ECIG and a Strategic Management Review

Electronic Cigarettes International Group (ECIG): Report on Strategic Management Electronic Cigarettes International Group (ECIG) is a publicly traded (OTC:ECIG) company that specializes in producing, distributing and selling e-cigarettes, vaporizers, e-liquids, and related merchandise to consumers looking for an alternative smoking experience or a method to help them quit smoking traditional cigarette or tobacco products. ECIG develops and sells a number of brands including VIP, FIN and Vapestick in the UK, U.S., and Europe.

The company uses non-traditional retail strategies, such as kiosks in heavy foot-traffic areas in England and the U.S. plus Internet-based retail outlets. The company is currently situated in a complex position -- for in the UK, the British government has promoted e-cigarettes as being 95% less harmful than traditional cigarettes (Public Health England, 2015), but in the U.S., the FDA has adopted a much less favorable view of e-cigarettes and vaporizers, essentially deflating the market for them in the States (Berr, 2016).

This report will assess the strategic purpose of ECIG in terms of mission, vision and values. It will examine the relationship and compatibility between strategic statements and functional objectives of the company. It will analyze the broad macro-environment of the company in terms of political, economic, social, technological, ecological and legal factors as well as threats and opportunities in order for the company to gain sustainable competitive advantage.

It will utilize Porter's Five Forces analysis to define the attractiveness of the industry and the market and to identify potentials for change. It will identify what comprises strategic capabilities in terms of organizational resources and competences and how these relate to the strategies of the company. It will analyze the business functions of ECIG and provide critical analysis of the generic strategies of the company through The Strategy Clock. Finally, it will examine the key directions for future growth for the company, using Ansoff's Matrix.

The report will conclude with recommendations for ECIG regarding the strategic issues the company currently faces. Table of Contents Strategic Purpose The strategic purpose of ECIG is based on a near-term view to rescue itself from costly acquisitions made under the former CEO that have left the company mired in debt. The mission of the company under new CEO Dan O'Neill is to establish VIP as an international premium brand, expand the company into non-traditional channels, strengthen the organizational talent pool, cut costs and improve working capital (SA Transcripts, 2015).

The long-term mission of ECIG is "to deliver profitable growth to enhance shareholder value" (SA Transcripts, 2015). The company's vision is that it offers a premium product in a burgeoning sector and can make a positive impact on the lives of individuals looking for a healthy alternative to smoking (SA Transcripts, 2015). Its values are rooted in an ethical commitment to providing a quality product to the health-conscious consumer; for that reason the company under O'Neill values honesty, transparency, and efficiency (SA Transcripts, 2015).

Relationship between Strategic Statements and Functional Objectives O'Neill's plan to turn the company around from the brink of bankruptcy hinges upon the company's ability to refinance its debt obligations, which so far have caused the stock to be diluted (and has hurt shareholder value substantially -- a reverse stock split in 2015 caused the share price to plunge and currently the stock appears to be a death spiral as loans become due quarterly and the company has no choice but to offer warrants to lenders at lower and lower prices).

Currently the stock trades at 14 cents on the OTC. In 2015, Wells Fargo was to underwrite the company's jump to the NASDAQ -- and when that fell through, the stock was hammered downward from north of $200 per share to mere pennies today. O'Neill's strategy of boosting shareholder value depends upon making do with the non-traditional channels available to the firm in the UK (kiosks) and reducing debt obligations.

After one year at the helm, O'Neill has not been able to turn the company around in terms of shareholder value; however, he has reduced costs and managed to reduce SKUs year-over-year (SA Transcripts, 2015). External Analysis The broad macro-environment of the company consists of the following: Politcally, ECIG is well-situated in the UK but nowhere else, as government regulation in Europe, the Middle East, Asia, and the U.S. is unfavorable to e-cigarette and vaporizer retailers.

Only the UK government has given any indication of promoting e-cigarette usage publicly; for this reason, the company's main sales revenue comes from the UK (SA Transcripts, 2015). Socially, the company is well-situated to capitalize on the vape trend, as many communities have banned public smoking in bars, college campuses, workplaces, etc. While some communities and governments view vaping as different from smoking (since there is no actual smoke, only vapor from water), others view it as the same and do not want it to be allowed anywhere smoking is banned.

Thus, there is still some confusion about whether the public will embrace vaping or treat it with the same social scorn shown cigarettes in recent years; ecologically and technologically speaking, some researchers view vaping and the technology used (and its impact on the health of vapers and on the environment) as bad all the way around and highly dangerous (Allen et al., 2015).

Legal factors remain unresolved, though recent settlements have been made with regards to proprietary technology, for which ECIG and several other vape manufacturers were sued; however, with regard to regulations concerning vaping and e-cigarette sales along with e-liquid juice, only the UK has shown any favorable legal regulations regarding the sector (Cancer Research UK, 2013; Gwynn, 2015).

Threats facing the company include competitors from Big Tobacco, as they have far more distribution abilities than ECIG and have a much higher market cap, with a much more stable stock record by which to attract investors -- a major weakness of ECIG at the current time (SA Transcripts, 2015).

Other threats consist of a hostile market place led by bad reviews of researchers citing dangerous additives in e-juice and regulatory bodies like the FDA issuing strict guidelines for the industry which makes it difficult for smaller companies like ECIG to compete against larger companies that can afford to pay the expenses associated with the guidelines (Berr, 2016; Chaudhui, 2015; Giovenco et al., 2014). Opportunities are still present, however, in the UK for example, where ECIG has over 200 kiosks in the London and other metro areas.

The company is developing a stronger brand image and has the opportunity to cultivate brand loyalty through marketing campaigns like the Great Giveaway which it conducted leading up to New Year's 2016, whereupon smokers look to quit and can use ECiG's products to help stick to their new resolution (Gwynn, 2015). Porter's Five Forces Threat of New Entry, Buyer Power, Supplier Power, Competitive Rivalry and Threat of Substitution are the five forces of Porter's model. Existing Rivalry consists of Blu, V2, and Apollo, as well as many other smaller brands.

Because the proprietary technology involved in manufacturing e-cigs and vaporizers can be generically reproduced, there is no end to the possibility of many brands competing in this industry (Goodman, 2013). Likewise, the threat of new entrants is high as well, as the products are relatively inexpensive to manufacture, distribute and sell -- and as ECIG demonstrates, all one needs is a small kiosk to set up shop.

Because of the competitive nature of the industry, the bargaining power of buyers is high, which is why ECIG seeks to provide high-quality customer service to make itself standout among competitors (SA Transcripts, 2015). And the bargaining power of suppliers is limited because ECIG manufactures its e-liquid juice and parts locally so as to conform with regulations (SA Transcripts, 2015).

Internal Analysis What comprises strategic capabilities in terms of organizational resources and competences is one of the company's stated pillars of support in the firm's turnaround: using high-level talent (O'Neill formerly led Molson and CFO Phil Andersen worked prior for Pinnacle Investment Fund, with Monsell Darville acting as Chief Marketing Officer, formerly of Bacardi). With high-level talent, and moving the headquarters to Denver, CO, so as to be more appealing to employees, the company's focus is to attract strong leadership in key positions moving forward.

Basic resources include the company's internal organizational structure, with CEO, CFO and Chief Marketing Officer being leadership roles that can help the company moving forward, and unique resources being the high-level of experienced talent and leadership brought in to fill these roles. Because the strategy of the company is to increase shareholder value, these moves could help to bolster shareholder confidence -- but so far they have not -- and that could be the result of the company's crushing debt and continual dilution of the stock.

The business functions of the company include the development, distribution and selling of e-cigarettes, vaporizers, e-liquids and other related merchandise at kiosks in the UK, U.S. and Europe. The online store is also part of the business and is maintained from headquarters in Denver, CO. The financial side of the business is in terrible condition because of high interest bearing loans that the company simply is not on track to pay back considering that its sales are not enough to match the principle.

Thus, more warrants are given to lenders, initiating a death spiral in the stock. The sales department is in much better condition, with SKUs declining substantially year-over-year, costs of operations declining, and sales increasing (SA Transcripts, 2015). In the marketing side of the business, there has been improvement, with the Great Giveaway attracting new thousands of new customers, and the first vaporizer TV spots appearing the UK for ECIG last year.

The company is focused on re-branding itself -- but the hole that the company finds itself in due to overpaying for acquisitions like VIP under the former CEO may be too great to climb out of going forward. Sales must pick up considerably and warrants must stop being issued because shareholders do not like to see dilution (SA Transcripts, 2015).

Basis of Competitive Strategy The company's strategic position in terms of Bowman's Strategy Clock utilizes all three of the price differentials, by producing products that are low price for beginners, medium price for experienced users, and premium products for advanced users who want a more premium product. This is consistent among specialized competitors like Apollo and V2 as well.

The company's added value is high in some categories (Vapestick was voted best vaporizer in the UK by an independent panel) and low in others (VIP has not caught on the U.S.) (Vapestick Ranked the UK's No. 1 E-Cigarette Brand, 2015). The company needs to better define itself -- as of now it is attempting to appeal to all aspects of a very niche market that is on verge of breaking out (Goodman, 2013).

It seeks to market most heavily its VIP products, which also range in price from low to premium, depending on the type of product the user is looking to purchase. The kiosks in the UK are moving towards offering a unique blending boutique service that allows consumers to blend their own e-liquid juices, but this is not a service that can be extended outside the UK due to regulations in the U.S. (SA Transcripts, 2015).

Thus, the company is stuck attempting to appeal to various levels within the niche market at the time while crafting its brand. Thus far, VIP is the standout in the UK, but there is little appeal in the U.S., considering the company's lack of specific targeting of an area within the Strategic Clock. Strategic Choice and Strategy Evaluation Market Penetration The company is increasing promotion and distribution support in the UK and should continue to do so as this helps effectively build the VIP brand and ECIG visibility.

Acquisitions are not a good strategy (or even possible) at this time, as the company is too heavily in debt to acquire anything. Modest product refinements such as in the premium product category could appeal to niche users, but the starter kits are also a good way to bring traditional smokers into the market as a "quitting device" and this is what ECIG needs to continue to play up in its marketing and attempt to secure new customers.

New Product Development ECIG should continue to invest in research and development so as to identify new trends in the market and offer a product that meets the needs of the consumer base; joint development with another partner for distribution or branding could be a profitable strategic initiative at this time, as ECIG is currently too weak to buy up brands or acquire new products.

New Market Development ECIG can grow in this area by concentrating on different customer segments (new locales, foreign markets where regulation is favorable -- perhaps India in the coming years. ECIG's low-cost operations makes its kiosks an affordable entry-point into new markets and especially regions with high foot traffic. Diversification ECIG is already vertically integrated (SA Transcripts, 2015), and further diversification is not possible at this time; new start-up ventures that are unrelated are not affordable and acquiring new businesses is not possible.

ECIG's boutiques are an area where services should be concentrated and the VIP brand in.