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BUILDING AZOTH: WE'RE NOT A MARKETING COMPANY (PART 1)
"We are a marketing company, not a supplement company."
I have heard this statement so often, that it has almost become the mantra for any new startup looking to get their feet wet in the dietary supplement industry. As a matter of fact, when I was at a recent fitness expo, I met new founders and seasoned CEOs who told me they are spending close to 85% of their budget on marketing alone and a paltry 2-3% on R&D and product development. To add to that, as revenues increase, the strategy is to focus even heavier on marketing and eliminating almost all R&D efforts. A major player in the field told me his company now focuses 96% of its efforts on marketing and has eliminated R&D completely.
Being involved with FMCG for years, I can tell you this isn't really a surprise - it's expected. I am not going to sit here and pretend that Coca Cola and Pepsi are in the business of R&D - they aren't. However, when it comes to health and fitness, there is a distinction. People buying dietary supplements are not doing so to eat or drink something tasty or to have fun - it's more than that. These products are tools to help one achieve the ultimate levels of self-development - physically, mentally, and spiritually. When supplement companies are spending most of their funds on marketing, these costs are passed on to customers and I find that bothersome.
EMOTIONAL INVESTMENT
I find it bothersome because I have years of emotional investment into buying supplements and these costs are passed onto consumers like myself when I was a 14-year old. As a 14 year old, I was scraping together money I had made from raking lawns, washing cars, and dishes after school hoping to trade my time and work for the quest for self-development, only to find out it was traded to fund shots of T&A on Instagram, flashy labels, and fake doctors. Can newer companies take a stand?
Here's the kicker - for many new companies looking to get involved in the supplement game, there's now a hidden "pay to play" rule - if you want to be competitive, you better have the muscle to pay as much commission as possible to IG stars, spend thousands on social media and even more on photo shoots and Google/Amazon Adwords. By the time you're done shelling out what probably amount to close to six figures, you'll have little left to actually think about the product and pay for it.
To paint a more accurate picture, I'll use this example: an average bid for the word "pre-workout" is about $3-5 for 1 competitive click on Amazon. Note, as a new company you'll need to spend more to be competitive in order to rank, so we'll use the higher figure. On average, there's a 5-7% CTR resulting in a buy (probably lower, but I'll be super generous here.) So it would take $500 for a company to get 25 clicks resulting in a sale. That's $20 per sale! If the product costs $20 to produce and Amazon's fees are about $8, a company is spending $48 per sale! As a pre-workout, the top tier products are going for about $29-$35. So per sale, a company goes in at least $15+ of loss pricing it at middle of the pack. Since VCs aren't running towards sports nutrition companies to hand them millions of dollars, what do companies do? They create cheaper products by underdosing them, or has recently been the case, just lying on the label.
PLAYING THE MARKETING GAME
The results are evident. Let's take the recent Nootropic category for example. Nearly all top-10 selling Nootropics on Amazon are full of proprietary blends and grossly underdosed. We are talking at levels where the ingredients have absolutely no possible effect.
For example, the top selling Nootropic on Amazon consists of a proprietary blend of about 700 mg of a dozen ingredients combined. Two of these ingredients by themselves, Phosphatidylserine and Tyrosine should combined be dosed about 700 to 1,000 mg to be anywhere near effective. So needless to say 700 mg for a dozen ingredients, is a joke. There's no way it can have ANY effect at all. I for one am amazed at the amount of raving reviews these products get. I find it suspect.
With a proprietary blend, companies can put as little as 0.5mg of one expensive ingredient, and fill the rest with cheap capsule fillers. You have no idea what is in it. When this company started out, they probably spent all their money on advertising and had a paltry budget for manufacturing the product. With a prop blend they're getting a steal on the manufacturing and passing rest of the real cost - advertising, photographs, and other marketing tools onto the consumers who are lining up to buy into it. Once the company is financially healthy, what incentive do they have to suddenly go into R&D when that's not what built it in the first place? None.
LEAD BY EXAMPLE: AZOTH
I can sit here and write this and make a demand to all supplement company owners and founders to change their ways and make an emotional plea to focus on R&D now and screw their profits. But who am I kidding? That whiny, holier than thou attitude is best left to entitled brats who have nothing do in their lives. Let's get to the bottom line: profits are important. They are the engine that drive companies, wages, and products. What's needed is a blueprint to follow. Instead of calling out others to follow suit, I set out to create AZOTH on precisely those terms.
Today, about 6 months into this process, AZOTH stands as a small success story that serves as an example for an alternative strategy for future supplement companies to follow suit.
"We are a marketing company, not a supplement company."
I have heard this statement so often, that it has almost become the mantra for any new startup looking to get their feet wet in the dietary supplement industry. As a matter of fact, when I was at a recent fitness expo, I met new founders and seasoned CEOs who told me they are spending close to 85% of their budget on marketing alone and a paltry 2-3% on R&D and product development. To add to that, as revenues increase, the strategy is to focus even heavier on marketing and eliminating almost all R&D efforts. A major player in the field told me his company now focuses 96% of its efforts on marketing and has eliminated R&D completely.
Being involved with FMCG for years, I can tell you this isn't really a surprise - it's expected. I am not going to sit here and pretend that Coca Cola and Pepsi are in the business of R&D - they aren't. However, when it comes to health and fitness, there is a distinction. People buying dietary supplements are not doing so to eat or drink something tasty or to have fun - it's more than that. These products are tools to help one achieve the ultimate levels of self-development - physically, mentally, and spiritually. When supplement companies are spending most of their funds on marketing, these costs are passed on to customers and I find that bothersome.
EMOTIONAL INVESTMENT
I find it bothersome because I have years of emotional investment into buying supplements and these costs are passed onto consumers like myself when I was a 14-year old. As a 14 year old, I was scraping together money I had made from raking lawns, washing cars, and dishes after school hoping to trade my time and work for the quest for self-development, only to find out it was traded to fund shots of T&A on Instagram, flashy labels, and fake doctors. Can newer companies take a stand?
Here's the kicker - for many new companies looking to get involved in the supplement game, there's now a hidden "pay to play" rule - if you want to be competitive, you better have the muscle to pay as much commission as possible to IG stars, spend thousands on social media and even more on photo shoots and Google/Amazon Adwords. By the time you're done shelling out what probably amount to close to six figures, you'll have little left to actually think about the product and pay for it.
To paint a more accurate picture, I'll use this example: an average bid for the word "pre-workout" is about $3-5 for 1 competitive click on Amazon. Note, as a new company you'll need to spend more to be competitive in order to rank, so we'll use the higher figure. On average, there's a 5-7% CTR resulting in a buy (probably lower, but I'll be super generous here.) So it would take $500 for a company to get 25 clicks resulting in a sale. That's $20 per sale! If the product costs $20 to produce and Amazon's fees are about $8, a company is spending $48 per sale! As a pre-workout, the top tier products are going for about $29-$35. So per sale, a company goes in at least $15+ of loss pricing it at middle of the pack. Since VCs aren't running towards sports nutrition companies to hand them millions of dollars, what do companies do? They create cheaper products by underdosing them, or has recently been the case, just lying on the label.
PLAYING THE MARKETING GAME
The results are evident. Let's take the recent Nootropic category for example. Nearly all top-10 selling Nootropics on Amazon are full of proprietary blends and grossly underdosed. We are talking at levels where the ingredients have absolutely no possible effect.
For example, the top selling Nootropic on Amazon consists of a proprietary blend of about 700 mg of a dozen ingredients combined. Two of these ingredients by themselves, Phosphatidylserine and Tyrosine should combined be dosed about 700 to 1,000 mg to be anywhere near effective. So needless to say 700 mg for a dozen ingredients, is a joke. There's no way it can have ANY effect at all. I for one am amazed at the amount of raving reviews these products get. I find it suspect.
With a proprietary blend, companies can put as little as 0.5mg of one expensive ingredient, and fill the rest with cheap capsule fillers. You have no idea what is in it. When this company started out, they probably spent all their money on advertising and had a paltry budget for manufacturing the product. With a prop blend they're getting a steal on the manufacturing and passing rest of the real cost - advertising, photographs, and other marketing tools onto the consumers who are lining up to buy into it. Once the company is financially healthy, what incentive do they have to suddenly go into R&D when that's not what built it in the first place? None.
LEAD BY EXAMPLE: AZOTH
I can sit here and write this and make a demand to all supplement company owners and founders to change their ways and make an emotional plea to focus on R&D now and screw their profits. But who am I kidding? That whiny, holier than thou attitude is best left to entitled brats who have nothing do in their lives. Let's get to the bottom line: profits are important. They are the engine that drive companies, wages, and products. What's needed is a blueprint to follow. Instead of calling out others to follow suit, I set out to create AZOTH on precisely those terms.
Today, about 6 months into this process, AZOTH stands as a small success story that serves as an example for an alternative strategy for future supplement companies to follow suit.
