The stellar growth of practitioner channel nutraceutical sales over the last decade has been founded on a “premium products, premium pricing” model, and a safeguard of practitioner exclusivity.

At the heart of this model is a simple set of value propositions: 1) practitioner channel products are supposed to be made with the highest quality raw materials by companies with exacting standards and demonstrated commitment to quality assurance and practitioner support; 2) the products contain higher amounts of active ingredients and/or unique formulations that distinguish them from grocery store brands; and 3) the products are supposed to be more reliable and potentially more effective than those available on the consumer market.

Assuming that practitioner channel players actually deliver what they promise, these value propositions are the justification for suggested resale prices that may be 2-4 times higher than prices for off-the-shelf supplements in mass-market retail outlets. They’re also the basis for practitioner-channel exclusivity, which makes supplement sales a fiscally attractive pursuit for clinicians.

Online supplement resellers that vend practitioner-only brands directly to the public at discount prices are posing a big challenge to companies trying to maintain these value propositions.

Unauthorized resellers acquire previously inaccessible professional-level products by hiring practitioners willing to use their professional identities to order large volumes of products from major practitioner-channel brands. The practitioners turn over the stock to the resellers who then advertise directly to the public.

Critics say this practice undercuts practitioners who sell these brands at or near the manufacturer suggested resale price, and essentially torpedoes the foundation of the channel itself.

Executives who gathered for the first annual Health Practitioner Marketing Forum in April (www.HPMForum.com), view online resellers as a significant problem. Some see them as a major threat to the future viability of the channel, and all agree that at the very least, they’re a pain in the butt.

In short, unauthorized resellers dilute both the exclusivity and the value proposition at the heart of practitioner channel success strategies. If they grow, they will make it difficult for clinicians to maintain meaningful price points, and they will make those who do look like they’re overcharging their patients.

Authorized vs. Unauthorized Resellers
It is important to distinguish between unauthorized “pirate” resellers and legitimate, authorized distributors like Emerson Ecologics, Natural Partners and others that sell a diverse array of pro-level products from manufacturers to practitioners—or sometimes directly to patients.

The authorized distributors uphold suggested retail pricing and protect practitioner exclusivity. If they provide direct-to-patient shipping, they do so through secure practitioner-only accounts: the patient’s orders are processed through a practitioner’s account, and the products are shipped directly to the patient’s home for convenience.

Non-authorized resellers sell the practitioner-only products directly to patients without the mediation or oversight of a clinician. That’s a big problem for companies built on a practitioner-only foundation.

Like mushrooms after a rainstorm, unauthorized resellers seem to pop up out of nowhere, and disappear just as quickly, only to resurface later when nobody’s looking. Most are small and fairly low profile, but several have been quite brazen in their marketing efforts.

Notably, a company called Pure Formulas based in Florida, ran a series of high-profile ads in the health section of the New York Times website boasting the availability of leading practitioner-only brands—including Metagenics, Thorne, Douglas Labs, Integrative Therapeutics, Designs for Health and Biotics Research—at discount prices without practitioner middle-men.

Pure Formulas posts logos of many pro-level companies on its website, and specifically identifies “practitioner quality brands” with asterisks among the dozens of listed products consumers can purchase through the site. The reseller’s name seems to be an attempt to leverage the brand value established by Pure Encapsulations, one of the most scrupulous practitioner-only companies.

Time for Action?
The question facing practitioner-channel executives is, what to do about all of this?

Some HPM Forum attendees called for a concerted action against unauthorized resellers who deliberately breach suggested pricing guidelines and who side-step established practitioner-only channels. Advocates say pro-level companies need to stand together and speak out with one voice against unauthorized “e-tailers.”

Such action would require a level of cooperation and coordination hitherto unseen in this highly competitive field. There are also questions to how, on a practical level, companies would work together to enforce suggested resale pricing, and what—if any—legal basis exists on which companies could take action against resellers.

Certainly, there’s little regulatory support at the federal level for enforcing practitioner-only status among supplement brands. Even if there were, such regulations are no safeguard against unscrupulous businesses. After all, there’s a clear regulatory framework governing prescription pharmaceutical sales, yet enforcers have done a less-than-ideal job of eradicating gray-market online pharmaceutical e-tailers, especially if they’re outside the U.S. border.

While forum attendees argued against the erosive influence of resellers, some held that any action against them would be as futile as gopher-bashing on the golf course.

What’s clear is that many practitioner channel brands are already expending considerable energy and effort to identify unauthorized resellers—and the practitioners who work for them—and to curtail access to the desired products. It’s painstaking, time-consuming work, and the fixes are usually temporary. But managers believe it is necessary in order to defend their brand equity, and to support their core practitioner customer base.

Docs Selling at Cost
Where things become a bit tricky is in the matter of practitioners who sell pro-level supplements at cost.

According to Holistic Primary Care’s recent 2013 survey of 2,000 primary care doctors, roughly 1 in 5 clinicians who dispense in their office do not add any mark-up to the price. They make the pro-level products available to patients as a convenience, but do not try to profit from the transactions.

The number of practitioners selling at cost doubled since HPC’s first survey in 2010. (HPC’s 2013 Physicans Survey Report, with comparative data from 2010 is available for purchase at www.HPMForum.com.)

The rationale for selling at cost is, presumably, to avoid ethical concerns about conflict of interest—an oft-cited reason for not dispensing supplements, especially among MDs. Some choose the “no mark-up” route as a way of ensuring that patients get top-quality supplements without any moral quandaries.

Selling at cost is more common among MDs than among naturopaths, chiropractors and other types of practitioners, presumably because MDs have not traditionally relied on product sales as key income generators in the same way that other practitioners have.  

In essence, doctors who sell pro lines at cost are—like unauthorized resellers—ignoring the suggested resale pricing guidelines, and unwittingly undercutting practitioners who generate revenue from their dispensaries.

But they’re not likely to have the erosive effect of the Internet resellers because they are a small contingent and they operate quietly and privately without intention to expand their reach. Large-scale resellers like Pure Formulas are clearly trying to build businesses by competing with practitioners and by openly defying manufacturers’ pricing guidelines.

The extent to which unauthorized resellers truly pose an existential risk to the practitioner channel at large remains to be seen. It will also be interesting to see if brand managers within the channel actually organize any concerted effort against them.

If anything good has come from the emergence of online resellers, it’s that the situation is forcing executives within the space to recognize their common ground and shared values. The supplement industry in general—and the professional channel in particular—is highly balkanized and seldom speaks with a unified voice. At this point in the game, a little bit of unity would do a whole lot of good.