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Most participants were women of all ages and income levels who wanted to lose 30 pounds. The average participant remained in the program for three to four months. The company spent more than 10% of its gross revenue on advertising and encouraged participants to introduce others to the program through food discounts and other incentives. [50]
A common ingredient in weight loss supplements was ephedra, with annual sales of about $3 billion. [51] One of the most prominent companies in this segment, Metabolife, sold the leading store bought weight loss supplement and had an approximate 30% market share. [52] The death of Baltimore Orioles pitcher Steve Becher, who was taking a dietary supplement that contained ephedra, renewed the debate about its safety. The American Heart Association urged the federal government to ban sales. [53] Under the Dietary Supplement Health and Education Act of 1994, ephedra and other herbal supplements (unlike drugs) were not subject to premarket testing. Manufacturers were not required to prove their products safe or effective, and the FDA could not pull the product off the market unless it could prove the product caused harm. [54]
The consumer support models included Weight Watchers and stickK, a social media program. [b]
Weight Watchers The company’s history went back to 1961, when Jean Nidetch (company founder) applied her learning from an obesity clinic to her own group weight loss meeting in which members supported one another in their efforts. [55] Since then the company had grown to thousands of company-owned meeting locations. Weight Watchers conducted its business through a combination of company-owned and franchised operations with approximately 67% of worldwide attendance at company-owned locations. [56] ( Exhibit 3 contains Weight Watcher’s profit and loss statement.)
During weekly group classes, leaders presented the company’s program combining group support and education, behavior modification, physical activity, and the company’s diet, that allows member to eat regular meals instead of prepared meals. (An exception occurred when the company was owned by H.J. Heinz, which introduced the sale of prepackaged meals. This new business model increased fixed costs [to accommodate freezers for prepackaged foods] and changed the focus of class leaders from role models and motivators to food sales. It was not well received by employees or customers. U.S. attendance dropped from 12.9 million to 7.8 million.) When Weight Watchers eliminated prepackaged meals from classroom operations, the company experienced strong growth in sales and profitsHeinz sold the company to Artal Luxembourg for $735 million which subsequently conducted an IPO. [57]
Its only two significant costs were class leaders and meeting space. Class leaders were usually paid on a commission basis. New class leaders were identified by field personnel and current class leaders as successful members with strong interpersonal skills and personality. Meeting space was rented, as needed, at various town locations. The variable nature of its costs enabled the company to adjust quickly to market demand and stabilize its margins per meeting. Product sales included a range of foods, including snack bars, books, CD-DVDs, and points calculators. [58] Gross margin on meeting fees were slightly higher than product sales.
[b] For additional information, see Regina E. Herzlinger, “Social Media in Health Care,” HBS No. 9-311-093, Rev. April 2012 (Boston: Harvard Business School Publishing, 2012).
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