Abstract

André Calantzopoulos, CEO of the world’s largest publicly traded tobacco company Philip Morris International (PMI), was all set to launch the company’s breakthrough Heated Tobacco Product (HTP) iQOS (I quit ordinary smoking), in the US market. PMI had introduced iQOS as an alternative to traditional smoking products, given the growing risk and health hazards associated with them. HTPs were PMI’s future business products, and the company worked on these products for several years before launching iQOS in Japan in 2014, where the product was highly successful. In the next five years, the product was sold in 38 countries around the world. But the US market was a different ball game altogether, as federal agency related to health and human services, the Food and Drug Administration (FDA), had to approve the product before it could be launched. iQOS got approval from the FDA after several laboratory tests and after it was proved that it reduced harm and the risk of tobacco-related disease among individual tobacco users and had a low impact on passive smokers. But observers pointed out that only selective toxins had been subjected to lab testing and several substances which were potentially more harmful than the constituents of combustible cigarettes had been ignored. These claims could make it difficult for PMI to market its products in the USA. For the company, the success of these products was highly important. For several years, it had been advocating people to quit smoking, and discouraging the use of traditional cigarettes. But in the process, PMI had cannibalized its own traditional combustible cigarettes. The decline in demand for traditional cigarettes was, however, not offset by the rise in the alternatives, and this had hit the company’s profitability. André Calantzopoulos had a huge challenge ahead of him. He not only had to come out with a plan to introduce new technology into the market, but had to also address the growing concerns about the harmful side effects of the ingredients. Moreover, the competitors were not far behind. Many of them had their own HTPs in the making, and were just waiting for the right time to enter the US market. At this juncture, Calantzopoulos needed to steer the company in the right direction, while the future of its future product was itself ambiguous.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Understand Fundamentals of change in the industry
• Evaluate Competitive strategies in an industry undergoing change
• Examine Six Forces – Strategic Inflection Point
• Apply Porter’s Five Forces to Tobacco Industry

Keywords

Philip Morris International; Heated Tobacco Product; iQOS (I quit ordinary smoking); New product strategy; Introducing new technology; Changes in the business environment; Tobacco industry; Market evolution; Industry’s value chain; Structural competitive forces; Porter’s Five Forces; Nature of change; Locus of change; Magnitude of change