor. ”
So, why don’t these brands and agents vigorously rectify the chaotic behavior of Wechat sales channels?
“At present, many brands are making every effort to expand the offline sales network, but the online shipment volume is still considerable.” Zhang Feng said that when communicating with some big agents, he learned that it is conservatively estimated that e-cigarettes sold online through WeChat total amount often accounts for more than 40% of the overall brand sales.
In other words, if the brand side vigorously rectifies online Wecaht channels, shipments will be greatly affected. Therefore, many brands choose to close their eyes.
“The biggest headache for our agents is that some e-cigarette manufacturers have also started to aim at the cartridge business, developing universal cartridges that are suitable for devices of various brands, or manufacturing highly imitation genuine cartridges. Start sales through Wechat channels. “Zhang Feng said that there is a big background here: Shenzhen has a large number of e-cigarette foundries. Most of them are now in overcapacity. The original brand only needs to continue to develop new products, which can be eliminated for a period of time. Imitations and fakes, but due to market and policy uncertainties, many brands have basically stalled in the development of new products. “Therefore, factories with overcapacity have begun to copy a lot of imitations, which is one of the reasons why genuine manufacturers are now pushing 9.9 yuan for devices.”
In fact, the players in the e-cigarette industry now have an apparently polarized attitude towards the market outlook, and optimists and negatives can draw sufficient arguments. Judging from the relevant data released by AiMedia, the Chinavape market has gradually slowed down due to factors such as tax rates, price increases, and strengthened national control. The e-cigarette market has begun to accelerate. The market size is expected to reach 8.4 billion yuan in 2020. This has also caused some brands to start to work offline channels, so that the e-cigarette industry presents a “prosperous” scene.
But while the brand is madly seizing the offline market, transforming traditional smokers and ordinary consumers, a zero-sum game is also launched. Price wars, dumping wars and the popularization of fake products have led to chaos in the market, highlighting the huge crisis hidden in the industry.