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Growth by Design – Brand Power vs. Trade Spend Power

Growing your business is tough, scaling it is even tougher, and in many cases, it comes at a significant price.

Paraphrasing one of our advisors, @Kevin Coen, who is always there to remind us that “ takes $100 million or 100 years to build a brand”. Brand here is built so that out of more than 2 options, a consumer would purchase yours.

This is also why certain companies that existed for over 20 years enjoy most of their sales within the local market only. It takes significant $$$ to recruit consumers in other locales, states, and imagine countries… Emerging brands raise $ millions of dollars to support that growth for exactly the same reason.

Growth by design can be accomplished in two ways –

(1) WORD OF MOUTH (as strategically designed and then blossomed) and

(2) TRADE SPEND (via accessing more retail shelf space). E-commerce (e-comm) has become an equalizer between well-capitalized vs. less so, but even then, customer acquisition cost can run pretty high (i.e. >$100k/month for months).

As one of our advisers is always there to remind us, " takes $100 million or 100 years to build a brand!"

“Ramping Up Your Brand” by Dr. James Richardson is excellent in laying out a design of how to grow an emerging brand. I completely agree with a notion that any emerging brand that wants to scale to $100M – has to build a core consumer base that would be that critical mass taking it to $100M over time… provided the product designed well and the founders and the investors are patient to achieve that critical mass.

That said, even if you have reached a critical consumer base and your brand’s engine is humming away, the only way to reach scale is to access as many points of sale as possible. This is where TRADE SPEND comes in.

Approximately 70% of new brands fail. Back in 1950s, retailers would purchase the inventory outright and try selling it. Well, 70% of new but failed brands were dragging retail margins down and TRADE SPEND was born. This was a novel way to provide a cushion to retailers to soften opportunity cost of allocating scarce shelf space to unproven brands.

Access to capital and partnerships with co-manufacturers made it easier to launch new brands. Hundreds of emerging brands started to pop up everywhere. The shelf space although grew (with more locations) still was scarce and became even more so over time.

Trade spend became a widespread practice where retailers would charge between 15-30% of gross sales in various ways for access to their shelves.

You can read more about various trade spend formulations here - written by Aditi Dashputre.

The topic of the post is – Brand Power vs. Trade Spend Power. As you can tell, although it’s a definite suck of your budget investing in trade spend, it is a cost that’s hard to eliminate. DTC or e-comm strategy can be the answer, though not for all product categories, at least today.

What’s important to highlight is Trade Spend will get you in the door, but Brand Spend would let show positive product sale velocity and consumer engagement leading to an easier access to the shelf space. Brand Power is your anchor and an admission ticket to most of retailers.

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