Nutrisystem has disappointed investors lately. Its revenues and profits are falling short of expectations. Some observers believe their customer base could actually shrink in 2008.
Why is this happening when interest in weight loss is exploding?
We see four reasons that are worth thinking about in your own business:
1) A single-product focus boxes in your customers.
Nutrisystem sells portion-controlled meals. If customers decide they want more than just meals – in-person counseling or a support group or an exercise routine, for example – they’re forced to go elsewhere.
Lesson learned: Offer additional products and services that fit well with your business focus.
For example, yoga studios can offer apparel and jewelry, or books, CDs and DVDs in addition to the usual classes. They could offer social events that create a sense of community, like wine and music evenings. Or they could offer programs that would draw in kids, not just their moms – say, the new yoga hybrids that combine acrobatics, gymnastics and yoga.
2) Your wellness business has to live up to its billing.
Nutrisystem promises convenient home delivery of portion-controlled prepared food. In reality, customers have to add quite a few grocery ingredients. And unhappy customers say they get unwanted substitutions, poorly-prepared food, and the runaround from customer service.
It’s not surprising that customers who thought they were buying convenient tasty food quickly drop the service, is it?
Lesson learned: Know what’s important about your business to your customers. Make sure that everything you do reinforces those core capabilities.
If you’re promising extraordinary service, investigate what that means to your customers. It might mean providing private consultation areas where clients meet with lifestyle coaches.
Perhaps your business promises cutting-edge expertise. Invest in ongoing professional development and make sure your customers know they’re getting the benefit of that newly-honed insight. For example, have your staffers lead customer seminars on the latest health recommendations when they return from a conference or in-service.
3) It’s hard to build a business if customers leave after 3 months.
Low customer retention and high marketing costs are a dangerous combination. The typical Nutrisystem customer sticks around less than three months and spends about $900 total. Sounds good, right?
But remember: that’s not pure profit. Nutrisystem has to pay for meal ingredients, preparation, packaging, and shipping. And they also spend about $200 per new customer in marketing costs. Bottom-line: they probably make very little money on these customers.
Lesson learned: Ask yourself three questions: How long do your customers and clients stick around? How much do they typically buy during that period and at what profit? What’s your average sales and marketing cost to acquire a new customer?
Many wellness businesses are shocked to find that their retention of many customers is measured in weeks or months, not years. And they often find that they’re actually not making any money on many customers due to high upfront sales and marketing costs. This situation is especially common for businesses that offer only one or two products or services with few upgrades, add-ons or higher tiers available.
4) Don’t play ostrich when it comes to competition.
Nutrisystem attributes some of its problems to Alli, a new over-the-counter weight loss drug. But Alli shouldn’t have caught them by surprise – it reached the consumer market after years of regulatory review! The real issue is that they didn’t develop programs and marketing initiatives to increase existing customer loyalty and to counter Alli’s appeal to prospective customers.
Lesson learned: If you offer highly differentiated wellness programs, the risk from a new product like Alli is probably low. Plus, your sales and marketing costs to acquire new customers are probably lower, thanks to strong word of mouth from longstanding customers.
Otherwise, you’re highly vulnerable to competition, particularly if the competing business is cheaper, easier to do business with, or more convenient.
For example, a general-purpose fitness center is usually vulnerable to a similar business that offers more flexible membership programs or is easier to reach. On the other hand, clients will go out of their way to visit a wellness specialist with expertise in, say, living with fibromyalgia and chronic fatigue syndrome. And if they get results, almost no price is too high.