Co-op advertising is broken. Independent retailers need a better, easier way to obtain marketing support from the brands whose products they sell and co-op advertising is failing them. [Note: this post was updated in February 2016 to reflect updates to the Promoboxx platform.]
The Interactive Advertising Bureau (IAB) has released a study on co-op advertising estimating that the global market is somewhere between a staggering $50 billion and $520 billion, yet digital co-op has dropped the ball. Why? Because it’s messy, hard to track, and working with retailers is hard, so it’s simply been ignored.
For the past decade, the focus of digital marketing innovation has been on the national brand, as working direct with these brands (and not retailers) is just easier and the budgets are nearly identical. Even still some well-funded older tech companies have tried to fix co-op by building digital co-op systems, but they are missing the point. Retailers don’t need a better way to submit co-op reimbursement, they need a better local digital marketing solution that eliminates the frustrations of co-op. Enter Promoboxx Local Ads. But before we go there, let’s take a look at why co-op is broken:
The Early Days of Co-Op Advertising
Since the industrial revolution, manufacturing brands have helped local retailers market their products. This support focused in and around the store with something called point of purchase (POP). The archeological evidence is seen through all those rusty vintage brand signs you see around for Pepsi, Chevrolet, and John Deere. As new advertising channels proliferated (billboards, newsprint, radio, and television) manufacturing brands were forced to adapt. However, supporting all retailers across multiple marketing channels just couldn’t scale for the brand teams. So they created a marketing repayment system that puts the work on the local retailer to execute, enter cooperative (co-op) advertising.
How Co-Op Advertising Works
Like a weekly allowance from your parents, manufacturing brands create a co-op account for each retailer. Funds are set aside for retailers to use to run approved local co-branded marketing campaigns, and the amount is most often based on a retailer’s sales.
The redemption process is a lot like filing a tax return. After the retailer fronts any money for the marketing, they then have to submit for reimbursement to the brand. In many cases the brand matches 100% of the cost, essentially splitting the costs. Then a brand co-op team or 3rd party vendor verifies the advertising for compliance, and the money is distributed back to the retailers. It hurts cash flow and takes precious time away from the retailer.
Enter Big Box Retailers
As “big box” retailers grew, so did their buying power and subsequent leverage to force the brands to cut deals outside of the existing co-op program. They could command larger dollars and often get the money ahead of actually spending it. Besides the legal issues with treating retailers differently, these hidden programs further disadvantage local retailers, and in the long term hurts the cash-flow and profitability of the brand. As these big box retailers grow their private label brands, they continue to diminish manufacturing brand power.
Co-Op Advertising Fading Away
Given the challenges and inefficiencies, many brands are considering eliminating co-op programs and in some cases have eliminated co-op all together. For example, many footwear and sporting goods brands have eliminated co-op, and keep any retailer funds as discretionary. So, instead of getting funds automatically, the retailer has to ask for them. This mostly favors the larger accounts, leaving the smaller niche players with less and less of the brand support pie.
Amidst the Digital Revolution, Co-Op Advertising Stays the Same
As with early industrial revolution advertising, the digital revolution has brought a sea of change in the way local retailers can reach local customers. But, co-op has basically stayed the same. Retailers can advertise digitally with co-op, but they are forced to use the same process for reimbursement as they would a Sunday newspaper circular. This reminds me of a comment made by a WWI general where upon seeing his first airplane, he said “this will be great to bring grain to my horses.” Like digital co-op, this general missed the real value of new technology.
Why Co-Op Advertising is Bad for Retailers:
- Reduced Cash Flow – By forcing local retailers to fund the money up-front, brands further tighten the cash flow for cash strapped retailers.
- Time Consuming Process – The process is time consuming and annoying, which takes away from the retailer focusing on improving their businesses.
- Wasted Opportunity – Co-op advertising funds are often unspent, which then go back to the brand, limiting local exposure and sales.
Why Co-Op Advertising Is Bad for Brands:
- Reduced Retailer Buying Power – By impacting retailer cash flow, co-op inhibits their ability to buy more product.
- Marketing Budgets Impacted – When co-op funds are unspent they just go to the bottom line of the brand. The brands finance department might like this “breakage,” but the brand marketers want all available funds deployed in markets.
- Bad Brand Perceptions – Frustrations with the process can lead to frustrations with the brand, which hurts the crucial sales relationship. Retailers buy from brands they like and when a brand’s co-op program is frustrating they won’t support new product.
- Too Much Big Box Power – As the big box retailers command more and more power they pull money away from the higher-margin retailer local retailers. A world with only big box retailers is a very dangerous position for independent retailers to be in.
Last week, I was proud to announce the launch of Promoboxx Local Ads, making it quick and easy for retailers to access digital ad funds to promote brand-approved campaigns across Facebook, Instagram, and mobile display. With Local Ads, brands simply and effectively extend advertising funds, content, and targeting capabilities to resource-strapped retailers, reaching new local customers on mobile devices and driving them in-store.
When we were developing Local Ads, we didn’t look to improve co-op or replace any existing co-op system, we just acted like co-op never existed. This allowed us to develop a system that both the brand and retailers of all sizes would want. It works because it eliminates all of the unnecessary overhead and focuses on deploying marketing funds to drive more customers in-store to buy.
By the brand controlling the entire process of running co-branded advertising, there is no need for a verification, and by getting the retailers to promote locally across multiple channels (social, email, website, mobile), they are essentially funding the campaign without hurting retailer cash flow.
When the industry responds, they’ll invariably shift marketing spend to a solution that reaches the most customers and keeps retailers the happiest, and with this, they’ll shift to Local Ads.
We believe Local Ads is the way to fix digital co-op advertising. Our Local Ads customers New Balance, Shaw Floors, Mizuno, Mohawk Industries, General Electric, and Trek Bicycle have all been happy with the program launch success.