Product diversion is becoming more prevalent, says Nosco expert

04-Jan-2016 - Last updated on 04-Jan-2016 at 21:45 GMT

Image: iStockPhoto

Diversion – the selling of authentic products in invalid markets, like MLM products on Amazon – is on the rise, with the healthcare practitioner and MLM channels most affected, says an expert from packaging specialists Nosco.

Brent Anderson, Packaging Advisor for Nosco, told attendees to an Experts Insights Webinar hosted by the United Natural Products Alliance (UNPA) that while counterfeiting and selling products on the black market are not major problems for dietary supplements, the issue of diversion is becoming more prevalent.

“For the MLM and practitioner channel diversion continues to grow. We’re seeing more and more distributors and practitioners selling through third party vendors like Amazon, eBay, and iHerb,” said Anderson.

“It’s easy to set up an Amazon account and sell products anonymously, and people are increasingly comfortable buying supplements on Amazon.”

Effects and solutions

The effects of diversion can include damage to a distribution channel, brand name erosion, selling products that have been tampered with or expired, and customer confusion (for example, if products are only being sold through independent practitioners, why are they also available online?).

Anderson told NutraIngredients-USA that companies in the range of $100-250 million in sales have estimated the impact of diversion to be over $2 million annually, but many other companies have no grasp of how this is affecting their business, and the overall cost to the industry is just not known.

“Diversion is a real grey area for companies because they often do not have a cross-functional team to lead the charge. It takes a partnership between procurement, distribution, and legal to develop a successful program,” he said.

“We’ve had a lot of interest from MLM companies as they expand overseas,” said Anderson. “As they expand in foreign markets they are seeing that this problem becomes more challenging that it has been domestically.”

Nosco offers a range of solutions to brands to maintain the integrity of their distribution channels, he said, and these include item level security, unique identifiers for each product, and track and trace to prevent and detect diversion.

So, if the prevalence is increasing and awareness is growing, are companies working with Nosco to control the situation? “We have been involved in serialization and brand protection for over 10 years and have a growing number of live projects active in the dietary supplement industry,” he said.

Mitigation

Commenting on the issues, Loren Israelsen, president of the United Natural Products Alliance, told us: "Diversion is a growing, multi-billion-dollar industry that has found a home in the dietary supplement industry. Unfortunately, the results for industry companies include brand damage, loss of sales, confused consumers and upset distributors and practitioners. We’re hopeful that supplement diversion can be mitigated by a number of emerging technologies, including those that Nosco has incorporated into its product offerings."

1 comment

Prohibition and regressive policy is not the best solution

Posted by lucidvu, 06 January 2016 - 05:11 GMT

While certain internet sales policies are needed for balance, such as MAP, trademark, disease claims etc, prohibition of internet sales on any website is unnecessary and creates practical and ethical problems. When an establishment fears new technology and behavior they often react in a regressive way. An extreme example of this is how Brazil is considering severely restricting its population’s use of the internet and social networks, as the corporate/political establishment doesn't like the trends they are seeing.

A MAP policy, that can be easily and successfully enforced with tools such as serialization, is all that is needed for MLM and practitioner channels, as the main issue is simply a case of price erosion. In any case, both of these channels have ethical issues that can be balanced or countered, with correctly represented offerings on third party websites.

MLM is still regarded by many as an unethical and predatory business model. If consumers can find the same MLM product online at a fair market price (avoiding inflated MLM ”retail" price) or with less pressure (auto-delivery requirement for "wholesale") then perhaps they are less likely to be lured into and harmed by MLM schemes.

The "practitioner” channel is more nuanced - when companies demand and enforce a regressive, off-line "practitioner" or "professional product" channel - such as not allowing sales on third party websites, no internet advertising, or even no internet sales at all - they create a set of problems for consumers that may also harm them. Such policies not only cause unnecessary inconvenience for consumers but also raise and complicate already existing ethical questions.

When internet sales are prohibited in part or total, the patient/consumer is compelled to rely more or in total on their practitioner for certain nutritional products. While this may be satisfactory for "alternative" practitioners in securing their additional source of income, it clashes with generally accepted medical ethics. Do conventional doctors demand that their patients purchase their recommended drugs from their private pharmacy directly, so that they can reap more profit? Of course not - it is considered unethical and patients are referred to a pharmacy, independent of their doctor, or they can shop online for OTC.

Yet somehow, that same situation is generally viewed with no ethical dilemma in the “natural” or “alternative” practitioner channel. Are alternative practitioners more honest than conventional doctors, unbiased and immune to coercing their patients into buying supplements from them and not online? Again, of course not, and we have well publicized reports of unscrupulous practitioners exploiting their patient’s trust and overcharging them for practitioner products that are not available on the internet.

One argument used by companies that don’t want their “professional” products on the internet for patients to purchase, independently of their practitioner (and often more conveniently), is that they want their product to be used under medical supervision. While this is noble and ideal, this argument is just as likely being used as a cover or misdirection for the core concern - internet price erosion. Yes, of course, ideally we want patients to be using nutritional products under a skilled practitioner’s supervision, but to tie that ideal to an “internet ban” is probably not sincere.

Patients already have access to a vast array of nutritional products on the marketplace (including fortified foods), apart from what their practitioner has sold to them (usually at a profit). Patients are often using these other products concurrently, without informing their practitioner, perhaps thinking that it isn’t important to mention them since they are “natural”. Therefore practitioners must always, already be working to ensure that patients keep them as fully informed as possible about any nutritional products (and drugs) they are using or considering - whether purchased from them or not.

Realistically - what percentage of these “practitioner” products are potentially harmful when used outside a practitioner’s supervision - such as a “professional” version of a multivitamin, protein powder, fish oil etc? If anything, it should be the opposite - a “practitioner” brand should have a lower probability of adverse events, such as truth in labeling, lower incidence of manufacturing errors and contaminants etc. Supervision is important, but it is also exaggerated by some “professional” product companies and practitioners. Many “practitioner” products have equivalents in the generic supplement market, which again, are already being used by patients, often without informing their practitioner. If all of these “professional” products are really so potentially harmful when used without the supervision of a practitioner, then what does that say about the safety of the supplement industry in general?

An equally likely risk that the internet prohibition model sets up is is of unscrupulous practitioners overcharging their patient for products when it is not readily available on the internet or when there is no retail price transparency for patient choice.

Attempts to erase their “practitioner” products from the internet and claiming that all of their products require practitioner supervision, are tactics and arguments to achieve the same thing - to keep patients locked into their practitioner, in order to secure the practitioner’s income from selling these supplements. Perhaps some alternative practitioners should vigorously re-examine the ethics of their practice, their business model and their integrity in light of what is best for patients.

As the internet shopping trend grows rapidly, patients are less likely to want to navigate heavy traffic or bad weather when driving to their practitioner’s office, then find or pay for parking, and then still wonder in the “back of their mind” how independent is their practitioner’s choice of supplements that they have sold to them (if they have it in stock).

Yes, patients may sometimes have some issues or be confused by offerings online, and the world can be messy sometimes. However, if patients value their practitioner’s opinion, they can turn to them for expert advice, which is the basis of the practitioner/patient relationship - not selling products. That is what practitioners should be doing - working hard for positive patient outcomes, with integrity and attention to detail, no matter where patients purchase their nutritional products. The type of practitioners that are complaining to their vendor about their products being on the internet (even at MAP) and wanting to prohibit that to force their patients to rely on them for nutritional products, would not be my first choice of practitioner to visit as a patient.

If a practitioner or “professional” product company genuinely wants to be help both practitioners and patients, and bring balance to the internet field, they can offer incentives for patients to use practitioners more, as opposed to prohibition of online sales. They can use tools such as MAP with serialization to control online sales and price erosion. They can offer practitioners discounts, not available to online sellers, so that practitioners can then pass those discounts onto patients and remain competitive with online sellers who frequently offer free shipping with no sales tax. With a search engine on their website, they can promote a practitioner’s clinic and refer patients to practitioners in their area that carry their products and are educated about them.