Heating up innovation

The IQOS store in Nagoya. — Photos: StarBiz7

STEPPING into an IQOS store in Nagoya, Japan there is already a hive of activity. Situated in the shopping district of the city, customers are busy perusing the store. With attentive customer service personnel attending to their needs and displays and shelves lined with the latest patented all-in-one tobacco heating devices, the atmosphere more resembles a smartphone experience boutique.

Blurring the lines of tech and tobacco, the innovative tobacco heating system (THS), commercialised as IQOS by Philip Morris International (PMI), has been a primary force in the flow of change for the industry, especially in Japan. THS, which utilises a revolutionary technology that heats tobacco without burning it, has been a huge success for PMI and it has also played a significant role in tobacco harm reduction and public health.

IQOS was introduced in Nagoya in late 2014 as a city-pilot and launched nationwide in 2016. Following the introduction, the average sales of cigarettes began declining at an annual rate of 9.5%, five times faster than in preceding years, according to an American Cancer Society study.

Tech approach

The success of IQOS though is not rooted to a single element but rather a combination of things. Formally, the idea for PMI was to create a compact device for heating tobacco but it paved the way towards a new format that has given birth to new advantages. It not only reduced the harmful constituents compared to a cigarette by as much as 95% but it was also practically odour free whilst eliminating smoke and ash.

“I believe one of the reasons the Japanese consumers adopted IQOS was because of hygiene reasons,” explains Jeremy Custance, director communications — East Asia and Australia, PMI. “It had less impact on others and on the environment around them, which I believe was one of the key drivers for Japan.”

There is also no denying that the technology involved has helped to not only drive progress in the heated tobacco products (HTP) segment but also the evolution of the devices. Inside the IQOS store in Nagoya, the range of devices — in various shapes, colours and forms — have also afforded it a ‘cool’ modern factor.

“Oftentimes when there is a launch of a new IQOS device or model, you’ll find long lines stretching out the door,” explains Hiroshi Takahashi, manager direct channels, PMI Japan. But beyond tech and innovation, there are also other elements involved that have delivered a positive effect for IQOS success in Japan and other parts of the world.

The retail experience, for instance, replicates modern tech and gadget stores with a warm minimalist design, which not only highlights the products but also serves to put its customers at ease.

“We prioritise selling the products responsibly,” adds Takahashi. “There’s age verification, and our personnel makes sure the customers who walk into our stores are existing adult smokers.”

Like other modern retail environments, customers can also find out more about the products and devices and there is also a take back recycling programme for existing customers.

Driving change

According to Custance, the success of IQOS in Japan may prove to be a viable template for other countries to follow despite it being an advanced market. “We have made great progress here, no doubt about it,” he states. But he is quick to add that what has been a key driver to its success, especially in the last ten years, is that the public has had access to the right and accurate information.

“It is critical that people need to understand that these products are fundamentally different from cigarettes — they don’t have ash, no smoke or smell. If you look at Japan, three quarters of the business in Japan is smoke free. Our goal is to ultimately look at going 100% smokefree, which is not entirely impossible. That’s sort of our ambition wherever we are.”

However, Custance admits that for that to happen, both the public and regulators need to also have a better understanding on how they can collectively change the dynamic and bring a smoke-free environment for everybody. He opines that there is a need to show and prove the value of what the company is committed to that is to deliver a smoke-free future.

Embracing challenges

PMI’s flagship smoke-free innovation has also delivered dividends for the company, surpassing even its best-selling cigarette brand. The company’s fourth quarter 2023 results reveals that IQOS is currently PMI’s top nicotine product. Today it accounts for more than 50% of its total net revenues in 25 markets.

But its success is not allowing PMI to rest on its laurels.

“We’re keen on competition,” states Custance. “I think it’s great that we have more coming into this space, because we will see greater innovation and better uptake in smoke-free products and we’ll see cigarettes disappearing faster.”

However, he stresses that there is a need for regulators to understand that IQOS is fundamentally different from cigarettes and as such they can’t be regulated exactly the same way. “I believe all governments and good public policy are receptive to fact-based scientific-backed information,” he adds.

“The availability of accurate public information is crucial especially for markets like Malaysia. It is important that the regulators understand the product in order to create the right policies for it.”

Looking ahead, PMI will undoubtedly build on the success of IQOS to evolve the product and drive innovation even further.

According to Custance, the company has constantly listened to feedback from consumers to refine both the product and technology to enhance the user experience. He cites pain points for earlier devices, which revolved around cleaning them, which was an issue for customers.

“So we looked at how to eliminate that, and also issues like battery life, charging time and a host of other features, which are now incorporated into newer devices.”

All of this has helped drive the adoption rate and in turn decrease the smoking prevalence in countries like Japan. The latest industry report by the Tobacco Institute of Japan corroborates this, revealing that cigarette consumption has decreased by 44% in the five years after the introduction of HTPs. It is the highest decline that Japan has ever had.

As a product, IQOS stands as a viable alternative that is designed to help smokers who won’t quit cigarettes to switch.

“As we have seen in Japan, it has created an impact and it is paving the way for us towards a smoke-free future” states Custance. “It provides a good example to show what is possible in any given country if we get it right.”

This article first appeared in Star Biz7 weekly edition.