Nature’s Sunshine Products – Nutritional Product Trends –
18 June 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Doug Corrigan (DC)
Former VP, Marketing & Sales, North America at Nature’s Sunshine Products Inc
Agenda:
1. Nature’s Sunshine (NASDAQ: NATR) innovation across nutritional supplements
2. General health and weight management portfolio demand
3. Multi-level marketing business model risks
4. Competitive landscape amid changing barriers to entry
Contents
Q: How has the nutritional and personal care product market evolved throughout your time in the industry?3
Q: Could you break down the competitive landscape? Which players have grown into really large companies
or produced really good products throughout your time in the industry?
4
Q: When did the multilevel marketing business model take off? What are the benefits and limitations of this
type of distribution strategy?
5
Q: Could you share a high-level overview of Nature’s Sunshine Products and its evolution over the last few
years? Which strategic initiatives would you say the company executed exceptionally well?
Q: Were the regulatory issues in Asia specific to Nature’s products, or an industry-wide phenomenon? It
seems Nature and many competitors, such as Usana, are focusing on capturing growth in Asia.
6
7
Q: Could you quantify Nature’s product sourcing, development phases and approval process? How long
would it take from conceptualising a new product, switching around a few chemicals and releasing it to
customers? How does the new product innovation, R&D and approval process compare to other industries? 8
Q: Why do you think Nature’s products are almost equally split among categories, whether oral health,
immune or cardiovascular? Are there opportunities for the company to be a leader in any of the categories it
operates in, rather than just playing in every category?
8
Q: How are companies proving their products work without diagnostics? Why isn’t there more vertical
integration with diagnostic companies to provide credibility for personal care and skincare players? It seems
like this industry is saturated with products that have promises such as making your skin cleaner, and it’s
essentially just based upon peer-to-peer or word-of-mouth review.
9
Q: How could a new entrant take the market by storm? You mentioned newcomers in nutritional products
who potentially lack the necessary infrastructure. How are they differentiating in a market where product
expertise, sourcing and controls are vital? Would you say the barriers to entry are high?
Q: Is there much brand switching with nutritional and skincare products? Are consumers always trying
something new, or is there a certain segment of the market with high brand loyalty?
9
10
Q: What are your best- and worst-case scenarios for Nature’s Sunshine over the next 6-12 months? What is
the company’s biggest risk and the biggest opportunity to continue its strong growth?
11
Nature’s Sunshine Products – Nutritional Product Trends
Transcription begins at 00:00:01 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled Nature's Sunshine Products – Nutritional Product
Trends. I’m Nyree Hinton and I’ll be facilitating today’s Interview with Mr Doug Corrigan, former VP,
Marketing & Sales, North America at Nature’s Sunshine Products.
Doug, before we get started with today’s Interview, please state I agree or I disagree to the following
statement: You understand the definition of material non-public information and agree not to disclose any
such information, or any other information which is confidential, during this Interview.
DC: I agree.
NH: Thank you, Doug. Could you start with a brief introduction to your background and the various roles
you’ve held in the industry?
DC: I’ve had mainly commercial development roles that are in product marketing, product development,
brand marketing, so brand and content marketing areas. All those areas I have deep experience, and also sales
development, training development, compensation plan development, all the things to do with network
marketing business models. I have experience in virtually every channel in natural products, network
marketing, retail channels, practitioner channels, e-commerce channels. I think that covers it.
[00:01:40]
Q: How has the nutritional and personal care product market evolved throughout your time in the industry?
DC: In my time in the industry, which is now 20-plus years, I guess, that sounds like a long time when I say it,
it’s just been a huge explosion of growth. In the time when I started, back in 1992, so it’s been almost 30 years
now, actually, it’s grown from just a really fringe industry, where the mainstream consumers really didn’t
know very much about it, to, over the time, become a billions-of-dollars industry. Now these products are sold
everywhere. Back in the day, they were sold mainly in quirky health food stores, and now they’ve become
massive. You can buy these kinds of products in gas stations, convenience stores. You can buy, obviously,
abundant online opportunities, and they’ve become well more sophisticated as consumer demand has gone
through the roof. People are becoming, as a general rule, more aware of what they put in their bodies. They’ve
become more sophisticated about their knowledge about those things, and so we’ve seen providers and
companies who answer those needs, who answer not just the needs of what ingredient but how that ingredient
gets to market, down to really sophisticated marketing messages around where the product was derived and
how and all those different sourcing things.
Then, I think the biggest thing in the last few years that has also come to the table is what’s not in the product.
The things that we refuse to use, the supply chain things that we refuse to do, an elevated, more conscious
consumer who wants to know exactly all the different ramifications of the supply chain, I think those are
probably the biggest innovations in the last few years, where I haven’t seen as much new ingredient
development and product development. Those things have seemed to be slowed down in the last few years, but
certainly, that has also driven huge pieces of the market. I know there are huge, recently, ingredients like CBD
which have come into the market by storm. A lot of the products that we see today that are popular are re-
spins, and products that are maybe are changed just a little bit and then they’re re-marketed in a powerful
way, like human growth hormone. I know there are some products out there, and then there are other
companies who try to re-market different elements.
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I think the innovation I see today is a lot of combinations of using technology and even diagnostic equipment,
so that people get a read on, “How is this thing actually impacting me? Is there a measurable way to see how
this impacts my health and my stress levels and my skin? How can I measure that this is really working?”
Anyway, this massive evolution over time, the consumers have changed today how they get the products, the
internet and social selling has transformed network marketing, giving it a really different look. The ability for
customers to get products online today really has changed the channels immensely, and that has really been
interesting, to see how network marketing has tried to channel that. Whereas people used to have to be
exclusive to a distributor to get those products, now almost all of them are available on Amazon, and so how
companies have navigated that access or tried to limit that access is a really interesting business study. I’ve
probably talked a lot, but that’s what I’ve seen in my career, and it’s been an interesting place to have a career
because of all the changes and evolution that’s happened.
[00:06:49]
Q: Could you break down the competitive landscape? Which players have grown into really large companies or
produced really good products throughout your time in the industry?
DC: Obviously, everybody wants to know the companies that have seen tremendous growth. One of the areas
that is not a new product but has exploded on the scene as interesting, and I’ve been smack in the middle of
this through the whole thing, really, for the main parts of that, is essential oil, which started as a niche type of
a thing. Direct-sales companies like Young Living, who I worked with for many years, and then the offshoot of
Young Living, DoTerra, these two companies have become massive titans. Both several-billion-dollar
companies, they have parleyed this interest in essential oils and pure essential oils and premium essential oils
into really broad wellness offerings, a comprehensive wellness message, and turned a niche into something
that has become really a mainstream phenomenon now. It’s a great example. You can buy essential oils almost
anywhere right now, and most people have some level of acumen or knowledge or interest there. Those were
interesting companies to continue to watch as they continued to plod forward.
Another company that was based on essential oils, an essential oil or a specific ingredient, that has become
really an industry-best standard is Melaleuca. Melaleuca is a company that I’ve long watched and marvelled at
because, even in today’s world, they’ve been able to create a really closed system that doesn’t have massive ups
and downs. They just plod forward at X percent a year and now have reached the point where they’re, just
recently, almost a USD 3bn company. It’s just been interesting to watch how they’ve had this hybrid. They’re
not doing anything really innovative or new with regards to their compensation or their products. I would say
their products are generally a step behind in evolution beyond what the market is, yet they’ve found a way to
keep their group really engaged and excited. They continue just to be a best practice in the industry, in my
opinion, and it’s interesting to watch direct-sales companies.
Contrast that with your Avons and Mary Kays of the world, who have not been able to keep pace with a lot of
the cosmetic and personal care trends. Other companies like your Arbonnes and your Nu Skins and your
Rodan + Fields, those types of companies seem to be better, just finger on the pulse of today’s brands or
today’s customers, much better at accessing social selling and e-commerce types of engines. Not just the e-
commerce but really that social selling aspect of it, to use today’s social medial to build their brands, and some
of those companies like Mary Kay and Avon seem like they’ve missed those things. Also, companies like an
Arbonne are a good example of someone who’s reinventing themselves and really focusing in on a
sustainability message. They’ve made that sexy and cause-worthy, and it’s interesting to see those companies
who can really grab hold of a specific cause and find a way to bring that to the forefront of the message, even if
their products are somewhat parity, let’s call it. They build on a cause and they build on the fact of what’s not
in their product, and the way they bring their products to market and their commitment to sustainability and
the environment, those are messages that are finding their way to resonate with today’s consumers. They’re
finding ways to grow those companies, whereas long-time companies, like I mentioned before, have lost their
way and are finding it hard to be relevant and continue to grow amid some of today’s trends.
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[00:12:01]
Q: When did the multilevel marketing business model take off? What are the benefits and limitations of this
type of distribution strategy?
DC: It really became relevant back in the 1970s. Early- to mid-1970s, the first player, the famous player, is
Amway, of course. That’s a company who has evolved a lot, and to this day, even though they’ve had setbacks,
they continue to be still a relevant player. They’ve also continued to be a really interesting model with regards
to supply chain, where they’ve done tons of investment in relationships to really almost a vertical supply chain.
To control vertically such a huge product line is a marvellous thing. Amway was really the first one that made a
big name, but shortly behind it were a lot of other players in the wellness area and supplement area. Some of
the grandfathers would be a Nature’s Sunshine and a Shaklee. These are direct-selling companies that came on
the scene there. They were able to convert this model of direct sales and network marketing into a way that
was appealing to some. It was still considered very much a fringe thing.
I think a lot of people, their first exposure to network marketing was Amway. I know mine was, and it just
evolved from there as people found new ways to convert margins into payment, so where you could get
involved in actually the payment process of transactions, of commerce. I think the cool thing initially that they
did was it was an area that actually led to a lot of product innovation, where products that were on the fringe,
maybe not really acknowledged as relevant, found their way to the market in a direct-sales company and found
a real interest there. The thing that network marketing does is it educates the lay consumer. Traditional
advertising, you don’t have time, in a 30-second radio ad or TV commercial, to educate people about herbal
products or essential oils, or even a really cutting-edge personal care product or technology. Certainly not, but
network marketing, the strength of that is it actually educates people at a really more deep level about the
products they’re using. It does it through relationships with the people that you trust or that you know, or that
you used to trust until you bought their product and didn’t have a good experience with it, and the opposite,
you bought their product and had a great experience with it. That led to a lot of different products coming to
the marketplace that probably wouldn’t have been looked at otherwise.
I think of a product like noni juice. If you went to the health store and drank noni juice, you’d never buy it
again, because you just had a little sample and you didn’t know what it did. It tasted nasty, and you’d move on.
The same thing with aloe juice, but network marketing companies told the story about those products, and
they led to a lot of people becoming excited about aloe vera products and aloe juice and noni juice, or whatever
it was, and that led to interest. They were innovators, they were creators, they were disruptive channels, and I
think that, over time, that was really the initial strength of it. I think that’s what you’d love to see it go back to
again, but I think some of that has been lost in recent times, because I don’t see the same innovation or new
ideas about products or introducing things. Maybe it’s because we’re running out of them, I don’t know, on the
planet itself, but you certainly don’t see those kinds of new things now. I think human growth hormone, that’s
a great one. Maybe they didn’t have as great a luck pushing that through your normal channels or your
commerce channels because more education was needed, but it’s been around a long time, and they’ve just
found a niche inside network marketing that seems to work well for that.
It also is a great place to sell products that are a little more expensive, because people buy a story, they buy a
higher benefit. They create categories, or have in the past, and so it’s a great grassroots way of getting interest
out there, not to the masses initially, but they can quickly become a viral sensation through the different
networks. That’s some of the power of it. I think the weakness of network marketing is that, in some areas, it
does tend to demand a higher price point. A weakness is a value product that somehow is able to come in and
create and say, “This is a parity product and it’s way less expensive, because you’re not having to pay for the
network marketing aspect of the commissions of the whole network.” That’s where it’s vulnerable, and that’s
what they’ve tried to do, really, with essential oils. It’s a great example of that, just to come in and say, “Why
are you paying for this marked-up brand when I could give you essential oil that’s just as good, and it’s 25-30%
less?” That’s the weakness of it, that the pricing structure does command a higher price point, usually, just
because of the payout of the commissions to the sales force.
I will say this, too. Generally, in my experience, at least, I know the companies I worked with, like Nature’s
Sunshine, like Young Living, they actually do a great job with sourcing their products. They are very
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committed to delivering a premium product and they spend a lot of money on laboratory analysis and
compliance, different pieces to make sure that that product is pure, it’s premium, that it’s going to be a higher
level of raw material than most of the others we’ve tested. I’ve been involved in that part of the business for
many, many years, and that’s expensive. It’s expensive to ensure those things. If you don’t do it yourself and
you’re just relying on third-party providers to do that testing, just to pass off the C of A when you receive it, the
stuff that you’re going to be able to deliver to your customers is nowhere near those companies who really take
it on themselves to ensure purity of product, and have those laboratory facilities and have those deep
commitments to quality assurance and some of those things. In network marketing, there are both parts.
There are, unfortunately, newcomers who don’t have that infrastructure, who don’t have that commitment,
but there also are a lot of great companies, established companies, who do that every bit as well as any other
company in the market.
[00:20:45]
Q: Could you share a high-level overview of Nature’s Sunshine Products and its evolution over the last few
years? Which strategic initiatives would you say the company executed exceptionally well?
DC: I’m patting myself on the back here. It’s been a while, I haven’t been there for two years, but I was there
two different times, actually. Early in my career, I worked really in a sales development capacity, so I was
working with the field and developing the field, training them on the products, how to build their networks,
how to make connections, how to grow the commerce. That was the main part of my first stint there, and then,
most recently, more in management leadership roles that had to do with a variety of things, some of the things
I’ve just mentioned but also product development and product marketing and brand development, and a lot of
other business channel outreach development, as well. Important in network marketing is that you have a
relevant compensation plan. At Nature’s Sunshine, I came back because I always felt like they had tremendous
commitment to products. That was really important to me personally. I’m a user, I’m a believer of the
products. I felt like they really did a great job of raw materials, having deep sourcing connections, deep
commitment to purity. When they had a management change, it’s got to be nine years ago at this point, and
the new management said they wanted to invest in growing the company and growing the brand, I was excited
about that because I felt like it was the brand that time forgot. It had great wherewithal, great value to
customers, but I felt like that we could really make it a household name if we did X, Y, Z.
That’s what brought me to the company. I initially had responsibilities in a lot of the sales, promotional items.
That was the fastest way to get the field sales force, because field energy in network marketing is really key, as
you can imagine. It’s really the key piece that keeps things going, just having all of that army of volunteers, the
army of your distribution force, to be excited about what you’re doing. That’s really the first place to start,
because if sales aren’t going well, you’ve got to start at that ground level, and they weren’t. They weren’t going
that great when I first arrived. They’d seen a lot of attrition, and so we started there because we felt that was
the fastest way to turn things around, but we knew at the time, even then, that we needed a whole overhaul.
Our comp plan was outdated. Our products, the branding, the packaging, everything about the company was
just old and antiquated, and so we started to try to push those things forward. We didn’t get very far because
the board and the company, the CEO, really were focusing on international development. They felt like the
biggest thing that they could do was grow into some of the international markets. Specifically, they had their
sights set on China and really developing a strong presence in China, and so a lot of the strategic and resources
were put there.
Then, pretty soon, it was after a couple of years, when I started to move more into product marketing, product
development, almost all of the energies of the company were pushed into both infrastructure, so operating
systems, and also different pieces that would be appealing to the market in China, really putting a huge onus
on growing that market big, fast. It was really going to shoot the stock price up, and that was really a lot of
what we ended up doing for the middle part of my journey at Nature’s Sunshine this most recent time. They
ran into a lot of regulatory issues with regards to just trying to get the products they wanted registered there,
the compensation registered there. There were just a lot of obstacles that they ran into that were unforeseen
things in the strategic parts of that. That’s when the attention finally turned back to the North America market,
because that was still the biggest market, the cash cow, the one that produced all the operating revenue, really,
Private and confidential 6
for the whole company. That’s all public information. They turned back to that engine, and that’s where, the
last couple of years, I had the opportunity to really re-strategise and really get down to what was fun, which I
wanted to do at the beginning of my journey there, which was to reinvent the brand of Nature’s Sunshine into
North America.
That was a big job. You needed to go deep into how could we really resurrect the story, how could we resurrect
the product development, how could we get innovation back at the forefront. Nature’s Sunshine was really
appealing as a product company for a lot of years with the practitioners, and that’s where we spent a lot of time
in the last couple of years before the change of CEO. He made adjustments a couple of years ago. The board
was putting massive pressure on him to get his operating income and costs under control, and so he, in the
short term, cut way back, even in North America, and that’s what led to me leaving the company. The fun
thing, though, is to see that a lot of those endeavours, they have continued to move forward, slower than you
would certainly hope, but redoing the compensation plan and redoing the brand to make it more relevant
today. A lot of the people who I hired were the people who are still making that happen and still working on
that. I think that, generally, it’s gone pretty well, although it’s not a home run, because they’re dealing with
merging an older distributor base who operates a certain way and has long operated that.
I think they’re just dealing with the growing pains of trying to integrate and attract new blood and new
distribution into the company. At the same time, they’re trying to manage the people who still sell most of the
products, which are the long-time distributors. What they’re dealing with is those long-time distributors are
not loving all the changes that were made with compensation and with some of the things that they’ve done
product-wise, gearing the company to be less practitioner-oriented, less retail-oriented, more social selling
and more oriented towards competitive in today’s network marketing atmosphere. I think that, generally,
there have been positive things but that’s certainly going to take them, I think, more time and more energy. It’s
going to be a learning process, and that’s what I hear from the people who are there and involved with it now,
although they have made some important changes that I think will help them in the future.
[00:29:18]
Q: Were the regulatory issues in Asia specific to Nature’s products, or an industry-wide phenomenon? It
seems Nature and many competitors, such as Usana, are focusing on capturing growth in Asia.
DC: They just made a huge bet on that. Many years ago, they had to spend a lot to prepare all those different
things, and then I think the initial crew, too, who really took a lot of those things to market, they just didn’t do
their work really well. A lot of those initial groups who were supposed to get them in China, of course, they
were facing a ton of pressure, a ton of timelines that were just unrealistic. They ended up, I think, just
probably skipping over things that, if you would have been more deliberate and careful about, you would have
not just had products that were available but you would have packaging, story, all that stuff that was catered
towards the Chinese consumer. I think that’s one of the reasons why that’s been slower than they hoped, but
regulatory-wise, I think it’s just difficult, more difficult, and I’ve heard this from all of my friends in the
industry. Lots of my peers work at Nu Skin. They had the same thing happen when they were trying to get into
China.
DoTerra has been really cautious about it and has taken a very different approach. They just have tried to get
pulled into there with different strategies, instead of making a huge push to get in there just all at once. It
seems to be working for them, because they didn’t have to make this massive investment, or haven’t had to
make this investment, and have had decent returns. Granted, it hasn’t been world-changing for them, but the
companies I know of, like a Nu Skin or a Nature’s Sunshine, who did a lot of work to go in there with one big
push, it was really expensive. It took them a long time to get their licences in order. I will say this. Nature’s
Sunshine has a lot of products, and I know that was something we faced, was trying to get all those products in
quickly to make the whole system work. It was a challenge and cost us a lot of man hours and a lot of time. We
ended up having to change the products a lot, which, of course, makes the supply chain very difficult, because
you don’t get the economies of scale that you hope to have as you’ve got to make customised runs for China. I
think most of it was just it’s hard with China. They have just a different way of looking at things, and the things
that they allow and don’t allow are a lot different than in a lot of countries, but then some of it has to do with
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Nature’s Sunshine’s complexity in general, too. I’d say it’s probably 75/25, 75% to China, 25% to Nature’s
Sunshine’s own complexity and challenge to their systems, their own internal systems, to have an undertaking
of that size.
[00:33:40]
Q: Could you quantify Nature’s product sourcing, development phases and approval process? How long would
it take from conceptualising a new product, switching around a few chemicals and releasing it to customers?
How does the new product innovation, R&D and approval process compare to other industries?
DC: I think that’s one of the areas that Sunshine is not great at, and wasn’t great at when I was there, for sure.
I know it was an area that they tried to streamline and have tried to adjust. Their commitment to certain types
and certain standards of raw materials and things that they would not use, that slows things down for them,
and especially when they don’t have a lot of flagship products that really command, say, even 50%, 40% of
volume. It’s spread more around, which is strange for a direct-selling company, a multilevel company. Most of
the time, it’s a really clear Pareto. Pareto is, “70-80% of our volume is coming from just these couple of
products.” With Sunshine, it’s not that clear, and because of those commitments, I’d say it’s generally a longer
time frame, as well as I think that they’ve concentrated on trying to get all their different parties to work
together.
You can be critical about that or you can be complimentary of that, but the board has really been conscientious
of not having any type of regulatory issue, so really spending a lot of time and a lot of money and a lot of
resources on trying to get their products just really clean from an FTC standpoint, really clean from an FDA
standpoint. When you have literally thousands of products, thousands of SKUs, that’s not easy, and that’s
something that certainly took a lot of time. I know we reduced the SKU count quite a bit in the last parts of my
time there. I know that’s continued to be an emphasis, but that’s a challenge. Then, when you’re working on
those things, those are the same people who are also working on the products that are trying to get into other
countries, and so it took longer than most companies would to get those products ready for different markets,
for sure.
[00:37:10]
Q: Why do you think Nature’s products are almost equally split among categories, whether oral health,
immune or cardiovascular? Are there opportunities for the company to be a leader in any of the categories it
operates in, rather than just playing in every category?
DC: I think that the history of the company was really built around big pushes in certain areas that they were
really excellent in or innovative in, and one of those areas was nutritional cleansing, using products to cleanse
the intestinal tract, the liver, the skin, those types of things. That was a really big part of their growth initially.
They picked up, at times, other products that have really been big builders for time frames. I think that that’s
where the opportunity can lie in the future, is using their expertise and their connections to try to get ahead of
the curve, and deliver the things that people want today in a way that resonates with their expertise. That said,
they spend a very little bit of their R&D resources on those kinds of initiatives. You’ve got to invest if you want
to accomplish those things, and that’s just not been their strategy.
The strategy has been a very follower strategy, and making sure they don’t have anything hanging out there
that could cause any issues with the FTC and the FDA. That’s been, I think, the board’s perspective, that they
want to be very conservative, very slow to market. CBD’s a super good example of that. Many years ago, I was
actually one of the team that proposed being very aggressive with regards to finding ways to the market with
CBD or like-type products. That was shelved for many, many years, and it was only after other companies
were… I felt like that was a big mistake, because that was in the right in the wheelhouse of Nature’s Sunshine.
There’s no better fantastic herbal product than hemp. It’s one of the best in the world. Granted, it wasn’t
without its problems, but had they taken more of a leadership role, had they invested, I think anybody that
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looks at the history and what’s happened there, they could have been miles ahead.
On the opposite side, they were probably a full year or more behind what was really happening with regards to
that really big trend. Granted, there are a few companies who did it wrong, and they had regulatory issues,
they’ve certainly been slapped by governmental bodies, but Sunshine, with their wherewithal, they could’ve
had a leadership role there. They just knowingly chose to do their business in a different way, to follow, make
other people step on all the landmines or whatever that could be there, or fight the fights, really, and just come
to the market a little bit later. That was a strategic decision. I do not know if that’s changed in the last couple of
years or if they are putting more resources behind those types of initiatives, but I think that this area in
general is crying out for people who are going to be innovative and disruptive and emergent with regards to
how they combine diagnostic technologies and health solutions. Those companies who are doing, they seem to
be growing faster, and the US market demands that. The US market demands somebody who can clearly say,
“We stand for this, and here are three products and three initiatives that prove that we stand for this.” I think
that that’s where Nature’s Sunshine has a long way to go.
NH: To follow up on your diagnostics point, that seems more mechanical in nature.
DC: Yes, it does. Nu Skin’s a great example of a company who has done a great job of that. They’ve used
technology that helps them to get a reading, so that then you can see measurable results. We live in a day now
where wearables can actually be used to really measure how different things are affecting your nervous system
and your cardiovascular system, your circulation. Getting out and combining those things so that today’s
consumer can say, “I’ve got this reading. It’s a Fitbit or a watch or something I wear, and it can measure the
changes of my body rhythms,” or different things like that, I think that’s a really interesting area that a
practitioner-minded group like Nature’s Sunshine would be really receptive to. Can you, from your breath
measure this? There are just tons of technology emerging in this area that helps us to assess what’s actually
happening in the body and get ahead of it, without crossing the lines of what’s considered a diagnosis machine.
It can just really be a smart assessment. Maybe that’s just me personally, but I think those are the things that
are intriguing, and companies who are addressing those things, they could really take the market by storm.
[00:44:12]
Q: How are companies proving their products work without diagnostics? Why isn’t there more vertical
integration with diagnostic companies to provide credibility for personal care and skincare players? It seems
like this industry is saturated with products that have promises such as making your skin cleaner, and it’s
essentially just based upon peer-to-peer or word-of-mouth review.
DC: What I’ve seen is, usually, network marketing, wellness, natural products in general, have not been the
first ones to get the best stuff. That usually goes to the pharmaceutical industry first. Where we have
something like that that a pharmaceutical could influence, there’s a natural meshing of that, so I think that the
companies who develop those things, probably not their first stop is to go to a Nature’s Sunshine or a Young
Living or an Amway and say, “We’re going to show you how we can really prove that your skincare products
are working better,” or whatever. It usually is somehow linked pharmaceutically first. That said, I see some
companies who are putting time there. The customers who are using those types of things, they’re pretty
excited, and it’s irrefutable. A big knock on a lot of the products in the wellness area in general is, “Show me
that it works really. What kind of evidence do you have?” I think that there are only going to be more
sophisticated customers in that area. Just a few thoughts there. I think it’s heavily influenced by their
connections with big pharma, and so usually, you don’t get the best stuff until it’s been not adopted by big
pharma first, and then it comes to you a little later.
[00:46:58]
Q: How could a new entrant take the market by storm? You mentioned newcomers in nutritional products
who potentially lack the necessary infrastructure. How are they differentiating in a market where product
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expertise, sourcing and controls are vital? Would you say the barriers to entry are high?
DC: I don’t think they’re that high. You just explained it really well. If you get the right sales force who are
pretty talented, and the right marketing pitch behind it so that it resonates in an attractive way, you can see
people getting noticed. It’s as much an element of how you utilise marketing and social selling and your sales
team, your distribution team, those people who know how to get things in front of people, know how to make
something seem cool and fun. It doesn’t necessarily have to be too deep with regards to answering all those
supply chain things initially. I see a lot of companies out there who focus really mainly on performance. I think
a good company that has just done a really good job of marketing themselves, but I don’t think that their
technology is that much better or their product is going to deliver that much better than most of your high-end
haircare products, is a company like Monat. I don’t know if you’ve heard of them, but Monat Global, and
they’ve just done a great a job. A pretty solid compensation structure, but the way they give their people is just
this swagger of the way that that it’s marketed and the story, how it’s developed. You’d think this was the best
haircare stuff you could ever imagine.
They also have a more captivated audience, so they tell them more of a story about their products. I don’t think
that they’re innovating amazingly but they are growing amazingly, and I think that it has to do with really their
mastering of different channels, and understanding really well how to encourage their social sellers and their
influence marketers. They’ve connected really well, and that’s another big reason why Young Living continues
to grow, even in the middle of tons of value brands coming on to the market in the essential oils business.
They’ve made connections with their influencers, they’ve invested deeply in the supply chain, they funnel their
people out to their different farms so they can see firsthand what’s happening. It’s much investment there, and
educational investment is much deeper. For a newcomer, I say that because you don’t have to have all that
stuff to be able to sell a good story, and to connect with the right influencers that then give you your product
credibility. You can go that route, and I think Monat is a great example of somebody who’s done that.
NH: This is more about who can spend the most on marketing and scale.
DC: Yes. Beachbody is a great example of that, too. Team Beachbody, it’s not like they have any reason to
believe that their exercise videos, and their products that they sell along with them, are any better than
anybody else, but the way that it’s been marketed and the people that they get to market it, that’s where
Beachbody is an interesting thing, because they’ve been innovative in cross-channel development. There are
not a lot of network marketing companies who have been able to also be really successful on infomercials, so
companies create maybe a market there and then go to network marketing second. That’s worked for Optavia.
Those are pretty interesting examples of people who started in one way, like a doctor’s brand like Medifast,
and then moved into network marketing later, or started as an infomercial and then found traction in blending
those two things together, like Beachbody has. Those guys are all relatively new. I think the obstacles of entry
for them were pretty big. Those aren’t the best. They had to invest a lot in a whole different channel before
they reached into direct sales or network marketing. Just a few thoughts there.
[00:52:34]
Q: Is there much brand switching with nutritional and skincare products? Are consumers always trying
something new, or is there a certain segment of the market with high brand loyalty?
DC: I think, for the most part, one of the attractive things about network marketing generally is that there is
high brand loyalty. The numbers with regards to repeat purchases, the lifetime value of a customer who has
not only just tried this product but bought into the lifestyle, that’s one of the things that is the strength of
network marketing. It doesn’t just become something that you use. It becomes a part of your life because your
friends are using it, there’s this community that’s developed around it, you’re teaching each other about it. You
look at a lot of the repeat purchases, and the way the customers stick with the products over time is off the
charts vs somebody who’s buying lots of stuff at a retail store and who’s changing those. Granted, we
investigated this a lot from our marketing standpoint to understand the segments, and there’s always a
transitional segment, like with anything, but compared to most companies and the customers for those
companies, that is a smaller group. Plus, network marketing, they were the first ones to make subscription
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things cool. Subscription models became really vogue because network marketing was one of the first to really
push those in a big way, and now, of course, everybody is doing that.
E-commerce has totally found the power of that, getting that extra purchase, even if it was by accident, or just
the simplicity of, “Set it and forget it.” Those are huge now, but network marketing really pioneered those
things in the beginning, had those auto-ship programmes and gave a lot of incentives for that. It’s just to say
that I think that the education you put in, it tends to really build the lifetime value of your customers. I know
the retention numbers of a company like Nature’s Sunshine are really excellent compared to a lot of your other
just normal brands, and they’re not even the best in the industry. Off the charts is a Young Living or a DoTerra
in comparison to a lot of other companies. They would kill for those kinds of retention numbers and the
lifetime value customer numbers. Those companies who do it right really emphasise quality, do the webinars
and conferences and all kinds of educational things. Isagenix is another great example of that. They spend a
ton of time educating, and their people are very committed. They’ve become passionate, zealous advocates of
their product, even, and plus, they have a financial incentive many times, an obvious financial incentive, so it’s
like a perfect storm. That’s one of the huge strengths of network marketing, for sure.
[00:57:30]
Q: What are your best- and worst-case scenarios for Nature’s Sunshine over the next 6-12 months? What is
the company’s biggest risk and the biggest opportunity to continue its strong growth?
DC: I think that they took one of the big risks head-on, which was the whole reason why they stood off of it for
a while, which is they didn’t want to put North America, which is their cash cow, at risk. That was why they
were like, “I don’t know that we want to change the compensation, even though we know it’s really not
relevant to today’s consumer. I don’t know that we want to do this.” We pushed for a long time, and they’ve
finally done it, and I think that, generally, the response has been decent. Sales have not gone through the roof
because there has been some hesitation among the distributors, who are like, “I don’t know that it makes sense
to give my heart to Nature’s Sunshine anymore, because it cut my pay quite a bit.” They’re dealing with that,
but that happens, and you still have to have a car that’s competitive in today’s race. That’s my opinion. That’s
why I pushed for years, and even though it’s maybe coming out the gates and you don’t have all the
distributors to drive that car right now, I think it’s an improved vehicle. I see upside potential there, because
now they’re being also more clear about what they stand for, who they aren’t. For a long time, whoever came
along, it would be, “We do that, too. We do essential oils. We’ll sell noni juice. We’ll sell you mangosteen
juice.”
Now they’re more entrenching on “Who are we really? What value do we bring to these consumers? Do we
compensate?” and now, “Are we committing to a certain segment that has the growth potential, which we
know the network marketers?” Even though I think today’s millennial consumers, maybe they approach it
differently, they’re still open to social selling. They’re still open to gig-type work, and I think that the way
they’ve built their compensation plan, it takes way less obstacles for that younger generation. I think it’ll just
take time and smart marketing. I think that side is solid, because they have it where it counts, and now they’re
starting to tell their stories better and starting to not try to be all things for all people. I think that, generally,
their long-time love group, the people who have just stuck with them through thick and thin, they’re really
unlikely to leave in a mass migration. I think that they’re maybe too tired to rethink their careers and their
business. I guess it’s not impossible that some up-and-comer comes in and grabs the attention of a lot of these
people who are disgruntled about their change in their compensation plan. I think, though, for the most part,
most of them are just, “It’s too late in my career to make a huge change. I’m going to try to make the best of
this as it goes,” and then they’re going to have to push to get some new blood, some new up-and-comers. I
think, generally, the risk is pretty low and the opportunity for growth is solid.
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[01:01:31]
NH: We’ll end the Interview. Thank you so much for taking the time, Doug. It was a really interesting
Interview. We were able to touch on a lot of different parts, so I appreciate that.
DC: Yes, covered a lot of ground.
NH: Thank you, clients, for taking the time today. If you would like to speak to Doug in a private call or
meeting, please let your relationship manager know. Goodbye.
Transcription ends at 01:01:48 of the recorded material
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