Consumer Brand or Trade Brand?

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Consumer Brand or Trade Brand?

    Consumer brand or Trade brand?

    How do you decide whether to make your brand a consumer brand or a trade brand initially when you launch your new company?

    Think that you are going to start a new company of yours…say the business of automobile batteries. I hope we all know we need batteries in vehicles…!! vehicle owner is the consumer.

    You have done all the things that required to start the sales…the product is ready...the brand architecture is ready…the sales team is also ready…so is the e-commerce portal…the entire business plan is good to go…now on the D-Day you have to launch the brand both offline & online…

    The question is do you spend money directly addressing vehicle owners and thus make a consumer brand or you spend money on the retailers (who further sells your product to the vehicle owners) or you spend on both the consumer and the retailer equally. That is to say you initially focus on making a consumer brand or a trade brand or a both. Let’s try to answer this channel wise- offline and online
    Let’s start with offline. As this channel is a greater number of years in this business…so let’s start with the big brother!

    So, in offline, you would need to ensure that your batteries reach to the vehicle owners when they need it. So how do we ensure that? We deploy one sales person per consumer i.e. the vehicle owner (or may be one sales person for a group of consumers) , who stays with them & gives them the battery whenever they want to replace their existing one….well currently in India there are 20 Crore vehicles on road… you need 20 crore sales people….spread across India….!! will ensure that unemployment is India is gone….😃😄……so it not realistic….so what you do….u search for people who sale batteries (trader) locally…(in a given locality/geography)…& start approaching them…make a commercial understanding with them….for the battery he sells you give him a certain margin…so it’s a win-win situation….he sells your batteries to make money…you grow the business by selling your batteries through him…& since he sales them locally…so your batteries reach to every/maximum of vehicle owner in the locality in which the trader operates….only point ….to cover up every/maximum vehicle owner across India…i.e…you need to get traders across India…

    These traders are in business language called as Distributors/retailers/sub—retailers etc….based on @ which level of the distribution channel they exist…like distributors are the one who buys from you (the company) & sales it subsequently to retailers who sale it to the vehicle owner…or to sub-retailer who further sales it to the vehicle owner….the logic is completely based on how much vehicle owners needs to be reached…as every member (distributor/retailer/sub-retailer) etc. have a limited reach (they operate within a given geography, for bigger cities they operate within a part of the city). All those traders earn margin (money for the batteries they sale) & you grow your business by selling batteries through them. For margin structure for traders.

    A food for thought here is…why would they accept your commercial offer..??...You are not the only one who is in the business of manufacturing & selling batteries…there are others also (your competitors)….so why should they consider your offer instead of your competitors….well they can accept offer from all the companies…true…in that case what makes them sale your brand more than the competition.

    Trade Brand

    Here comes the concept of TRADE BRAND. i.e. the brand among/for the traders…before we get into the details of the same, let’s just have a quick look into the other one…the consumer brand & then discusses both together….

    It’s easier for us to understand the consumer brand….why…because all of us …in individual capacity….when we are buying anything is a consumer… to answer how does consumer think….what is a brand for a consumer…..the best is to ask how do you think when you go to buy something….why you prefer one brand over the other….definitely there are basics of both consumer brand & trade brand but consumer brand comes into picture when the end consumer deals with the brand.

    So, trade brand is brand among/for traders…. Consumer brand is brand among/for consumers…

    Ok, great so we have reached some place where we can start the discussion…
    I already have a lot of questions in mind….
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    Why do we need two types of brands - consumer & trade?

    Let’s try to keep in very simple & understandable….😉..

    Why we need two types of brands i.e consumer and trade brand ?

    There are 2 groups/profile of people here, first the trader, second the consumer…
    For the trader, the brand is a part of his business, money earning opportunity, as a trader he is not looking @ using the brand for his requirement for example in the case of battery, he is not looking at using the battery for his own vehicle (although he may use, but that’s not the core purpose for him).
    On the contrary, a consumer is looking to use the brand for his own use, say for example, if I am a consumer of your battery brand, I would look @ using the battery in my vehicle…I have nothing to do with the margin the trader is earning from the battery….
    This fundamental difference in requirement & corresponding behavior needs the concept of 2 types of brand i.e. the Trade brand & the Consumer Brand…!!

    Can consumer and trade brand co-exist ?

    Let’s go back to the battery business & look @ both offline/online business model.
    In offline business, you need traders to reach out to the vehicle owners. So, you need Trade Brand. The vehicle owners (consumers) should buy your product, hence you need Consumer Brand also.
    So, in offline business, you need both Trade brand & Consumer brand.
    In online model, you directly reach out to the consumers, through your own website & different marketplaces (like amazon, flipkart etc), so you need Consumer Brand only.
    So, if it’s an offline business model, then one needs both Trade & Consumer brand and if it’s an online business model, then only Consumer brand.

    Which one is more important between consumer and trade brand?

    The question arises only in offline business, where both Trade & Consumer Brand co-exist.
    Let’s go back to the battery business to answer the above question. When you start off with the battery business, you need to reach to the consumers via the trade channel as well as make the consumers aware about your newly launched brand. So, both trade brand and consumer brand needs focus.
    To understand this in more detail, where the focus should be more, let’s take a practical business scenario in mind.
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    Offline Distribution

    Think about a situation which has happened to a lot of us in practical life…we go to the shop to buy a product…the retailer introduces a new brand which caters to the same product category & suggests that we buy the new brand…we trust the retailer and land up buying the brand…(sometimes it’s more expensive than the brand we had in mind to purchase/we generally purchase)…why...because we buy a lot of other items also from the retailer or have been buying from the retailer since a long time…& hence we trust the retailer of not pushing us with a wrong recommendation, as we as a consumer believe, that retailer won’t put @ stake an existing customer for a new brand….i.e. to say…we would stop buying from the retailer if we find that his recommendation was not right…so he is going to make the right recommendation to us…

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    Consumer or Trade Brand?

    A business is to make money by making profitable sale of the products. When a new brand is launched, generally the sale is low & with period, as more and more trade partners join hands and more consumers start believing in your offering, the sale and the profits increase. Hence, @ the beginning, generally businesses have lower marketing and sales budgets to operate with, as the overall profits of the business is also low due to lower sales. Hence, a business needs to decide where it would spend the budgets i.e. to say prioritize it spends. Given this condition lets again revisit the question and try to answer it.

    Let’s for the time become a consumer…. think you are @ the retail shop…. When we as a consumer, go and buy a product from the retail store, in many cases the retailer influences our purchase decision about which brand to buy. Why we get influenced??Because we see the retailer in person, who has a shop (hence can’t run away by giving a false advice) and parallelly the company is not visible to us in person. The effect of this is felt even more for a newly launched brand, as the consumer trust on a newly launched brand is comparatively less than an established brand.

    Now as a new battery company, given the limited budget, you may need to optimize you spends by 

    • Either spend more on Trade & less on consumer to start-off & expect the retailer to do the recommendation for you @ Point-of-Sale (as you will pass on more benefits to the retailer by giving him higher margin than competition brands)
    • Spend more on consumer by communication/advertisement/consumer offer & expect the consumer to ask for the brand from the retailer.

    The 2nd option takes a long time with huge amount of spends…because the number of consumers are far more than the number of retailers….hence to convince a large number of consumers to come & ask for your brand takes time… a lot of big brands are still chasing that dream…it’s probably the ultimate dream of a brand when the consumers start asking for the brand…!!

    Hence, the company settles for option 1 generally…which is to focus on Trade Brand to start-off. So, what does the company actually do when we say that it focuses on trade brand…??...the objective is get the maximum out of the traders, so the company generally does the following for the traders to make it an good trade brand.
    • Higher margin/better commercial terms to trade
    • Improve supply of products to trade
    • Increase the number of traders the company operates with
    • Higher incentives to traders when they attain the company targets
    • Loyalty program for traders

    The company focus on spending the budget primarily on trade and less on consumer and thus aims to make it a good Trade Brand, in the initial years of launch

    Now, as the company keeps on growing, the sales keep on increasing…. which means more and more consumers start buying the brand. To further increase sales, the company would need the remaining consumers, who are currently not buying, to start buying the brand. Those are the consumers who are not easily getting convinced alone by the retailer recommendation. They might get convinced if the company also starts speaking to them apart from the retailer. Furthermore, the brand would also need to ensure the current consumer base does stay loyal to them. This is the time, when the brand starts spending more & more on Consumer brand…doing a lot more of ATL (TVC, Radio ads etc) & BTL (Consumer activation etc) …
    So as the company reaches a certain volume of sales & margin, the focus slowly shifts to making it a Consumer Brand. 

    It’s important to note here, there is no defined time/sales number/margin after which the company starts focusing on consumer brand…it’s a gradual shift from focusing on Trade Brand to Consumer Brand with increased sales/market share/margins.

    Another interesting point needs mention here….as the brand becomes bigger…it becomes easier for the trader to sale the brand… consumers are aware about the brand & most cases loyal to ask for it @ the shop…or even if the retailer pushes…the consumer buys it without much resistance to purchase…as he is aware about the brand. This effectively means….it becomes easier for the retailer to sale the brand to the consumer when it’s an established brand compared to a new brand…
    Hence bigger brands generally give less margin to the traders…&...spends more on end consumers…hence the focus is more on making it a Consumer Brand...!

    Ok…after all this…I have a simple question…. 😳😲😯, is there a way to combine both Consumer & Trade brand in a SIMPLE & UNDERSTANDABLE way …& look @ both holistically…….are there symptoms by which one can identify how the brands are stacked in a particular industry…!!

    Yes, the one connecting point…. the PRICE😎😊 …. 

    How can Price help in identifying how the brands are stacked?

    Let’s take 3 brands operating in the same industry for certain period. A (Established brand), B (known brand but not as big as A) & C (Not so known brand)
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    Brand-Price Mapping

    To summarize, In a particular industry generally:
    Bigger Brands/Established brands have higher MRP, Higher MOP, Higher Retailer Landing, Lower Margin & Lower Scheme
    Mid-sized Brands have similar MRP, lower MOP, similar Dealer Landing Price, similar margins & higher scheme than the Established brands.
    Not so known brands in the industry have Lower MRP, Lower MOP, Lower Dealer landing price, higher margins & higher schemes than the established & mid-sized brands

    Well, look around in today’s scenario…you will find a lot of new brands & start-ups pumping huge amount of monies in Consumer brand building right from word go...!!.... ohhhh😵😵how come?? whatever we discussed till now is obsolete…. No, it’s not. We discussed the approach that’s is largely followed.

    If we look deeper into those companies, majority of start-ups follow the online business model—where it’s the Consumer Brand primarily that matters right from the start as the business is directly interacting with the consumers who are also buying directly from the company – company’s website/or through market-places.

    There are few companies who launch the offline & online business models simultaneously & also spend substantially on consumer brand building…but then…one needs to remember the target for the consumer brand spends is mainly for the online business. Its because if we advertise to make consumers aware about the product and subsequently ask for it @ the retailer, the product should be available @ the retailer..!!...which means first the Trade Brand needs to be in place.

    Yes, having said that, there are few exceptions…. some companies do have offline models & spend on consumer brands right from word go…but…those are Exception…& EXCEPTION PROVES THE RULE…😊!!

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    1. Was an informative stuff. But would want to know about the operational aspects in slightly more detail.


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