A Shift In Trade Spend

I was going to start this week’s issue with an apology for having not put out a new issue for the last four weeks. With Expo West, onboarding new team members, and barreling towards our biggest product launch schedule to date - it has been a wild one.

Instead, I am not going to beat myself up if I can’t put out a new issue weekly, but instead embrace the weeks I feel inspired to post and put my best effort into those new issues.

This week, I am inspired by trade spend.

Ugh, really? Yes, really.

Trade spend is an odd thing to be inspired by, I know...but it is one of the critical pillars for all retail-focused CPG brands.

I have talked a lot about the DTC to retail shift post-covid being here to stay and that DTC is no longer an isolated business strategy, but instead just another vertical that makes up your overall omnichannel strategy.

If you have been on Twitter/X at all over the past 5 years you have seen, heard of, or been engulfed by members of DTC Twitter. These are professionals who live and breathe direct to consumer.

Whether it is retention, conversion, email, SMS, ad performance, reordering, or subscription management this group of highly intelligent individuals split up the DTC life cycle into defined specialties and all decided there were riches in the niches.

For me, a traditional retail lifer, it was amazing to observe this sector of Twitter.

It was also difficult. I was building WeStock for retail-focused brands and I was seeing all of these very specialized SaaS businesses for each piece of the DTC lifecycle get funded, while we struggled to raise in a much larger part of the market.

These individuals embraced being specialists and since DTC brands have full ownership of the consumer data and journey, they had direct KPIs that they could measure to see how their brands were performing.

This creative outperformed last week’s, this messaging converted 5% more shoppers to move to cart, and this pop-up led to a 2.5% higher conversion rate to upgrade. They were geeking out about the granular and most importantly they were testing and iterating daily.

Now, back to me, the retail lifer.

I was still committed to building in the traditional retail space, but retail is slow and outdated, and unlike DTC the distance between the brand and the end consumer is much further apart.

Let’s take a simple 15% promotion.

By applying this to your online business, you would create an email, A/B test different creative and messaging, measure the open and click-through rate, and see the increase in sales by the end of the day.

Now that same 15% discount applied to retail has to be planned weeks in advance. You have to approve it and plan for it with your distributor, notify the retailer, and figure out if it will be a scan, OI, or MCB. Then you have to make sure the product is well stocked ahead of the promotion, ensure that your discount is applied at the store level, and plan for merchandising.

Yes, that 15% sale at retail will result in much larger overall sales growth than your online promotion, but the issue though is that you have to wait to dive into the results.

You have to wait and pay to see if there was a lift during the promotion and if that lift justifies the cost. Then you have to wait and pay again to see if the trailing lift was sustained and people continued to buy even when you were off promotion.

That to me isn’t the biggest issue though, the biggest issue is that the customers who did buy during the promotion are not owned by the brand.

You don’t get their contact information which means you can’t retarget that shopper and build LTV with them inside their preferred retailer long term.

Trade spend is the second biggest line item for CPG brands after COGS and it should be. Driving trial and awareness at scale for your brand is critical and you need consumers to be exposed to your brand daily, but if you don’t own that consumer, it makes it very difficult to pull that lever again in the future and understand what the ROI is.

Bringing it back to DTC Twitter, I have seen a shift in our demos and brand calls over the last few months where retail-minded brands are pushing to be able to better own and measure their trade spend efforts.

I think this is a critical step to take retail out of the dark ages when it comes to some of the “it’s always been this way” thinking around trade spend and also shift some power back to the brand. Right now only 22% of brands can measure their trade spend for individual promotions, that simply isn’t good enough.

Most of these programs go through the retailer and/or distributor, so it’s always just been the cost of doing business, but I believe as more DTC-first brands move into retail and more ROI-minded marketers manage retail trade spend budgets, the results will need to be transparent and the ownership of the consumer will need transfer back to the brand.

I am not naive, there will never be a full shift to giving brands complete ownership of the consumer for retailer and distributor-owned trade spend programs.

The retailer takes shopper data very seriously and does not want to open that up. Trade spend also represents a gigantic piece of their business and there will always be retailer/distributor programs you will need to participate in to get on the shelf and stay there. I just think that long term the mix between retailer/distributor-owned programs and brand-owned programs through third-party providers will be closer to 50/50. As more brands prioritize visibility in the process.

It is going to be harder and harder to pitch to a DTC-savvy brand that knows its conversion metrics and KPIs across its entire online sales pipeline that they need to sink hundreds of thousands of dollars into old-school trade spend programs without giving them full visibility and ownership of the process.

Visibility, ownership, and predictability are going to become the core tenets of trade spend shortly.

I am excited for this next crop of marketers to push for more transparency and brand ownership when it comes to trade spend, and I think ultimately it will trickle down to the consumer to provide a much better and more personalized brand experience for them at retail.