AllHerbs.com, an online source for herbs and vitamins, this week sent an e-mail newsletter with a special Valentine’s Day offer to its database of 700,000 members. It included free Tibetan Power beads or all-natural chocolates with a purchase of $20 or $40, respectively.
While this may seem insignificant, the company has seen significant growth with its less-is-more marketing strategy. It netted $700,000 in revenue this month through such low-cost marketing efforts, a 50 percent increase from December.
The $3 million the site spent for its design, launch and marketing during the past year and a half is a far cry from the $23 million in marketing spent in 1999 by one of the category leaders – MotherNature.com.
MotherNature.com’s extravagant marketing spending is a prime example of what’s wrong with Web retailers, according to Ken Hakuta, founder of AllHerbs.com, Laurel, MD.
“Mothernature.com will run out of money. For the sales they get, they’re spending too much,” he said. “Where are they going to raise the money? They’ve crippled themselves with a bad IPO.”
“Everyone is entitled to their opinions,” said Sharon Rice, vice president of brand marketing at MotherNature.com, Concord, MA.
The company, which has roughly 300,000 customers and 13,000 products, is not concerned with its competitor’s opinions as its unaudited net sales were $3.18 million for the fourth quarter, compared to $105,000 for the fourth quarter of 1998.
In fact, MotherNature’s marketing efforts may have inadvertently helped AllHerbs.com by being among the first to establish the natural products category.
“Providing information was the key,” Rice said. “We’ve really made this category a sexy, interesting category. Generally everyone else kind of benefits from that.”
Hakuta said MotherNature’s “IPO or bust” strategy will hurt the company in the end.
“Our community is larger and it responds to us very well. We got our lists, not through money, but because people are interested in our information,” he said.
The AllHerbs.com Herbal Insights e-mail newsletter, which is a “mishmash of useful information about herbs, useful facts and good offers,” Hakuta said, has generated an average response rate of 30 percent. It is growing by 150,000 members per month.
“Our sales are pretty good given we have spent one-thirtieth the budget [of MotherNature],” Hakuta said.” We don’t sponsor the PGA golf tournament. I don’t know what that does for you.”
However, offline advertising has helped MotherNature cut the cost of customer acquisition by more than half.
“When I started a year and a half ago, just doing online advertising like everyone else cost $500 per customer,” Rice said. “When we added offline, acquisition went down dramatically – especially when we added TV. We tested our way in. We tested print, radio, outdoor and TV. We’re going to take what we learned and apply it strategically in key markets [this year].”
AllHerbs.com’s customer acquisition – which occurs largely through word-of-mouth – has bottomed out at $25, according to Hakuta. With that in mind, he plans to do even less offline advertising this year because response rates have been so poor.
“We paid $29,000 for ads in Prevention and Healing Herbs for the holidays and it did nothing for us. We put an offer on it and we received 200 customers,” said Hakuta.
The site also will not appear in banner buys any time soon.
“We do not do any banner advertising, as I feel that the click-throughs are low and it does little in terms of branding, – no matter what the sites or portals tell you,” he said.