Marketers Push for Access to Digital Co-op Funds

Marketers shell out about $153 billion in ad spending every year. Most of this money comes out of their own pockets though some merchants are savvy enough to access co-op funding from manufacturers. But as advertising shifts online, it’s worth asking if the world of co-op advertising will follow.

A new report from the IAB outlines the dollar value of co-op funding and outlines the challenges marketers face when trying to tap into this money in the digital era. IAB analysts call co-op one of the “less visible forms of traditional advertising.” Most manufacturers make trade promotion money available to their retail partners in the form of physical displays, merchandising expenses, manufacturers coupons, and printed circulars. The $50 billion spent on annual trade promotion also includes co-op,   a funding model that commits them to sharing advertising expense with local merchants.

As the move to online advertising continues, manufacturers have been slow to adapt their co-op programs to the new format. Analysts believe about 33% of manufacturers directly address the topic of online ad expense reimbursement in their co-op plans. Industry experts  such as Bob Houk, executive director of the Trade Promotion Manager Associates, estimate that about 1% of co-op funds are spent reimbursing marketers for their digital promotion expenses.

IAB analysts point out that several barriers must fall before co-op  becomes a bigger part of online advertising. One big problem is built-in inertia – manufacturers have traditionally been slow to keep up with changing times and the move to digital is no different. Another problem comes from the need to pre-approve ad spending plans. For many traditional ad campaigns linked to co-op funding, media company partners do the leg work for their merchants. Online media companies may have to take this extra step to connect their marketers to manufacturers in order to benefit from co-op money. The same goes for providing the proof of performance.

There are also significant difficulties related to the difference between local bricks and mortar retailing and e‑commerce. Co-op has long been about helping out the local dealer while e‑retailing often knows no geographic limits.

To transition to digital co-op , IAB analysts say the players must take the following steps:

  • Manufacturers should put their co-op advertising personnel in a digitally-savvy department so the employees can learn about digital
  • Manufacturers need to put new co-op ad rules in place to account for the issues encountered in online advertising – such as bidding on branded terms in a search engine marketing campaign.
  • Marketers need to ask manufacturers about their digital co-op plans

For now, certain industries such as automotive and durable goods appear to be among the few that have established solid online co-op ad programs. But as digital advertising costs rise, manufacturers and merchants will have an incentive to jointly fund ad campaigns in this format. Other players in this industry including agencies, publishers and technology vendors, may also pressure the manufacturers and merchants to develop a system that formally addresses online co-op funds.

[Source: Co-op Advertising: Digital’s Lost Opportunity? Iab​.net. 2012. Web. 12 Sept. 2012]
Kathy Crosett
Kathy is the Vice President of Research for SalesFuel. She holds a Masters in Business Administration from the University of Vermont and oversees a staff of researchers, writers and content providers for SalesFuel. Previously, she was co-owner of several small businesses in the health care services sector.