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Jennifer Grebow is editor-in-chief of Nutritional Outlook.
A new report on transparency and ROI in the supplements industry finds investing in transparency and traceability is good for business.
Traceability and transparency are keywords in the dietary supplement industry today as the market continues facing increased pressure and public scrutiny over the quality and authenticity of these products. Over the past few years, many suppliers have taken to launching their own traceability and quality-control initiatives. At SupplySide West, Nutritional Outlook spoke to a few experts about how companies may see returns on their investment.
NP Nutra’s Triple-T Verification Program
At last year’s SupplySide West show, botanicals supplier NP Nutra (Gardena, CA) introduced its Triple-T Verification program to fortify its traceability and product testing. The company strictly defined the standards, including for the growers it works with, for testing, validating, and controlling the quality of the ingredients throughout its supply chain, and has in place a strict vendor-qualification program, including audits, of its partners’ farms and manufacturing facilities.
A year later, the company announced that these efforts have paid off in dollars and cents. In November, the company reported that the Triple-T Verification program, which the firm says took five years to develop, has contributed to the extremely strong revenue growth, upwards of 35%, that the company expects to see by the end of 2018.
In a press release, Mark Campbell, the company’s COO, said: “This unprecedented growth is attributed in part to our Triple-T Verification program. This program, combined with the fact that our sales team is working more closely with valued clients to match our products to their needs, has led to an increase in the average number of SKUs sold to each customer.”
Margaret Gomes, NP Nutra’s director of marketing, discussed how expending the firm’s resources to enact the Triple-T program has resulted in efficiencies for its business. “The Triple-T Verification program was developed over a period of five years. It was an arduous process which involved a lot of time and research from our sourcing team as well as a strong collaboration with our approved manufacturing partners,” she said. “The vendor-qualification protocol that our partners are subjected to before approval can take months, but once they have qualified, it makes our job so much easier to be able to pool from a list of validated partners who share the same goals and objectives as we do.”
This extra layer of added security pleases NP Nutra’s customers, too. “Many of our existing customers really like the added assurances we have put into place,” Gomes said. “The Triple-T Verification program has been a big reason why we are projected to grow over 35% this year.”
All of this means NP Nutra is seeing the return on its investment in the program, she said. “How NP Nutra shows the ROI in the end is quite simple: Better supply chain validation leads to fewer problems and greater customer retention over time. We are able to grow relationships, which is NP Nutra's main focus, rather than having them damaged or destroyed. Customers trust us as they know that we have done our due diligence in sourcing premium products.”
“In summary,” she said, “it is very difficult to quantify intangibles such as increased customer satisfaction, trust, and traceability, but we know that it has certainly been an investment that is well worth doing and that will continue to be a contributing factor to our planned company growth.”
A New Report Looks at Transparency and ROI in the Supplements Business
Pure Branding (Northampton, MA), a strategic consulting, market research, and brand development agency, explored the topic of how companies are seeing ROI on transparency measures. The company has a new report out, “ROI of Transparency: A Consumer Market Research Study”, in which the agency surveyed more than 1000 Americans about their views on corporate transparency, including transparency related to dietary supplement products they purchase.
According to Pure Branding, “this new report confirms that a company’s level of transparency directly and positively impacts sales.” Specifically, 73% of survey respondents said transparency is valuable to them-so much so that a majority said they would be more likely or very likely to pay a higher price for products from companies they perceive to be more transparent.
Transparency is especially important in the dietary supplement industry, says Yadim Medore, founder and CEO, Pure Branding. “Consumers have a somewhat negative view of the level of transparency being provided currently by vitamin and supplement companies,” he tells Nutritional Outlook. “These companies are failing to meet current expectations, which are already higher than what is expected for most other industries, and these expectations are continuing to rise. The pressure is on for the vitamin and supplement industry to become more transparent.”
He points out, however, that companies sometimes need to be convinced that there will be ROI before they commit to bolstering transparency initiatives. “We consistently hear from brands-whether it’s from the CMO, operations director, or sourcing manager-that they need ways to assure senior leadership that new transparency practices will correlate to a positive ROI.” That’s why, he says, Pure Branding initiated this report in order to “better understand the impact of transparency on sales” based on consumer views.
And customers link transparency with quality, he says: “According to our 'ROI of Transparency Report,' for seven out of ten consumers, there is a strong perceived relationship between supplement company transparency and quality. Signaling quality via transparency is highly likely to drive consumer shopping loyalty.” And, he said, a supplement company’s transparency assurances may go a long way to getting a customer in the door to try their product.
So what are consumers looking for? “Consumers especially appreciate [transparency in] ingredient labeling (GMO, non-GMO, etc.), safety, efficacy, and sourcing,” he says.
Companies can reap the rewards of their transparency in terms of higher pricing and increased understanding from customers, he says. “Nearly eight out of ten consumers are likely to pay more for supplements from a transparent company, including two of ten who feel strongly about this purchasing relationship. Half of consumers appreciate this transparency even if it means that a company has to share bad news, such as sourcing a controversial ingredient.”
How far has the supplements industry really come in terms of positively moving the goalposts? There is still work to be done, Medore says. “I see a lot of ‘talk’ about transparency, but not enough demonstrative action,” he says. “In our over 20 years of work with vitamin and supplement brands, we see a lot of fear and resistance to transparency. Sometimes it’s due to just the overwhelming nature of where to begin. Sometimes it’s the fear of having to justify some ingredients they may not be proud about but haven’t yet made a priority to address. Sometimes it’s fear of losing a competitive IP advantage, or fear of losing a supplier to a competitor.”
At SupplySide West, Nutritional Outlook spoke to George Pontiakos, president and CEO of botanicals supplier BI Nutraceuticals (Rancho Dominguez, CA), about the need he still sees for more quality control in the industry. BI Nutraceuticals is celebrating its 40th anniversary this year, and Pontiakos said he has seen the industry make significant progress in that time.
“I think that the industry has matured dramatically, and it’s been a maturation that has been at gunpoint,” he said, noting the increased scrutiny that the industry, especially the botanicals industry, has faced in recent years. “The industry was replete, early on, with a lot of unethical suppliers who would adulterate, suppliers who would not provide what was necessary, who had no focus, didn’t care, and were depending on the customer to determine if a [product] was right or wrong. And I think since the New York Attorney General”-meaning, former New York Attorney General Eric Schneiderman’s investigation of certain herbal products in 2015-"focused on this business and this marketplace, the level of focus and hygiene has been driven by the customer (manufacturers and retailers) now for the first time ever. I think that a lot of customers really didn’t understand how challenging the supply market was. Retailers didn’t know. A lot of manufacturers didn’t know. They took it for granted: ‘Look, I’m formulating with your product, you’re telling me it’s a white willow bark, who would ever think that you would adulterate it with something else that’s either dangerous or nonfunctional?’ And I think they really got caught by surprise on that.”
When asked whether the numerous transparency initiatives now being touted by many companies are substantive, he said: “I think a lot of it is happy talk; however, I think it’s great for the industry. The industry needs to hold its ingredient suppliers accountable for providing spec-compliant, safe product, and up until the New York Attorney General situation, it was not a focus.”
And all parties are responsible for looking within, he said, “I would offer that there’s been some complacency in the marketplace. I think there’s been some complacency on the buying side. The moment that you can’t trust the guy you’re buying from, that’s a you problem, not a supplier problem.”
Medore sees the hesitancy some companies may have about being more transparent, and he assures them that it’s possible to do it in a way that works for the brand and for its customers. “Ultimately, being transparent means being vulnerable, and that can be a terrifying proposition, because a transparent company is completely accessible to its customers. They admit their challenges and explain their decisions. They fling open their factory doors to physical and virtual tours, and they are honest about their sourcing and production processes. A transparent company invites scrutiny and accepts loyalty; there is as much pressure in admitting your mistakes as there is in accepting praise for your successes.”
He continues: “With our clients, we solve this by defining transparency at a brand level first by gaining alignment around the purpose and vision of transparency, exploring the level of commitment the brand is prepared to make, and determining what the brand is prepared to reveal and what it needs to withhold for competitive reasons. Next, we outline the transparency practices and factors that will inform a transparency matrix, which will identify both challenges and opportunities. These factors depend on the nature of the brand and how its products are sourced and made. Finally, we determine the appropriate way to express the brand’s transparency to the outside world, and how they fit into the brand storytelling.”
Medore knows of what he speaks. He notes Pure Branding’s success in helping Gaia Herbs create its hallmark Meet Your Herbs transparency program when the company rebranded itself years ago. “They saw a threefold increase in sales in a four-year period,” Medore says. “That anecdotal outcome is now backed up by the research in our ROI of Transparency report, where we see the impact that transparency has on purchasing behavior.”