A new industry study by Borrell Associates underscores something local retailers have known and experienced first-hand for far too long: co-op advertising is broken. The report indicates that co-op programs in North America alone will total $36 billion this year, and that brands are allocating more money into these programs than ever before. Yet despite this surge in funding, a significant portion -- 40 percent -- is left on the table. These unspent funds are funneled back to the brands, severely limiting exposure and sales at the local retail level.
To truly understand this co-op advertising disconnect, it's important to start at the beginning. Since the industrial revolution, manufacturing brands have helped local retailers market their products (just think of the vintage Pepsi, Chevrolet, or John Deere signs everyone has seen). Yet as new advertising channels soon emerged, from billboards to radio then TV ads, brands had to evolve their strategy. Enter co-op advertising.
At a basic level (though nothing about co-op is basic), each retailer is given a co-op account by the brand, similar to a weekly allowance. These account funds are earmarked for the retailer to use to run co-branded marketing campaigns that are approved by the brand. But here's the catch: the money isn't available up-front. The retailer must shoulder all marketing expenses, then go through a slow, time-intensive and convoluted redemption process, akin to filling out a tax return, which can significantly hurt cash flow.
As more and more "big box" retailers with enormous buying power entered the scene, brands were forced to bend the rules of existing co-op programs, such as fronting funds in advance. These behind-the-scenes deals further disadvantaged small, local retailers -- and continue to do so today. At the same time, advertising has evolved at lightning speed. Retailers have discovered new and exciting ways to engage with their local customers, from email marketing to Facebook advertising. Yet despite constant advancements in digital technology, co-op has stayed the same. Independent retailers today must go through the same, lengthy reimbursement process for a Twitter campaign as they would for an old-school billboard or newspaper print ad. This hurts them in three major ways:
- Reduced cash flow: By forcing local retailers to fund co-marketing campaigns up-front, brands further tighten the cash flow for cash-strapped retailers.
- Hefty time investment: The co-op reimbursement process is nuanced, difficult to navigate, and incredibly time-consuming for retailers who really can't afford to waste time.
- Wasted, unspent funds: An estimated $14 billion in brand dollars is allocated to co-op advertising programs each year, but remains unspent and untouched by the local retailers who truly need it.
It's time for a change -- a shift from the old, broken way of doing things. Independent retailers deserve better. It's time for brands to empower their retail partners with simpler, more agile programs and tools that will help them become better digital marketers and reach the most customers, while helping them refocus on what truly matters: growing their businesses.
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