What Will The Future Hold?

Predictions for the months ahead.

By Greg Kitzmiller

Of course if we had the answer to that question we could make billions. I always wondered about the famous star who was seen advertising her psychic help line and then went bankrupt. Couldn’t she see that coming?

Well, I’m no seer and I cannot accurately predict the future, but with all of the talk and articles about belt-tightening and economic downturn one wonders if we aren’t talking ourselves into a recession as a nation. Are we acting differently because others are telling us things are getting worse? If the answer is yes, if we’re being cautious with spending, if we’re cutting back on staffing, if we’re not expanding as we had planned, then we are part of the problem rather than part of the solution. I would not suggest you ignore the economy, but it doesn’t help to play the proverbial “Chicken Little.”

Other than wondering about the economy, what else might we expect in this year? One of the first lessons can be learned from the failed dot.coms, as some points from these failures can be extended to the nutraceutical arena. One of these points is to have a good, solid business plan that projects profit and then refine it over time. Many of the failed cyber firms simply spent too much capital chasing after bad ideas. Rock-solid planning using “scenario building” (what if’s) with projections built on reasonable forecasting methodology goes a long way toward steering a project toward success. Nutraceutical products are not exempt from traditional rules of business. We’ve talked before about firms that have ignored reasonable price points, tried to add entirely new distribution systems for grocery products or failed to promote products at a reasonable level. There is always risk, but it can be moderated somewhat with sound planning.

Another conclusion from the Super Bowl advertisers of 2000 (which featured a large number of new web-based consumer firms) is to avoid the “if we build it, they will come” mentality. Just because our friends may like a product or some consumers in a focus group reacted favorably does not mean we are going to get Kroger, Walgreen, Wal-Mart or Wild Oats to sell it to the masses. Un­derstanding why people want a prod­­uct, what they are willing to do to get it and whether they are likely to continue using it is much better planning.

Looking specifically at nutraceuticals it appears we can expect more diligent regulations. The FDA agreed with the Center for Science in the Public Interest that sprinkling a small amount of ginkgo on potato chips then suggesting these may aid memory is illegal. This is a significant watershed. This does not signal an end to nutraceuticals. We can only hope it signals an end to charlatanism. The government has no objection to the promotion of grains for lower cholesterol and heart health or to the provision of calcium in foods for bone strength. Legitimate fortification of products in beneficial and measurable amounts along with promotion of products for proven body function benefits will and should continue. But the FDA does not want to be caught napping while make-a-fast-buck marketers take inappropriate actions. So look for continued diligence on the part of consumer groups and the FDA alike.

Expect more alliances of some form. The fact that Coca-Cola and Nestle—the world’s major beverage firm in an al­liance with the world’s largest food firm—are refocusing a decade-old joint ven­ture to target the health beverage market suggests that firms are seeing the advantage of working together to charter new territory. Expect continued consolidation in the supplement industry. It is not even clear that the current firms in their current form will be the dominant players in five years. Also expect tre­mendous flux in alliances or firm ownership, more mergers and acquisitions on the supplement side and more alliances in the food business.

Megabranding is a bad idea. Yet, most dietary supplement firms have fallen into the trap of using one brand name for dozens or even hundreds of SKU’s. In these cases usually the bulk of volume comes from a relatively small number of items but the firm must carry a broad product line at great expense to keep re­tailers happy and to maintain a strong shelf presence. Centrum was able to ex­pand its line only after the notion of “one pill for all” and “everything you need from A to zinc” was very well entrenched in the consumer’s mind. When the company expanded it moved to very clear positioning: Centrum for most, Centrum Silver for seniors. Other firms seem to think that one umbrella name for 50 items gives them more recognition.

When firms are not succumbing to the lure of megabranding they are lulled into generic names. This allows the “flavor of the year” in supplements to blow firms in the wind. When MSM is hot, all brands must have their version of MSM and the consumer sees no difference and buys the least expensive. It is too early to tell if Aflexa has long-term staying power but give McNeil credit for not falling into the trap of a generic name and for pointing out the quality mystique with “from the makers of Tylenol.” Playing on the strength of the Tylenol brand, which far outsells its equivalent store brands, seems smart. Let’s watch to see who buys whom in the supplement business and to see if a major firm arises and avoids the pitfalls of an industry blown around by fads.

Whether food or supplements, look for long-term brand building, the key to business strength. Ford, Microsoft, Coke, Gatorade and Centrum are not necessarily the only good products in each category but they’ve each done a great job of building brand value through quality products and strong, consistent communication. Consumer businesses that win in the long run have strong brand value. This has clearly been lacking in many supplement offerings. In addition, some of the food nutraceuticals have either underspent on promotion or pulled their product before there was an opportunity to develop brand recognition. Recently food analysts have suggested that the food industry is greatly underspending on promotion compared to other consumer packaged goods. Expect firms to work on this in the coming year.

NW

Greg Kitzmiller is a marketing faculty member at Indiana University’s Kelley School of Business, Bloomington, IN. He is also co-director of the Global Business Information Network (GBIN) at the Kelley School of Business. He combines international and domestic strategic and marketing management experience with university teaching, professional speaking, executive education and consulting. Mr. Kitzmiller can be reached at 1309 East Tenth St., Bloomington, IN 46405-1701; 812-855-1004; Fax: 812-855-6440; E-mail: [email protected].