The Shift From Velocity to Household Penetration

October has kicked my butt. Which is why I haven’t posted much this month.

The company is growing, the team is growing, but still, I have been dropping the ball when it comes to the newsletter. With that, let’s make up for it and dive into this week’s issue.

One thing that has ramped up this month at WeStock is the percentage of new brands we are working with that are over $50M in annual revenue.

We aren’t moving upstream in a deliberate way and most of our business is still derived from emerging brands, but big brands are knocking.

I always feel comfortable speaking with emerging brands since that is where my background is the strongest and where I feel I can offer the most help, but what I have realized is that a lot of those practices I learned during my time working on the emerging side are applicable to larger brands as well.

Everyone at the end of the day is trying to solve for new store sales and same store sales, the biggest difference is the % growth rate that bigger and smaller brands are looking to hit.

A large brand might be comfortable with single digit growth YoY while an emerging brand needs to hit triple digit growth to remain viable.

When those growth percentages contract and what separates a good year versus a bad year is a single percentage point, you have to find growth in the margins and not in your base.

How a product line like Uncrustables approaches the problem of selling more product is a much different conversation than a smaller brand selling more product, but the tactics to accomplish those goals might remain very similar despite the change in scale.

One thing that keeps coming up in every conversation we are having with larger brands is the need to increase household penetration.

One of the biggest signals to me that a brand has crossed a meaningful amount of revenue is the shift from we need to increase velocity to we need to increase household penetration.

So, what is household penetration and why do brands as they grow shift their focus to solve for it?

Household penetration is the percentage of total households that are reached by your product in a certain area.

You want to get as close to 100% in a certain area as possible so that you have the strongest possible answer to the question; how many households are buying my product?

When you're small, you just care about hitting your velocity metrics. Whether that's one person buying all ten units per week or ten people buying one unit, you don’t necessarily care. You are just trying to stay on the shelf, but once you have crossed that threshold, there is a big shift that happens.

You can’t stay flat. A lot of brands will look at this growth conundrum and think they should add more SKUs or innovate with a new product extension, but most larger brands will look at how they can increase household penetration first to increase their overall sales.

Household penetration is all about net new customers and usually after year two or three of being in a particular retailer. This makes it difficult to rely just on the same in-store promotions, demos, and POS you have been running to get to your current customer base.

Those strategies are maxed by year two or three.

You most likely have been on promotion multiple times since being on shelf over those few years. Those potential net new consumers have passed your product dozens of times and haven't picked it up. You can’t just keep spamming the same in-store promotions that have worked for you, there will be an inflection point of not quite diminishing returns, but flattening ones.

You have to shift to educate and market to new shoppers outside of the store and ensure they are going into the store with the purpose of buying your product while balancing ways to creatively catch the attention of potential new consumers while they are in the store.

At WeStock have seen digital rebates be a great tool for this, but you have to have the ability to unify your customer data with the new customer data that is coming in. Cannibalizing your reimbursement budget by offering promotions to people who would have already bought your product is not going to help.

Finding creative promotional and testing platforms that introduce your brand to new shoppers is critical while limiting your exposure to your current base.

The other cheat code here is collaboration.

Innovating and creating new product lines is a great way to get your audience to buy more, but if your goal is to get new people just to buy at all, then tapping into other brands with established audiences, is a great way to go about it.

This collab just dropped and I love it for this topic. Grillo's is a larger brand, but it’s not V8. These are also two brands that most likely have different customer profiles. V8 is trying to get younger consumers to think of their product as more than just vegetable juice while Grillo's is trying to get older and more established consumers to start buying their pickles.

These are two brands, in different categories, with different consumer bases, are helping each other increase household penetration.

You don’t need to involve R&D and fully develop a new product line to increase household penetration creatively. Finding adjacent brands where you can do cross promotions and then highlight those cross promotions by doing collaborative demos, is a great tactic.

When I was with Delighted By, we used to collaborate with Glutino Pretzels, which was much larger than us.

Consumers would see Glutino, they would then try it with our product, and then buy both products together to take advantage of the promotion.

Collaborative demos and promotions not only help increase household penetration, but your percentage of relative penetration which relates to targeting a selected group of people that match you ideal consumer profile.

These are all tactics you still use when you're small, but the shift as you get bigger to increase household penetration versus just velocity, is a major one. I think more emerging brands would be better served if they started thinking about household penetration from the onset.

If your brand is developing it's trade spend playbook from the position of not only increasing overall velocity, but also targeting new households, you'll be a step ahead as you hit future growth targets and avoid flattening growth.

I hope this has been helpful and if you have any tactics that have worked for your brand, please drop them in the comments!