A Family Outfit vs. the Internet
The word is in, and it's no surprise: Online spending last year was up 22%, to $143.2 billion, according to ComScore Networks, a market research firm. Everyone, it seems, wants more Internet action, from the major players like Google (GOOG), Microsoft (MSFT), and Yahoo! (YHOO) fighting multibillion-dollar battles for online turf on down to local bookstores and shoe stores trying to pad their volumes.
It's difficult to think of an industry where most companies aren't trying to do more business via the Internet. So why is Standard Process, a 200-plus-employee company with operations in the Wisconsin farmlands between Milwaukee and Madison, fighting to prevent its products from being sold over the Internet? It isn't as if the 80-year-old family business sells classified military components or nuclear fuel. It sells vitamins and herbs, and you don't have to look far on the Internet to find lots of options for buying those products.
Yet last month, the president of Standard Process, Charles DuBois, sent a letter to the thousands of chiropractors, acupuncturists, physicians, and others that resell its 175 different vitamins warning of its new "zero-tolerance Internet policy as part of our resale policy." Moreover, "advertising pricing information online will not be tolerated."
The penalty for violating the policy? "Immediate account termination," says the memo. In other words, any Standard Process distributor who flouts the directive won't be allowed to sell its products.
When I first heard about this unorthodox approach (a health-care technology company I helped launch received the Standard Process letter), I figured the company was toast. After all, there are several hundred makers of nutritional supplements in the U.S., so why wouldn't practitioners who wanted to sell over the Internet just switch to other brands? While several manufacturers that resell through practitioners say they also prohibit online sales, none have taken the tough-guy approach of Standard Process, and all their products are easily available via various online outlets.
Beyond the strategic issues, the Standard Process action stirred my libertarian juices: Who is Standard Process, in this age of Internet freedom where everything from gambling to bomb-making instructions can be found online, to decree the Internet off limits for purchasing its seemingly mundane products?
It turns out that Standard Process is an unusual kind of company, quirky actually. Not only does it have lots of loyal resellers, most of them "alternative" healthcare practitioners, but many of these distributors believe Standard Process products are so special that these practitioners don't want to risk being cut off.
They point out that many Standard Process vitamins are produced almost entirely from organic foods such as beets, radishes, and barley that the company grows on its own farmland near its Palmyra (Wis.) headquarters. They also highly value other Standard Process supplements made from concoctions containing pig and cow glands, using formulas patented by Royal Lee, the dentist who founded the outfit in 1929.
"These are specific types of vitamins," says Victoria Malchar, a Warwick (R.I.), chiropractor and long-time seller of Standard Process products. "You're dealing with glandulars, hormone-balancing products" that only a practitioner should recommend.
Standard Process returns the compliments by waxing eloquent in its memo and in a spokesperson's e-mail response about "the health-care professional/patient relationship" and "the patient's well-being." (The company declined my requests for an interview. However, neither the practitioners nor either of two Standard Process sales reps I spoke with independently was able to direct me to scientific research demonstrating special benefits of Standard Process products beyond what other supplements provide.)
From a business perspective, Standard Process is offering its health-care practitioner-distributors a deal: You stay loyal to us, and we'll protect you from the onslaught of the Internet and the temptations it offers to patients who would rather not visit their practitioner every time they want to purchase a Standard Process product and pay the typical 100% markup. It has put its money where its mouth is, according to a Standard Process sales person, by shutting down several outlets selling between $5,000 and $10,000 of the company's product a month.
How is the company's "zero-tolerance" approach working? A number of distributors are complying. Several sites that offer Standard Process products advise consumers to telephone first. When I called myvits.com, I was told I would have to answer some questions about my health, such as whether I have high cholesterol or high blood pressure. The results would then be shown to a chiropractor on staff, and recommendations for Standard Process products provided.
Even eBay shows only one seller, a chiropractor, who says his Standard Process products can only be picked up in person.
TAKING ON AMAZON.
But the Internet being the Internet, there are always exceptions. Standard Process' first test case may turn out to be a somewhat larger reseller than it is accustomed to: Amazon.com. I found dozens of Standard Process products, discounted between 10% and 20%, readily available for loading into my shopping cart on the site.
So what to make of the Standard Process hard line against the Internet? On the one hand, I admire the company's guts in taking a stand. Daring your distributors to switch to other manufacturers, when there are many dozens of reasonable choices, requires a high level of confidence in your industry standing and distributors' loyalty.
As a consumer, however, I have difficulty sympathizing with an organization that is trying to make my life more difficult. Beyond that, I am uncomfortable with Standard Process espousing the notion that all its nutritional supplements, including items such as garlic and minerals, should only be available through a health-care provider, since the implication is that access should be regulated.
GUTS, BUT NO GLORY.
A number of organizations around the world, including the European Union and the World Trade Organization, are pushing this view, which would severely restrict the freedom of American consumers to purchase supplements without a physician's prescription. (see BW Online, 5/24/05, "Complex Diet for Small Business").
Standard Process may have guts, and it may even be able to slow the encroachment of the Internet on its world, but I suspect that, in longer term, it can't win. Its path is one of coercion that the Internet, for all its warts, is gradually wringing out of nearly every industry imaginable.