Although none of us will be facing the potential scourge of the “millennium bug” this time around, the coming year is likely to be just as scary for nutraceuticals and the Internet as the one that has just ended. In past Nutraceuticals World articles, I have provided snapshots of the “top” nutrition companies on the Internet (July/Aug 1999) as well as critical commentary on their innovation (or lack thereof). In the most recent installment (April 2000), I outlined what I feel to be the initial five phases of development among supplement e-tailers (commerce, content, convenience, customization and certification). In the last six months, I have been tempted to add Catastrophe! to the list, but instead, I have added consolidation, communities, customer service, and collaboration for a total of “9-Lives.”

Despite the promise of “business to business” e-commerce in the nutraceutical market and the emergence of NutraBid, DrugMax and HealthWell Exchange, B2B in our industry is still in its developmental stages and is not yet ready for prime time. As such, I’ll confine the following discussion to the consumer/retail sector, which, despite media reports to the contrary, actually still does have quite a promising future ahead. Why? Because for at least two very important reasons, the Internet will continue to be an important driver of supplement purchase decisions. The first is because of the convergence of three hyper-growth demographic groups- baby boomers, supplement users and Internet users. The second is because “self-care” is, and will always be, driven largely by information but that information must be useful, targeted and credible if it is to be effective in driving the ever-elusive purchase.

Phase VI-Consolidation
There is no doubt that the last year has seen unprecedented turmoil in the Internet sector and nutraceutical concerns have been particularly hard hit (that’s the catastrophe part). For example, among the top e-supplement specialists, MotherNature.com saw its stock price drop from $15/share to less than $1, followed by staff cuts of 30% and finally a liquidation. GreenTree.com saw itself acquired and rolled into online drugstore More.com, which subsequently cut staff by 20% in June, cut another 30% in October and then also found itself on the auction block-going to buyer HealthCentral.com for about $6.6 million in stock. There are many other “disaster” stories from the demise of the likes of HealthShop, eNutrition and others.

Among the survivors, once proud DrugStore.com has seen its stock price plummet this past year from $55 to about $2/share and even one of the dream companies, VitaminShoppe.com, has turned into a nightmare for investors with a stock price dipping below $1/share. In the case of VitaminShoppe.com, not even a good IPO (almost $50 million), robust sales (nearly $18 million in the first half of 2000) and feasible logistics (with an established bricks & mortar parent company) were enough to stem multi-million dollar losses (due to bloated marketing) and poor customer retention (due to low conversion rates). Even binge-buyer Healthcentral.com, which, in addition to More.com, also gobbled up Vitamins.com (for $103.5 million in stock) and DrugEmporium.com (for $7.3 million in stock), has its work cut out for it (even in its reincarnation as WebRx.com). Just this year, HealthCentral has seen its stock price tumble from almost $15/share to around $1, and it will be out of money by this time next year unless it can “crack the code” where others have failed.

Phase VII-Communities
What once was old is new again. One of the earliest revelations of the Internet age was the ability to bring together like-minded groups of people and connect them with one another in “communities” organized around specific interests. The reemergence of communities as a driving force on the Internet also affords numerous opportunities for providing consumers with targeted product information. With the right approach, the Internet becomes one of the most effective modes of communication between you and your customer because it allows you to surround your customer with options in terms of information delivery, convenience/service and customization.

Before rushing blindly out onto the Internet to spread the gospel about your great new ingredient/product to all these new communities, however, a few words of caution are advised. At all costs, the information that you provide must be presented in a balanced manner-meaning the “bad” along with the “good”-and partnerships with third party educational sites may be a good place to start (let them interpret the data and deliver it to your customers). An example of the wrong way to do it is found in the Diabetes.com experience. The site, part of the PlanetRx pool of “condition-related” educational websites, was exclusively sponsored by Parke-Davis (maker of the diabetes medication Rezulin). Although information on the site mentioned the “controversy” surrounding the reported side effects of the drug, failure to mention the 58 deaths associated with Rezulin resulted in a backlash from visitors when Parke-Davis was forced by FDA to withdraw the drug due to links with fatal liver damage. Regular visitors to the site felt that they had been duped and that their trust had been taken advantage of because they were never given the “full story.”

Phase VIII-Customer Service
This phase of Internet development is certainly not “new” but is more of a new way to satisfy an old need. The Internet now allows us to provide faster, more-detailed, more-targeted customer service than ever before. Outside of the commonly used “E-mail newsletter” approach now used by many companies, customers can be serviced via the Internet in many ways, such as by placing kiosks within the physical retail environments (click here for more information/click there for the latest studies). Those same kiosks or net appliances can go beyond direct consumer education to provide training for employees in that retail location so they know more about the benefits/usage of your products. That same kiosk also means that your products are never out of stock-even if they are never stocked in that location in the first place-because customers and staff can order/ship products within a few clicks. For better or worse, depending on the quality/support for your product, that kiosk system will also be providing direct product-to-product comparisons at the shelf and suggesting alternatives based on selected criteria, including price, usage and ingredient profile.

And finally, don’t think that that “dumb” terminal will simply sit idly in the corner until some curious customer starts pushing buttons. That kiosk will also be “inviting” potential customers into the store. It’s called m-Commerce (“m” for “mobile”) and its not science fiction. M-Commerce is a powerful sales tool that you can start using now. Using triangulation technology via a wireless device, such as a palmtop computer, cellular phone or beeper, retailers can target customers based on where they are. Passing a GNC? BEEP. Your phone asks you to stop in for $10 off that new weight loss supplement. Can’t stop now? Press #1 to have an e-mail sent to your Palm device with more information and a coupon to redeem later. Sounds great? Press #2 to buy now with free shipping to your home address and the charge will appear on your monthly phone bill.

Phase IX-Collaboration
Admittedly, in the highly competitive environment of nutraceutical product development and marketing, this one is probably a bit further out but it is inevitable (collaborate or die). As the costs of new product development (NPD) continue to rise, and interest in copying each others’ products begins to lose its luster, the price tag associated with the process of discovery, extraction, data collection, production and marketing makes the introduction of “blockbuster” products harder to achieve-especially in the vacuum of isolation.

In terms of collaborating on clinical study design and coordinating marketing efforts, pharmaceutical companies are already there and have been for some time. The result for collaborating companies is a compressed NPD timeframe, shortened time to market, streamlined/focused marketing efforts and higher profits. The writing is on the wall for nutraceutical companies and we all have to develop and support our products with solid science both because consumers are demanding it and because science sells.

This last year has seen the clear emergence of “science” as a compelling marketing tool as well as the continued growth of the Internet as a powerful method for educating consumers about specific products. We already know that nutraceutical consumers turn first to the Internet for a large portion of their health information. Interestingly, the public perception of nutraceuticals is undergoing an evolution of sorts, so that consumers are now less likely to look for ingredients (e.g. glucosamine) and are beginning to ask about and request specific brands (e.g. Cosamin). Importantly, consumers are also asking for the precise brands used in the clinical studies that they are reading about.

Looking beyond supplement product claims, consumers are now telling manufacturers and marketers to “show me the data” before they will believe the validity and accuracy of such claims. This combination of better science and widespread dissemination of information via the Internet is creating a more well-educated nutraceutical consumer but it is also “raising the bar” for suppliers, manufacturers and marketers. The time is now for growers, suppliers, manufacturers, marketers and retailers to partner with each other and with researchers and educators to address consumer demands for quality, safety and efficacy and bring the level of research in our industry up to the level where we all know it needs to be.

Summary
In closing, it is interesting to note that in two recent surveys, more than 30% of bricks & mortar retail executives said that they expected the Internet to substantially improve customer service and streamline product development within the year (AT Kearney), while fully 80% of retail executives also indicated plans to roll out web-linked point-of-sale kiosks in stores by 2002 (Forrester Research). Far from media reports of the “death” of e-tailing, the sector is experiencing a dramatic rebirth that will fully integrate the online/offline worlds so that customers get what they want, when they want it and the way they want it.

Within five years, and probably much sooner, there will be no purely online/offline retailers. All physical retailers will be “Net-connected” and consumers will be surprised to not see a kiosk/net-appliance in the store (for detailed product information, study results, product comparisons). All virtual e-tailers will have a physical presence and consumers will be surprised to not have access to an educated local merchant from your website (for face to face contact, product returns/feedback, browsing). In all cases, consumers will come to expect dual online/offline presence. As such, your company must be both online and offline simultaneously, seamlessly, and now. NW

About the author:
Shawn M. Talbott, Ph.D. is a Senior Scientist in Nutrition Research and New Product Development at Pharmanex, Provo, UT. He can be reached at Pharmanex, 75 West Center Street, Provo, UT 84601; 801-345-2784; Fax: 801-345-2299; E-mail: smtalbot@pharmanex.com.