Natural Foods Merchandiser

Marketing value: where do branded ingredients fit?

“If you build it, they will come.”

That line was great for a baseball movie, but it certainly doesn't accurately represent the landscape in today's retail world. For growth today, expansion and franchise plans are not enough. A brick-and-mortar independent retailer must also provide ambience, a convenient location and a commitment to improved service. But is that enough? Most likely it isn't. So how have the most successful supplements retailers been able to continue their growth in the face of increasing competition and the current economic challenges? Of course, their insights from years of experience help them hold the line against the competition. The most important of these is knowledge of what consumers want in terms of product, selection and price.

From commodities to brands
How important are product and selection in an industry that is, in a number of ways, a commodity industry? Once upon a time, from a competitive standpoint, a supplement ingredient represented a typical commodity. You replace one with another without any performance difference. Ingredients are something most customers don't see, many don't understand and large numbers don't care about. But a commodity structure leads to uncertainty about the quality and reliability of ingredients. For customers who demonstrated an interest in quality and reliability, the retailer had to find a way—for the sake of his or her own brand—to take away the mystery of the product. This was often done with the assurances that branded ingredients provide and by putting the brand of the ingredient on the outside of a product to increase its appeal.

If it's that simple, could supplements retailers strictly sell products with branded ingredients and logos that look like Girl Scout badges and, voila, see increased sales? Or is there a bit more involved? Of course it's the latter.

Why branded ingredients?
There are conditions in which branded ingredients seem to be favored, the most important being when the ingredient is highly differentiated, often by patent protection or other trade dress (another way of providing intellectual-property protection), adding the indication of quality to the overall product. The trade dress also helps suppliers protect their investment in research, which is used to substantiate the product's quality and to grow the research base of the ingredient over time, with the prospect of continuously adding value.

Another way branded ingredients add value is when the ingredient is central to the functional performance of the final product. We will witness this phenomenon this year as branded stevia products are added to conventional foods for the first time.

Reputation versus cost
So it sounds as though we should all run out and ensure that branded ingredients are in all of our supplements, right? It's not that simple. First, the ingredient must be credible and recognized for being such. But more importantly, perhaps, is the level of consumer involvement.

If your customers are demanding quality assurance over price, realize that the time a consumer will allocate for attention to product research is usually in direct proportion with the cost of that product. While common sense would dictate that health products are of the utmost importance and worthy of considerable investigation, the average consumer will spend more time researching which automobile has a better mileage-per-gallon rating. But the most important factor is price, and branded ingredients may not come cheap. And, that cost will be passed on to the consumer. The key here is that you communicate the value to the consumer. In the end, it's your brand.

Daniel Fabricant, Ph.D., is vice president of scientific and regulatory affairs at the Natural Products Association.

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