Brian Kenny: Old Joe Camel, a cartoon camel with a style a bit like James Bond meets Miami Vice, made his first appearance in the United States in 1988 as the mascot for Camel Cigarettes. Joe had the appearance of a muscular human with a camel's head, no hump or hooves to be found. He appeared in all kinds of cool situations, riding a Harley, flying a fighter jet, playing piano in a white tux with shades on. And always with a Camel cigarette dangling from his lips. Joe Camel's tagline was smooth character, but he was also a highly effective caricature. Within four years of Joe's introduction, Camel's share of market with children increased from 0.5 percent to 32.8 percent . A 1991 study revealed that 91.3 percent of six-year-olds could identify Joe Camel. Approximately the same number of children who recognize Mickey Mouse. R. J. Reynolds, Camel's parent company, denied that the ads were designed to target children and they continued to use old Joe in their ads for another six years despite the shocking evidence that minors were, indeed, among his biggest fans.
Today we'll hear from Professor Mike Toffel about his case and entitled Juul and The Vaping Revolution. I'm your host, Brian Kenny and you're listening to Cold Call recorded live in common hall studio at Harvard Business School. Mike Toffel's research examines companies’ management of environmental affairs and occupational safety, identifying which types of management programs and regulations improve environmental and safety performance. Mike, thanks for joining me today.
Mike Toffel: Thanks for having me.
Brian Kenny: I related to this case on a personal basis because I actually smoked cigarettes when I was a teenager into my early 20s. So I would have been right in the sweet spot of the demographic that this case addresses. Let me ask you to start the way I always do, can you set up the case for us? What's the issue at hand?
Mike Toffel: The issue at hand is that Juul is the leading market share e-cigarette company. They've grown by five times over the past year. They went from $200 million of revenue in 2017 to a billion dollars in 2018. They are going gangbusters particularly in the teen market.
Now, their mission as stated on their website, is to convert tobacco smokers, adult smokers, from smoking as you did in your young adult life to nonsmokers. They call it switching. There's some evidence that that's actually happening by people who are smoking or becoming vapers or users of e-cigarettes.
At the same time, the big concern is that this has really become an epidemic in high schools and amongst the youth. While they talk about their target market being adult smokers, there's a lot of worry about those who are non-smokers in the youth market who have begun using this product. The numbers are quite amazing. Smoking in high schools has gone down by more than half over the past decade.
Brian Kenny: Smoking tobacco?
Mike Toffel: Smoking tobacco, combustible smoking, from something like 18 percent to 8 percent. At the same time, vaping has skyrocketed from 2 percent to the latest estimates [of about] 12 percent in some schools; 25 percent of high school seniors are vaping or have vaped.
It's a revolutionary new product with some real potential good to reduce harm for people who smoke tobacco on the one hand, but at the same time a real risk of hooking a whole new generation on nicotine addiction.
Brian Kenny: How did you hear about Juul? Why did you decide to write about them?
Mike Toffel: A friend of mine a few years ago told me about vaping, which I had never heard of. He … was saying it was a big deal in high school. What are we even talking about? He broke it down for me and as I looked into it this last couple of years, it was amazing to me how much press this was really getting. High school principals are saying, "We've never seen anything like it." Now every day you're seeing more and more news about the concern and promise of vaping.
Brian Kenny: You brought one today. These are tiny, fit right in your pocket, super convenient I guess, if you want to hide them away and keep them from mom and dad.
Mike Toffel: That's right. People use them in high schools and it's easy to hide whether you're vaping in class even or in bathrooms. It's a big deal.
Brian Kenny: There are different kinds of e-cigarettes. Juul represents one kind. Can you describe what the different products are?
Mike Toffel: There are a couple of different types. The original that hit the market were round, white, they look kind of a metal or plastic cigarette. Then there are other varieties called vape pens or vape mods or pod mods that vary a bit in their customizability. All of them have e-liquids, which has in almost all cases nicotine in it. The other piece is this heating element, which vaporizes the e-liquid as you inhale. They have a battery. The Juul is recharged through a USB port on a computer or any charging station. Those are the basic elements.
Brian Kenny: I've seen people in cars blowing what seems like huge amounts of steam out the window. That's the vape that people are inhaling?
Mike Toffel: That's right. That's the vapor. The brands differ in how much vapor that they produce and there's a whole YouTube phenomenon of people doing vape tricks, just like you would see a generation ago with people doing cigarette smoking.
Brian Kenny: Smoke rings, same idea. If you go back to Juul's mission of converting smokers from combustibles, are they having success in the adult market? Is that showing up in tobacco sales?
Mike Toffel: That's a widely contentious question. Juul and other vaping companies are making that claim. I haven't seen data yet to confirm that. There are a variety of studies that are just emerging both on the market share of vaping as a whole and of tobacco smoke. In the US, tobacco smoking has been going down and vaping is going up and how much of the diminishment in tobacco smoking is attributed to vaping is a little bit hard to tell.
Brian Kenny: How are these products sold? How do people get their hands on them?
Mike Toffel: There's a couple of main channels. They buy them online from the manufacturer. You can buy it from Juul's own website. You can buy them from third-party websites, whether they be smoking company websites or from Amazon. [There are vape] smoke shops in your tobacco, cigar, cigarette smoke shops. Then bodegas around town, sandwich shops, and such. There are a lot of channels.
Brian Kenny: It sounds like the tobacco industry has cottoned onto this, and they're using the very same distribution channels they use to sell combustible products.
Mike Toffel: That's right. The cigarette companies have entered this market as well, but there's a couple of large tobacco companies that offer some products and there's been an amazing number of startups and tiny brands. There's hundreds of brands that are out there that are making a play in this space.
Brian Kenny: How are they going to market? We know tobacco, you haven't been able to advertise tobacco on television for many years. Still, they advertise in magazines and things. How are the e-cigarettes being marketed?
Mike Toffel: Some of them are being sold in vape shops or in tobacco shops. It reminds me a little bit of craft beers—some of these vape pen products have adjustable heat and customizable liquids. There's a whole customizing-your-experience market out there. So that's one channel. The big tobaccos are putting them on the shelves next to their cigarettes. Then online, there's both direct online marketing and there's also lots of word of mouth, social media marketing.
Brian Kenny: So it's a ground-up type marketing approach?
Mike Toffel: That's right.
Brian Kenny: You talked about Juul's mission. Are they a mission-driven company as you would see it? Do they see themselves as a mission-driven company?
Mike Toffel: I think they do see themselves that way. I mean their mission literally is to convert, to improve lives of the world's 1 billion adult smokers, that's their mission statement… Those are daily smokers. So there's plenty of market if they were to seek to convert smokers.
Brian Kenny: Is their product considered to be different, better, in some way than the competition?
Mike Toffel: There are a couple of things that have led to their explosive growth and to their dominance in the e-cigarette market. One is the appearance. It's a sleek product. They were referred to … as the iPhone of smoking or vaping. Another is that it doesn't release all that smoke that you referred to another product releasing, so you can do it more discreetly.
A third is that they have a patented technology that combines the e-liquid with the heating element that enables the user to get a faster hit of nicotine. That rush [happens] in a more comfortable way so it doesn't burn your throat as early products and some of their competitors do. And it gives you that faster absorption of nicotine. It's much closer to the tobacco smoking experience than many of their competitors. When you put these things together—the sleekness, the lack of exuberant vapor, and the quicker hit, plus the social media piece—these are the things that have really led to its explosive growth in my opinion.
Brian Kenny: What are some of the flavors provided?
Mike Toffel: A lot of people start with their starting kit, which is the vape pen, a charger/converter, and four pods that come in Virginia tobacco, mint, crème, which used to be called crème brûlée, and mango flavors. Other flavors they sell are cucumber, menthol, fruit, and classic tobacco. They have two nicotine strengths: 3 percent and 5 percent nicotine strength.
Brian Kenny: A lot of these would be appealing to young people, the middle and high schoolers.
Mike Toffel: That's right. There's a reason why the federal government outlawed flavored tobacco and that was because of its appeal to youth. Now, Juul and other companies in this space say that in their efforts to try and convert people from smoking tobacco, providing a variety of flavors is a way of keeping them interested in the vaping experience. Presumably with the implication that it's helping them not go back to smoking. Now, it's kind of hard to say whether that's so, and if even it is so, someone has to make the judgment as to whether it's worth it, worth the risk of appealing to children.
Brian Kenny: One of the big barriers to smoking cigarettes when you were young was that it's not an easy thing to get used to. It's a very uncomfortable, harsh feeling on your throat. But they've removed that barrier it would seem, with the Juul-type cigarettes.
Mike Toffel: That's right. And menthol is another barrier to that harshness so that's one of the reasons why menthol remains the only allowable cigarette flavor. It provides an anesthetic to your throat so when you inhale, you feel that cool, tingly feeling, which anesthetizes you against the harshness of the cigarette smoking experience.
Brian Kenny: Do you know what the ingredients are that go in to the pods themselves? Nicotine, but what else is in there?
Mike Toffel: There's a variety of additives. Benzoic acid is one. Some of these are used in other products.
What's interesting is that we don't really know yet what the health implications are of vaporizing these and inhaling them as a vapor. That's a big question mark. Scientists generally think that vaping is healthier than smoking combustible tobacco. Because it doesn't have the tar, the cancer-causing agent in combustibles. So generally people think it's a better thing.
In fact, UK policy has been and UK doctors have been urging smokers to shift to vaping for that very reason. But the reality is we just don't know yet what the health implications are going to be of vaporizing these additives.
We also don't know a lot about the health implications of nicotine addiction itself because it seems like most of the energy that went in to assessing the health consequences of combustibles really focused on the combustible element and on the cancer-causing agent, understandably.
I think it's too early for people to say really how harmful it is. The science is now blossoming I think, but there's studies coming out here and there. For sure, given the popularity of vaping, there's going to be a lot of money poured in to assessing the health consequences.
Juul’s marketing strategy
Brian Kenny: Maybe this is a good time to dive in to the marketing approach that Juul has taken, their social media and the imagery that they're using. Can you talk about that?
Mike Toffel: What was interesting in the early days of Juul's emergence is that they really targeted what seemed to be the young 20s and maybe the teens. They would argue that they did not target teens, but when you look at the advertisements … their go-to-market was a combination of social media through Instagram, through Facebook, with photos almost like Benetton ads used with 20-somethings wearing their clothes.
And they had launch parties just like you would have launch parties for new brands of scotch or something like that. So really targeting that demographic. If you look now on their website, the folks they feature are 30, 40, 50, 60-year-old men and women who talk about their experience switching from smoking. Their website now and their marketing approach now looks very different than it did even just two years ago.
Brian Kenny: So they've been responsive it sounds like to some of the concern and criticism that's been raised.
Mike Toffel: That's right.
Regulators crack down
Brian Kenny: The case talks about the legal action that's been pursued starting here in Massachusetts, I think, with our attorney general, but are there public advocacy groups and others that have gotten involved?
Mike Toffel: They're facing a bunch of challenges from regulators really at the local, state and federal level right now.
At the local level, there's towns like Brookline, Massachusetts, that are considering banning the sale of flavored e-liquids. San Francisco is considering the same. San Francisco's where they're headquartered. Then we have state attorney generals from Massachusetts and North Carolina looking into deceptive advertising practices to see whether they were actually trying to get youth hooked on their products. At the same time, the FDA commissioner has been very aggressive, recognizing that this is a big deal with youth. He's called it an epidemic.
Brian Kenny: This sounds a lot like the case I referred to in the introduction against R. J. Reynolds back in the early 1990s so it feels like we've been down this road before with legal action being taken and the company trying to defend its stance on this. What's the reaction been like from Juul to all of this activity?
Mike Toffel: There are a couple of reactions. One I mentioned earlier is the change in their website and who they are featuring on their website. The second is they shut down their social media function—they disconnected their Facebook Instagram accounts so that they can no longer be [accused] of pushing that message through those channels. They have come out more vocally supporting controls against youth accessing their product. Through a negotiated process with the FDA, they have removed their flavors from shelves of retailers. Now the only way to buy the flavored pods is to buy it through their website, which has age verification. There's a question about whether how stable that is and how long they're going to do that.
Brian Kenny: I haven't visited the website but is that just a situation where you click, yes, I'm 18 or older when you go to the site or is there more?
Mike Toffel: There was more than that. I did do it to buy this product to test it all out. Age verification is a tricky thing. Juul's taken a variety of approaches in response to this pressure. They've changed their marketing, disconnected from social media themselves… At the same time, they have ramped up their lobbying efforts in Washington. I think they're seeing the writing on the wall of exactly the playbook that you saw with tobacco. And so now they're spending a lot more on their government affairs office there. They just hired Martha Coakley, the former attorney general of Massachusetts.
Brian Kenny: Kind of a shocker.
Mike Toffel: It was a surprising move. But again if you believe in the mission, that this is going to reduce harm of adult smokers, there's an enormous amount of good that can be done through this product. So I can see why people can be attracted to that mission. If you can adequately protect the rest of the nonsmokers and youth in particular against accessing the product.
Brian Kenny: Is there a secondhand smoke issue with vape? I'm thinking about that cloud of vape that's coming out of the car in front of me. Is there a secondhand issue like there is with tobacco?
Mike Toffel: I don't know that that's been studied yet. This is such a new, quickly rising phenomenon that there's so much work to be done in doing these health assessments. People really haven't studied, as I said before, the implications of these ultra-fine particles, the toxins that are used in the e-liquids. At what dose does it become a problem? We're just now investigating those questions.
Juul finds a surprise suitor
Brian Kenny: The case also gets into Juul’s acquisition by Altria. Altria is a tobacco company. So to me, I immediately went to was this letting the fox in the henhouse? The optics of that aren't great, but maybe you have a different perspective on it.
Mike Toffel: What do you mean by the optics aren't great?
Brian Kenny: It feels like if they're trying to help people break away from tobacco. Would a tobacco company share that very same mission and the same way that it's been internalized at Juul?
Mike Toffel: What's in it for Juul is getting tremendous access to a huge distribution network. So that seems like if Juul wants to grow, getting engaged with someone who has all those channels already figured out … seems like a good move.
For Altria, it seems like a good move because it's a hedge. As people are moving away from the nicotine product that they've been selling. Well, why not sell them the next nicotine product? So from both sides, there's sort of a good rationale as to why they would have partnered.
I do have a sense that for those who are mission-driven at Juul, being a third-owned by Big Tobacco is causing some rifts. And it's going to maybe lead to the need for that organization to really figure out how they will clarify their mission and vision within the organization. How are we going to attract people who might have worked for Juul before but now pause and say, "Well, how anti-Big Tobacco are they if they’re a third-owned by Altria?"
Brian Kenny: With this growing generation of millennials who are entering the workforce, the whole notion of mission-driven organizations is pretty important. So I would imagine Juul would be a pretty attractive place for somebody who lost a family member to cancer who really wants to make a difference.
Mike Toffel: I think that's right.
Juul goes to the classroom
Brian Kenny: Have you discussed this in class?
Mike Toffel: This case was taught to all 950 of our first year MBAs about a month ago in the course called Leadership and Corporate Accountability. They talked about the issues that we're talking about, like, "Is this an ethical, appropriate way for a company to launch? What should Juul do now, given the pressure that they're receiving from nonprofit groups? Could they have launched a different way, could they've launched without going through the youth social marketing?”
And at the same time, what should the government do? The government could ban this product. This product has an enormous potential to reduce harm from tobacco. So it's a tricky question. I mean, one of the interesting things Juul isn’t doing is claiming to be a nicotine secession technology. A leading way to do that is by using nicotine replacement therapies like the patch, for example.
Brian Kenny: Or the gum.
Mike Toffel: And these are FDA approved, due to their proven efficacy at getting people off tobacco and eventually even off of these products. These are transitional products. A big difference with Juul is while it's quite attractive to some smokers to switch, it’s not a transitional product in nearly the same way. So when you see the language about “switch,” it gives you a different interpretation as to what they mean. They really do mean switch. They don't mean switch and then quit. Which is very different from the value proposition of the patch or the gum.
Right now, you can sign up for a replenishment program that will send you new pods in the mail every several weeks, forever. It's like what you do with other things, like dog food, when you want to receive that dog food forever.
Brian Kenny: Mike, thanks so much for joining us.
Mike Toffel: My pleasure. Thanks for engaging the conversation.
Brian Kenny: If you enjoy Cold Call, you might like HBR After Hours. A podcast featuring Harvard business school faculty, dishing on the latest happenings at the crossroads of business and culture. It's what professors from the world's leading business school talk about when school is out.
I'm your host, Brian Kenny, and you've been listening to Cold Call an official podcast of Harvard Business School, brought to you by the HBR Presents network.