Vape in Smokeland

Case Prompt

Over the last few years Smokeland has mostly banned the use of electronic cigarettes in the country but recently looking at the tax revenue they have legalized the use of e-cigarettes.
The cultivation and sales of e-cigarettes most often take place in small storefronts. In most states, limits have been created on how many e-cigarettes stores are allowed to exist at any one time.
Your client, Tobacco Co, made $8 Billion in revenue and $2 Billion in profits last year, but has seen declining use of cigarettes in Smokeland, which currently makes up 25% of its total revenue and profit. Tobacco Co is considering moving into the e-cigarettes market. What should they do? Assume that national government regulations are not a concern in this case.

Provide if requested:

Global use of tobacco has not declined and is even increasing in some areas.
Tobacco Co is interested in diversifying their portfolio of products.
Tobacco Co is normally focused on long-term profitability, but because this is a very new market they aren’t completely sure what else they should be thinking about.
Tobacco Co is only interested in entering the e-cigarettes market

A good candidate will recognize that this is a market entry question. The framework can include:

Market Evaluation: Market Size, barriers to entry.
Entry: Buy, Build, Partner.
Economics: Costs, Revenue, synergies with cigarette business, NPV.
Risks: Negative PR for getting in e-cigarettes business, potential substitution of cigarette sales, consumer distaste for ‘big corporate’, lobbying by competitors to again ban e-cigarettes.