Management in Action: Juul Is Going Up in Smoke Apply the knowledge of management presented in this chapter to the following case. The goal of this activity is to enable you to understand the challenges Juul faced and how those challenges are related to managerial decision making. Read the case and answer the questions that follow. Juul Labs is an American electronic cigarette company founded in 2017. The company manufacturers the Juul e-cigarette, which is an alternative to traditional, paper-based cigarettes. Juul's exigarettes became a hit in 2018, allowing the company to grow to 4.000 employees and a $38 billion valuation. Based on its initial success. Juul forecasted revenue of $3.4 billion in 2019, almost triple what it generated in 2018.1 The company's fortunes took a turn for the worse in 2019. A number of legal cases and regulatory action against the manufacturer halved its growth rate, resulting in layoffs and a 25 percent decrease in its stock price. Juul's valuation dropped to $12 billion by 2020 . less than a third of what it was worth a year earlier. 2 Let's take a closer look at Juul's troubles. THE RISE OF VAPING Robert Norris was the "Mariboro Man," a rugged, independent cowboy figure who was the face of Marlboro's campaign to attract men to cigarettes in the 1950 s. The ad campaign helped Marlboro become the world's leading cigarette brand, a position it still holds. Norris, a nonsmoker himself, decided to abandon the campaign because of the example it was setting for children. 3 America followed Norris's lead. By 2018, just under 14 percent of adults smoked cigarettes, down from 42 percent in 1965.4 Juul entered the vaping market without a cowboy, but with a mission to "improve the lives of 1 billion adult smokers by Juul entered the vaping market without a cowboy, but with a mission to "improve the lives of 1 billion adult smokers by eliminating cigarettes." The company's aversion to cigarettes is because they contain tobacco, a known carcinogen. Juul's battery-operated vaporizer works by converting liquid nicotine into a vapor that the user inhales, providing a similar experience to that of smoking regular cigarettes. Its USB-chargeable device (dubbed the "iPhone of cigarettes") is sleek and hardly noticeable, its snap-on cartridges cost less than cigarettes, and the whole vaping process leaves no lingering smell. Each 5 percent nicotine cartridge contains roughly the same addictive amount of nicotine as one pack of cigarettes. And though vapes don't contain tobacco, they may contain other chemicals such as benzene (a carcinogen) and acetamide (an industrial solvent). In fact, the CDC reports that vaping is the cause of more than 2,000 cases of severe lung disease, and there are investigations of over 127 cases of e cigarette users experiencing seizures. 5 The health concerns surrounding Juul are especially alarming because of its popularity among middle and high school students, a population that is prohibited by law from smoking. According to the New England Journal of Medicine, one in nine U.S. high school seniors say they vaped almost dally in 2019. 6 Experts belleve Juul's popularity stems from its low price tag (a starter kit costs $50 ), ability to be discreet, and lack of odor. Its cartridges also come in many flavors. One Center for Disease Control (CDC) survey found that 31 percent of adolescents chose e-cigarettes because of "flavors such as mint, candy, fruit, or chocolate," The fact that almost one-fifth of middle and high school students have seen Juul used in school, or that millions have seen Juul's ads, does not help elther.? JUUL FACES SCRUTINY The surging popularity of Juul among teenagers caught the attention of the Food and Drug Administration (FDA) in 2018. The regulatory agency conducted "a nationwide, undercover blitz" to investigate Juul, claiming the enforcement effort was the largest in its history. U.S. cities and entire countries, such as San Francisco. India, and Israel, also started to take notice of Juul's underage popularity, prompting them to ban flavored e-cigarettes. The Federal Trade Commission (FTC) joined the scrutiny over the e-cigarette maker in 2018, suspecting that Juul deliberately marketed its products to minors. 8 Juul's CEO. K. C. Crosthwaite, responded to this increased scrutiny with a series of decisions. First, the company decided to stop selling many of its flavored e-cigarettes online and in stores. Juul also suspended all broadcast, print, and digital product advertising in the United States. "We must reset the vapor category by earning the trust of society and working cooperatively with regulators, policymakers, and stakeholders to combat underage use while providing an alternative to adult smokers," says CEO Crosthwaite. 9 The company vehemently denles marketing its products to youth, a claim that Juul's CEO, K. C. Crosthwaite, responded to this increased scrutiny with a series of decisions. First, the company decided to stop selling many of its flavored e-cigarettes online and in stores. Juul also suspended all broadcast, print, and digital product advertising in the United States. "We must reset the vapor category by earning the trust of society and working cooperatively with regulators, policymakers, and stakeholders to combat underage use while providing an alternative to adult smokers, says CEO Crosthwaite. 9 The company vehemently denies marketing its products to youth, a claim that isn't resonating with many experts. For example, research by the Stanford University School of Medicine uncovered that "JUUL's mission statement ... . and their repeated assertion that their product is meant for 'adult smokers only' has not been congruent with its marketing practices over its first 3 years." 10 Others are more direct with their criticism. "We don't trust them," says Michael Green, the CEO of the Center for Environmental Health. "We think that their entire model is based on addicting a new generation of young people..11 Law enforcement and local governments aren't buying Juul's clalms either. Federal prosecutors in Callfornia launched a criminal investigation of Juul in 2019. Several school districts across the country also have filed suit against the company, claiming it has created a public nuisance, misrepresented its products, and endangered youth health. 12 WHAT WILL THE FDA DECIDE? Aside from the slew of investigations and lawsuits Juul is facing, the company also needs to submit an application to the FDA outlining why it should be allowed to continue selling its products in the United States. The application will need to prove that the benefit of helping adult cigarette smokers switch to a safer alternative outweighs the potential harm of getting teenagers addicted to nicotine. As part of this application process, Juul is doing the following: 13 - Cutting ties with the vapor technology association (VTA). The company announced it wouldn't renew its membership with the VTA because it found itself disagreeing with the industry trade group on a number of issues. For example; Juul now supports banning flavored e-cigarettes, something the VTA is opposed to because of the impact on other e-cigarette retailers. - Relying on science and research. Juul intends to send 250,000 pages of materials to the FDA, including more thar 110 scientific studies supporting its products. The company's application is "designed to provide [the] FDA with the science and evidence needed to assess the role our products can play moving smokers away from cigarettes, whil - Relying on science and research. Juul intends to send 250.000 pages of materials to the FDA, including more than 110 scientific studies supporting its products. The company's application is "designed to provide [the] FDA with the science and evidence needed to assess the role our products can play moving smokers away from clgarettes, whille combating underage use," says a company spokesperson. - Using Al to modify its voporizer. What If your vaporizer could be trained to learn how often and how much you vape nicotine, then slowly substitute a non-nicotine product to taper you off the addictive chemical? That's exactly what Juul is creating. Its new line of vaporizers would connect to a smartphone and apply machine learning to adjust delivery of nicotine and non-nicotine vaporizable material based on the smoker's behavior. The new vaporizers also would use enhanced technology to authenticate users to ensure they are over 21. The FDA will release its decision in 2021, but some experts. Including former FDA commissioner Scott Gottlieb. believe Juul's application is dead on arrival. "It's very clear that Juul can't keep their products out of the hands of kids. It could be that this product can't exist on the market anymore," says Gottlieb. 14 FOOTNOTES 1. O. Zalesia and E Huet, Siul Expects Shyockeng Salet of \$3.4 Bilion, Desple Flavored Vape Restrictions, Bioomberg. February 22, 2019. eversmoke-butvaping:-poses-a-growng-threa-caket November 14. 2019, hngs i/wwwwebma comvismoking-cessabioninews/20191th thewer-amencans than ever-smoke-butvaping-poses a-growng-threat-cdczt, L voytko, "FDA potentialy-linked-to-waging/2ze4408a0454b. Juury CEO was forced to quickly tesporid to the increased scrutiny the company was facing. Which decision moking style allows senior leaders to quickly act? Muitiple Choice analytical directive conceyptual functional behavioral Assume that prosecutors allege that 20 percent of youth were exposed to vaping because of Juul's actions, and Juul counters that 80 percent of them were not exposed because of their actions. What decision-making bias would be presented by these staterments? Multiple Choice representotive categoncal tinining sunk-cost framing overconfidence If Jusi simply settled on suspending all broadcast, ptint, and digital product advertising in the United States instead of rinding other. more creative solutions to the youth vaping epidemic. they would be exercising Multiple Choice: escalation of corrumitment. satsficing groupthink inturion. nutris If the FDA rejects Juuf's application, CEO Crosthwaite will be back to which stage of the rationat decision:making moder? Mualtiple Choice gelect a solution evaluate altematres implement and evalsare a solution identify the problem think up alternotive solutions