AllHerb.com: Survival of the Smallest

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AllHerb.com, an online source for herbs and vitamins, is feeling pretty satisfied about its "stick to our lists" marketing strategy, as its fiercest, mega-spending competitor MotherNature.com went belly up last week.


The two sites' marketing strategies have been polar opposites since the start. MotherNature, Concord, MA, spent approximately $114 million in its two years of existence with at least $23 million of that total burned on marketing campaigns in 1999.


Ken Hakuta, founder of AllHerb, has spent approximately $6.4 million on the site since its launch in 1998.


MotherNature looked to traditional advertising to build a brand. AllHerb looked to list building to create customer relationships. "I used to joke that the entire money we spent from inception to now was equal to MotherNature's monthly burn rate," Hakuta said. "They would have gotten to paradise if they had a $2 billion market cap."


Despite this spending, "MotherNature.com never established a brand. Pets.com at least had the sock puppet," Hakuta said.


While AllHerb hasn't earned brand recognition similar to Nike just yet, it has established an e-mail database of 1 million consumers interested in its products. The site mails to this list weekly.


The messaging includes a Star Herb, News You Can Use and Herbal Beach Reading. The call-to-action is a coupon or other discount offer available at the site.


Hakuta estimates that his customer acquisition costs are as low as $20 per person. The site has roughly 65,000 customers.


Ironically, AllHerb's strategy earned the criticism of MotherNature CEO Michael Barach only a month ago. Barach told The Washington Post: "We can get as lean and mean as him. That's not hard."


In discussing MotherNature's slow down in spending before its crash, Barach compared his company's progress to AllHerb's as a boat race: "There were two ships at the dock. Our ship got a lot of fuel so it accelerated away. He went slow. We got up to a big head of steam and we cut the engine. Now we're going to glide a lot faster than he is while he's puttering along."


Despite these comments, MotherNature had been trying to mimic AllHerb's marketing strategy as late as July. The site had begun e-mailing its database of 250,000 users as part of its "life cycle marketing" plan.


However, the company has called a shareholder meeting for Nov. 30 to gain approval for the liquidation of the company. Its assets are estimated to be worth between $13.4 million and $15.8 million.


Hakuta was not surprised by these events. In fact, he said in January that "MotherNature.com will run out of money. For the sales they get, they're spending too much."


MotherNature executives were busy calling shareholders and could not be reached for comment.


"It was a board-level decision that it was not in the best interest of the shareholders to continue operations," said Krista Thomas, spokeswoman for CMGI. CMGI is a MotherNature board member having invested $4 million in the site.


When a category leader goes down, it is never a good thing, Hakuta said. "We're never happy to see competitors go away. The dot-com crash is like the dinosaurs being wiped out. After a while it's a game of surviving. Can we do it? I don't know. We're trying."


The company's survival strategy is to "burrow ourselves deeper into our niche," Hakuta said. He also added that the site now could raise its prices and stop giving away things for free because "there are less places to buy on the Net."


The category as a whole is indeed shrinking. More.com was recently purchased by HealthCentralRx for $6.6 million, and rumors also have swirled around PlanetRx which is currently trading at less than $1 per share.


Meanwhile AllHerb, which nets about $250,000 per month in sales, has been at the break-even point for four months. It is currently focusing on converting more customers from its house list.
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