Lowering the Ceiling, Raising the Floor

Talking with some functional ingredients suppliers at Expo West recently, I was intrigued by how their customers balance the cost of adding expensive functional ingredients against their price point. As one supplier explained, when you can package the ingredients at a certain potency, the volume of ingredients necessary to claim a beneficial effect are small enough that it can be packaged into a small container. Hence the growing ‘shot’ sub-categories. Take a 12 oz. yogurt drink, add probiotics, shrink the serving to a 4 oz. bottle, and suddenly it goes from being $2 a bottle to a $3 shot that is 1/3 the size of the original. Think about that for a moment, if you haven’t already gone down that route: that’s 60 percent less product for 100 percent more cash. Even backing out the cost of additional packaging, that’s phenomenal bottom line growth.

Of course, not all brands lend themselves to brand extensions, and not every brand lends itself to miniaturization. One recent product that came in was a shot so potent that nearly 20 percent of the label was given over to warnings about the effects of drinking too much of it, a problem not helped by the bottle containing three servings! (Shots Lesson #1: function should guide form, not the cost of packaging!)

But back to that price point equation: as complex as the price of the ingredients’ function/volume/value is, there is a whole other side of the equation that is a lot more variable than the prices from your suppliers. In essence, there is a whole price-point discussion going on with every consumer. How much extra will they pay for a functional beverage? How much functionality does the beverage need to have to justify the price of ingredients? Perhaps more importantly, how much does the consumer expect it to do in order to justify in their mind the cost of the product?

The variable in all these numbers games is just how much of an ingredient you need in order to claim the benefit or function that consumers want. Is it the whole berry or the extract of the active ingredient? Does it need to be natural or will the function be enough to overcome resistance to the artificial ingredient? But is function enough? Doesn’t the brand have to represent the product itself? If the product claims a function then where are the floor and ceiling of that functionality?

The bottom line is that it comes down to standards laid down by organizations such as the Food & Drug Administration that lay out guidelines like RDA standards. Without trustworthy bodies to set the bar to the highest standard, how are manufacturers to compete? How are consumers – your customers – supposed to make an informed choice?

This line of thought leads me to another recent event, Supply Side East, and a seminar discussion on the latest efforts to revise the RDA standards, which are based on findings from the 1960s. Industry bodies are pushing for change in those standards, which currently apply to 90 percent of the population. Under proposed industry lobbying, the goal posts would move. RDAs would apply that conform to 50 percent. That makes claiming functionality a lot easier (lower effective doses would be required to achieve the revised standards), but this would also mean that a whole raft of products would be able to claim functions and benefits beyond their current capabilities. It could make a nonsense of the functional category if anyone can claim even the most modest benefits, and, as with concerns about “greenwashing,” there are dangers to boosting your product with efficacy claims: they raise as many questions as they answer.

It matters more that the product works than what it claims to do. Truth be told, pretty packaging helps persuade people to buy it, but if it doesn’t do the job it’s not going to be a hit.