Nutrisystem 2008 Annual Report Download - page 13

In 2008, approximately 19% and 15%, respectively, of inventory purchases were from two suppliers. We
have supply arrangements with these two vendors that require us to make certain minimum purchases. In 2007,
these vendors supplied 24% and 11% of total purchases and in 2006 these vendors supplied 32% and 12% of
total purchases.
Our product development department primarily creates ideas and concepts based on customer feedback,
market trends, nutrition and food technology breakthroughs and retail grocery trends. This starts at the laboratory
level to determine if the product can meet our stringent demands (i.e. shelf-stable, glycemic friendly, etc.) and is
then outsourced to our food manufacturers who further develop the new product based on our specifications. All
new foods are created to enhance the variety of our current program or to support the efforts of creating a new
program. Also, new foods are presented to us by food manufacturers to determine if they are compatible with our
program. Most of our foods are created from market research and customer requests, as well as recommendations
from our manufacturers. All of our new foods are evaluated for nutrition, compliance with our program, taste (by
using testing panels) and cost considerations. The number of SKUs we introduce each year varies depending on
whether we are introducing a new program or simply updating an existing program.
Our Customers
Based on our customer data, our typical customer is female, approximately 48 years of age and weighs 187
lbs. In January 2006, we initiated advertising programs directed toward men. As a result, men comprised
approximately 32% of our new customers in 2008 compared to 31% in 2007 and 24% in 2006. We believe that,
on average, our customers want to lose approximately 45 lbs. over a period of time. Based on our customer
surveys, we believe our typical customers tend to stay on our program for 10 to 11 weeks (including the one free
week most customers obtain with their initial order), lose 1.5 to 2.0 pounds per week and have tried other popular
diet programs. We believe that these surveys indicate a willingness to refer our program to others and that our
customers value the following NutriSystem program attributes:
• effective weight loss;
• direct delivery to their door;
• easy to follow;
• food can be easily prepared in minutes;
• wide variety of food; and
• they do not feel hungry while on the program.
Information Systems
Our ecommerce and community websites, both of which are based primarily on third party software
customized to meet our business needs, are each hosted in a top tier, co-location facility. These facilities provide
redundant network connections, an uninterruptible power supply, physical and fire security and diesel generated
power back up for the equipment upon which our website relies. Our servers and our network are monitored 24
hours a day, seven days a week.
We use a variety of security techniques to protect our confidential customer data. When our customers place
an order or access their account information, we use a secure server (SSL) to transfer information. Our secure
server software encrypts all information entered before it is sent to our server. All customer data is protected
against unauthorized access. We use VeriSign and CyberSource software to secure our credit card transactions.
Intellectual Property
We own numerous domestic and international trademarks and other proprietary rights that are important to
our business. Depending upon the jurisdiction, trademarks are valid as long as they are used in the regular course
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