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FIVE FORCES ANALYSIS: WORKSHEET

(Industry Attractiveness Analysis from the Perspective of Major Incumbents )
I. Barriers to Entry and/or Mobility
Factor

Yes
()

Comment/Support

No
()

Large firms do not have a cost or performance advantage in

your segment of the industry. For example, costs do not
decline significantly with volume. (No economies of scale)

From personal experience on reconnaisance trips to

China, large orders of over 10000 units or more
experience significant cost advantages

There are no experience curve economies in this industry.

(This is different from economies of scale. The existence of
experience effects in an industry means that incumbents are
able to have lower costs due to past learning and experience,
and that it would be difficult for less experienced firms to gain
the same level of performance without going through the
same learning process.)

There is a large experience curve in this industry,

most especially with regards to manufacturing. The
current leaders in the industry are those with prior
experience in both understanding what the customer
wants and having a sufficiently effective device.

There are no proprietary product differences in the industry.

(For example, existing companies products are not protected
by patents)

Generally, there are no closed patents on vaporizers

as they are essentially a battery attached to a heating element.

There are no established brand identities in the industry.

(Lack of brand equity for incumbents)

According to the statistics, Njoy and Vapor have 32

and 16 percent market share, respectively.

Not much capital is needed to enter the industry. (For

instance, used equipment might be available, as in the airline
industry, to start operations)

A company named ATB is currently a leader in its

niche despite having only 2 employees and a tiny
production capacity.

Newcomers to the industry will be able to access existing

distribution channels.

There has not yet emerged a national chain to which

products are distributed. Local distribution still feasible.

Newcomers to the industry will have little difficulty in obtaining

the necessary inputs and resources (e.g., skilled people,
materials, or suppliers) to start business operations.

Many of the starting inputs are easy to obtain. Even

people with non-electronics backgrounds are able to
create a product.

The industry rate of growth is high.

Forbes has cited triple digit growth rates over the

last 2 years.

The industry has well-defined product standards or

specifications, which newcomers can implement.

Although there are not yet FDA regulations on the

sale of e-cigarette products, many of the pre-certifications are easy to follow.
Local tobacco sale licenses are easy to obtain for re-

Newcomers to the industry will be able to obtain the

necessary licenses and permissions to start operations.
The industry offers newcomers one or more potential point of
entry. (Incumbents havent attempted all possible viable
strategies in the industry)
The industry has no history of retaliation by incumbents
against new entrants. Industry economics (e.g., low fixed,
high variable cost, low level of consolidation) is such that
incumbents dont typically react to new entries.

tail locations, but ISO5000 for manufacturing is diff.

As a new industry, incumbents have not yet had the
opportunity to block out potential points of entry.
Big tobacco has been slow to enter.
Many of the largest players in the U.S. market are
eager to grow the size of the market and rarely
retaliate against new entrants

Note: The greater the number of NO checks, the more attractive the industry to incumbents.

Source: Format adapted from Mason Carpenter, University of Wisconsin

at Madison. Modified January 2005
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II. Bargaining Power of Buyers

Factor

Yes
()

Comment/Support

The buyer industry is more consolidated than my industry.

Buyers are for the majority of the time

individual consumers.

Buyers buy in large quantities.

Buyers from retail locations do not typically buy in

large quantities.

My product is a small part of the buyer's cost of inputs.

The products sold constitute a large part of cost of

input both for B2B and B2C

The buyer does not face any significant costs in switching

suppliers. (That is, my buyers can easily purchase from my
competitors.)

The current lack of unique product offerings from

both manufacturers and retailers makes it very easy
for the buyers to switch.

Does the buyer need a lot of important (technical) information

to inform its purchasing decision? (In such situations, buyers
tend to be more knowledgeable about what they are buying.)

E-cigarettes can be very tricky for the layman to

master and adopt. Therefore, most serious users are
going to research their purchases extensively.

No
()

The buyers can vertically integrate backwards into your

business.

III. Bargaining Power of Suppliers

Factor

Yes
()

Comment/Support

The supplier industry is more consolidated than my industry.

My business is not important to the suppliers.

Suppliers often cater to many fragmented buyers,

The quality of inputs is critical to my finished product.

therefore, the net impact of a purchase is marginal

As there are so many competitors in the industry,
it is critical that the buyers

My inputs (materials, labor, supplies, services, etc) are unique

or differentiated. That is, I cannot switch suppliers quickly and
cheaply.

Hundreds if not thousands of companies in the

Shenzhen region offer similar products. There are
also hundreds of nicotine solution vendors. More inc.

I don't have many supplier alternatives.

My suppliers can vertically integrate forward into my business.

Source: Format adapted from Mason Carpenter, University of Wisconsin

at Madison. Modified January 2005
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No
()

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IV. Threat of Substitutes

Factor

Yes
()

Comment/Support

My customers have one or more substitutes available to

them.(For example, high fructose corn syrup is a substitute
for sugar in many industrial applications.)

Traditional Cigarettes and disposable e-cigarettes

by leading tobacco firms are ready subsitutes.

At least one of the substitutes performs well and could pose a

threat to my business.

Both substitutes perform fantastically in providing

a customer with a nicotine delivery system if they
become dissatisfied with re-buildable vaporizers

My customers will not incur much costs or critical

uncertainties in switching to a substitute.

There is practically no cost in switching to a substitute, which is why cigarettes have remained such a
difficult addiction to quit.

No
()

V. Rivalry Among Existing Competitors

Factor

Yes
()

Comment/Support

My industry is not growing rapidly or the industry is in the

decline stage of its life cycle.

The industry is experiencing massive growth and is

only just leaving the introduction phase.

The industry is fragmented and exhibits boom-and-bust

cycles.

There is a huge array of companies providing the

product. Legislation influences boom and bust
cycles.
There is currently no excess capacity outside of
the largest players. Products are bought immediately.

The industry has excess capacity, or the industry is cyclical

with intermittent excess capacity.
The industry suffers competition from companies based in
low-cost locations.

Chinese producers are a real and growing threat to

american vaporizer industries.

There are high exit barriers.

The exit barriers to retail locations are generally low.

Major competitors in my industry are of comparable size.

The major competitors in the industry dominate. The

two largest comprise nearly 50% market share.

There are no significant product differences and brand

identities among the major competitors.

Established brands for both equipment and nicotine

solution have solid brand identities with loyal following.

My competitors are mostly specialized in my line of business

and are not diversified.

Many of the largest competitors sell various products

and have not specialized.

Source: Format adapted from Mason Carpenter, University of Wisconsin

at Madison. Modified January 2005
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No
()

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Overall Ratings of the Five Forces

Force

Yes
(# Checks)

Comment/Support

No
(# Checks)

(Relative to the Power of Incumbents)

Barriers to entry/mobility

Bargaining power of buyers

Bargaining power of suppliers

Threat of substitutes

Rivalry among incumbents

20

15

Total No. of Checks

Note: The greater the number of NO checks, the more attractive the industry is to incumbents.

Conclusions About Industry Attractiveness

Explain the implications and interpretations of your analysis.
(Take this part to the body of the paper)

Overall, the industry seems to be attractive to new entrants due to the ease of entry. There was
resoundingly more yes marks in the first force (barriers to entry), which I believe is driving the
explosion of growth and new entrants. The only real front which incumbents have an advantage over
new entrants is the fact that they can experience very large economies of scale when dealing with
approximately 30% of the market's volume. On a visit to Shenzhen in July, we visited a company
called Smok technology which receives approximately 6 million dollars in revenue per month.
Because they operate such a large operation, they are able to product units at a much lower cost
than competitors. Outside of this, the lack of hard federal regulation allows entrants easy access to
the industry. When this aspect of the industry changes, I foresee that the incumbents will immediately
begin to see barriers come up as it becomes more difficult to gather the necessary permits and
certifications to begin operation.
Businesses in this industry do not have clear leverage points over either buyer nor supplier due to the
sheer volume and fragmentation that currently exists. Buyers have plenty of choices that are all very
similar and suppliers have many clients that all require the same goods.
The biggest weakness to this industry is the ease of substitutes as cigarettes are a direct competitor.
There is very little cost associated with switching between nicotine delivery systems. In fact, it is far
easier for a person to return to smoking traditional cigarettes (or analog as they are referred to by
insiders) because the costs are so low. Meanwhile, switching from cigarettes to "vaping" can cost
anywhere between $40 and $2000 dollars depending on the setup.

Source: Format adapted from Mason Carpenter, University of Wisconsin

at Madison. Modified January 2005
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