 |
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…!!...so 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…..so you need 20 crore sales people….spread across
India….!!....it 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…..so 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….
 |
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.
 |
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…
 |
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…..in-fact 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…..as consumers are aware about the
brand & most cases loyal to it...so 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)
 |
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??....is 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…😊!!
C😄😄L if you have read 👆
Will be C😄😄😄LER if you comment👇
Will be C😄😄😄😄LEST if you
1 Comments
Was an informative stuff. But would want to know about the operational aspects in slightly more detail.
ReplyDeleteWould love to hear from you, know your thoughts on this write up
Emoji