Case Study: Metagenics
Business Description: Metagenics, Inc. is the leading U.S. manufacturer and distributor of dietary supplement products through healthcare practitioners.
Theme: Its positioning has historically leveraged a connection with practitioners by bringing unmatched, scientifically validated products to market. This effort requires significant investment, and it’s a challenge to ensure that its R&D efforts and commitment to quality and science is rewarded in the marketplace
Background: Jeff Katke founded Metagenics in 1983, after experiencing some personal success with the use of dietary supplements throughout the mid-1970s, and has consistently expanded to become the U.S. leader in the healthcare practitioner channel. From the onset, its focus has been on the practitioner channel, and the high end of the nutraceuticals market in terms of functionality and quality. The company sells to doctors, chiropractors, nutritionists, dieticians and other healthcare professionals. Its growth has been exceptional, averaging about 15% annually since inception, and it has the leading brand in the $1.2 billion practitioner market with about a 10% share; about 70% of its sales come from meal replacements and specialty supplements. A key strategic foundation of Metagenics’ business has been its belief and passion for linkages between nutrition and genetics, which has guided its product focus and development. Metagenics is also fairly well integrated throughout its business processes. The company performs the bulk of its clinical trials in-house, it typically develops and manufactures its own products, it educates its customers directly, it maintains its own sales force, and it handles the majority of its distribution through its own team.
Situation Assessment: Metagenics has continually plowed profits back into R&D and quality based on the belief that its differentiation stems from its ability to bring unmatched, scientifically validated products to the market. The company spends about 7% of its sales on R&D and quality, which is estimated to be more than double its competitors, and with the opening of a new R&D center in Gig Harbor, WA, it now has arguably unmatched capabilities in the nutraceuticals industry. Despite significant success and momentum in the market, the company still struggles with ensuring that its efforts in quality and science are a true differentiator that is valued by practitioners and patients. This concern is not unique to Metagenics, but is laced throughout the nutrition industry and affects every company that invests in scientific validation. Metagenics’ customers, being healthcare practitioners, are highly concerned about the legitimacy of their products, yet there exists a gap between what they desire and the substantiation that they require. This presents an opportunity for the companies with lower scientific validation and creates a challenge for Metagenics, as they seek customers who value its commitment and quality.
Opportunities: Metagenics has over 200 practitioner brand competitors in the U.S., all of which are essentially competing for the same group of practitioners. The business models being deployed by these competitors vary widely, but each is attacking the market with its own level of uniqueness. Many players are focusing on more marketing-related actions to be different, and their focus leans toward selling more commodity-like products with limited or borrowed science. Additionally, practitioner brands compete with other channels, particularly for more standard supplement products. Over 70% of the products sold in the practitioner market are vitamins, minerals and herbs. Based on Metagenics business model, it has a higher cost position than most players, yet is currently limited in its ability to charge premiums. In addition, it is constantly forced to “prove” its value to customers. It’s critical to Metagenics that it finds ways to convince practitioners that its products and value proposition are superior.
Lessons Learned: Being the market leader, analysis of Metagenics demonstrates that it is confronting many issues that are present throughout parts of the nutrition industry. (1) Critical to the entire Metagenics business is the development of new, innovative and relevant products. Its model is at high risk when it stops delivering new products and technologies. (2) The company needs to harness leading edge technologies and lock them on exclusive arrangements for its channel, and possibly multiple channels. However, it needs a real competency in finding and securing technologies through innovative arrangements since technology holders will want the widest distribution and may resist an exclusive deal. (3) Since most practitioners do not align with a single practitioner brand, Metagenics is effectively competing for business share with each practitioner. The value exists in targeting customers involved only in Metagenics’ areas of expertise, such as meal replacements. (4) The majority of customers claim to want quality and performance, but many are not willing to pay for it. However, this issue can be addressed as Metagenics offers more products that are not easily comparable to others on the market, thus reducing the ease of “price” shopping.