Snake-oil salesmen were a staple of the Wild West. Back in the 1800s, these fast-talkers would gather a crowd in the town center, hold aloft bottles of "medicine," and guarantee cures for everything from rheumatism to bug bites. By the time purchasers realized the potions were useless, the snake oil guys were long gone, on to new towns -- and new suckers.
Except for the danger that someone in a new town had seen their act somewhere else, the peddlers had a good thing going, especially the wonderful margins associated with selling a low-cost product at a high price, direct to consumers.
AVOIDING MULTILEVEL MARKETERS. Today, the nutritional supplement industry suffers from an image problem, stemming from marketing tactics that lead some consumers to believe -- accurately or not -- that they're on the receiving end of a modern-day snake-oil pitch.
I've had the opportunity to observe some of these approaches firsthand by virtue of my role as a principal in a company that enables health-care practitioners to recommend supplements and fulfill orders online at Thecompletepatient.com.
In an attempt to build trust with consumers, we have refused to do business with "multilevel marketers" and sellers of supplements who make wild claims. There are manufacturers out there committed to producing high-quality products, submitting them to outside testing for purity, and selling them in conventional ways -- without fantastic claims.
FAT MARGINS. Arnold Schwarzenegger, the former Mr. Olympia who's now California governor, found himself in a bit of hot water recently over reports that he was moonlighting for media that focus heavily on selling nutritional supplements. While this mostly bemoans the potential for conflicts of interest, the revelations also served as a vivid reminder that the nutritional-supplements business -- dominated by small and midsize companies -- still has a stigma attached to it.
In reality, nutritional supplements are an ever-more-important product category during a time when the quality and integrity of the foods we buy are being called into question.
Unfortunately, the nutritional-supplement industry continues to favor bold claims rather than real education. The supplements sold in the magazines with which Schwarzenegger was affiliated (he's severed his relationships in the wake of the media reports) promise readers they'll "get huge" and "look massive." That these publications were willing to pay Schwarzenegger a reported $5 million or more for part-time work suggests that the margins remain very attractive.
COMMON METHODS. If you want more evidence, just walk into the nutritional-supplements area of any Whole Foods Market (WFMI) store, the upscale organic grocery retailer, and you'll find at least one or two salespeople hovering as you enter the aisle, anxious to "help" you. Try finding that kind of service in the condiment or cereal aisle.
This industry keeps experimenting with new tactics and technologies, but the underlying methodology is often the same. The crudest examples are the ads for sexual potency supplements that pour into our e-mail in-boxes every day. If you listen to talk-radio shows, you'll hear convincing claims during commercials about vitamins and minerals with patented formulas. And if you watch late-night television, you'll see lengthy infomercials pushing supplements supposedly guaranteed to help you lose weight or improve your energy level.
Many makers of such products employ the aforementioned multilevel marketing sales tactics, which the companies refer to by euphemisms like "network marketing." They involve selling supplements to individual consumers, who then recruit friends and relatives to sell. These people, in turn, recruit additional individuals, all of whom generate income to the original salesperson. Herbalife, one of the major forces in this arena, has annual sales of $1.3 billion.
PRESSURE FOR RESTRICTIONS. Increasingly, the multilevel marketers are recruiting health-care professionals like acupuncturists and chiropractors to sell their products. For example, Juice Plus+, a maker and multilevel marketer of supplements, claims on its Web site that "thousands of health-care professionals are taking Juice Plus+ themselves and recommending Juice Plus+ to their patients and clients."
The new spotlight cast on the nutritional-supplement industry comes at an inopportune time. For one, there are international efforts afoot to drastically reduce the number of nutritional supplements that can be offered for sale (see BW Online, 5/24/05, "Complex Diet for Small Business").
There's also pressure within the U.S., stemming in part from the recent steroid scandals, for the Food & Drug Administration to place more restrictions on access to nutritional supplements. With their questionable tactics, many in the industry have simply left themselves open to such regulation.