It’s safe to say that most brand marketers don’t really know how co-op advertising works--and for good reason.
Inherited from a bygone era of billboards and Sunday newspaper circulars, co-op advertising today is a highly ineffective system for brands and retailers alike. Yet a recent industry study by Borrell Associates shows that co-op programs have grown 20% year over year for the past three years. In North America alone, co-op advertising programs will total $36 billion this year--potentially affecting up to 12% of all advertising spending.
And though this massive amount of money is allocated by brands to co-op programs to drive sales at the local retail level, 40% of it will go unspent. It’s becoming very clear that brand marketers must re-examine the way they provide cross-channel marketing support for their retailers in the digital era.
Co-Op: Who Owns It Anyway?
Co-op programs are analogous to brands providing their retailers with a weekly allowance. Funds, often based on a retailer’s sales, are set aside for the retailer to use to run local co-branded marketing campaigns. The retailer must first front the money for the campaign, then submit a reimbursement to the brand via mail or fax. Someone within the brand then verifies the advertising for compliance, then distributes the money back to the retailer.
But here’s where things get tricky. In many brand organizations, it is still unclear who owns co-op. Is it marketing, legal, or a combination of both teams? This lack of structure and hazy tracking process, coupled with the fact that working with numerous local retailers is inherently difficult, causes many brands to simply ignore the problem.
Reduced Retailer Buying Power Is Bad For Business
Local retailers must foot the bill every time they participate in a co-op advertising program--no small feat for a cash-strapped, independent business owner who can’t afford to wait for campaign reimbursements. And no matter the campaign, it’s always the same process: Facebook campaigns and Web banner ads are treated the same as billboards or newspaper print ads. This monetary bottleneck sets off a chain reaction that is felt at the brand level as well. By impacting retailer cash flow, co-op inhibits the retailers’ ability to buy more product from the brand.
Brand Marketing Budgets Take A Hit
According to the Borrell Associates report, “A typical brand manager participant reserves up to $2 million for co-op funding, on average, while a typical local advertiser participant uses an average of four co-op programs, spends co-op dollars mostly on (in order) digital, newspapers, direct mail, radio, and receives up to $25,000 annually for co-op programs.” That’s a lot of money left on the table.
And when these co-op funds go unspent, they just go to the bottom line of the brand. Although brand finance departments might like this “breakage,” brand marketers want all available funds deployed in markets.
A Major Brand Perception Problem
Retailers are frustrated. With seemingly endless red tape, the retailer’s co-op experience is messy, slow, and hasn’t evolved to keep pace with the wave of digital marketing options available to them.
Their frustrations with the process can easily lead to frustrations with the brand itself, damaging the crucial sales relationship. Many retailers make purchasing decisions based on brands they know, like, and trust. When a brand’s co-op program makes their lives more difficult, chances are they won’t support new products, or worse, they’ll stop carrying the brand altogether.
Unchecked Big-Box Retailer Power
As big-box retailers wield more and more power, brands are often forced to accommodate them by making “hidden” deals outside of existing co-op programs. Many times, negotiations are made so that these retailers can access advertising money prior to spending it. But this can hurt cash flow and overall profitability of the brand in the long-term.
As these big box retailers grow their private label brands, they continue to diminish manufacturing brand power. Not to mention the precarious position this puts brands’ local, independent retailers in.
There was a time when co-op advertising made sense. Fifty years ago, it was a logical and fairly effective way for brands to distribute marketing funds to their independent retailers. But this stagnant, aging system simply does not have a place in today’s digital age.
To achieve true brand and retailer alignment in this new world order, the industry needs to shift toward systems that will eliminate the unnecessary time cycles, up-front investments, verification and tracking headaches, and unnecessary overhead of co-op--and focus instead on efficiently deploying marketing funds for local, multichannel campaigns that will drive more customers in store to buy.