How To Capitalize On Co-Op Ad Opportunities

When you saw last week’s newspapers stuffed to twice their usual size with Black Friday ads, or watched local news footage or weary shoppers wheeling carts laden with big screen TVs along with other electronics and the latest toys, did you think about co-op advertising? I did.

For TV station ad sales departments, media buys involving co-op dollars typically involve a local restaurant franchise or an auto dealership. In terms of available co-op dollars, that’s just the tip of the iceberg. There are literally hundreds of national brands offering to reimburse for media purchased by the local businesses that sell their products and services.

Unfortunately, as I mentioned in my last post, many of those co-op dollars continue to go into newspaper, direct mail and other old media. It’s one of the reasons direct mail campaigns have remained resilient in the digital age, representing an estimated 24.3% of the total local ad dollars that will be spent in 2018.

That’s nearly twice the amount allocated to local “OTA” television. More discouraging is that BIA Kelsey forecasts the amount to be spent on traditional yellow pages (1%) next year will be greater than that for online media sold by TV stations (0.8%).

All told, the co-op ad market is a tremendous opportunity, representing at least $50 billion in local ad spend, according to analysis by Borrell Associates. It’s also a very important consideration for local businesses, with research by Brandmuscle indicating it makes up half of the money local businesses spend on local advertising every year.

Make no mistake about it, going after co-op advertising dollars can be challenging. It’s one of the reasons few co-op dollars are being spent on digital media while newspapers and direct mail, two mainstays of co-op programs since their inception in the late 19^th century, continue to dominate in the category.

To find out why this is true, and more importantly, learn what TV, radio and other electronic media businesses could do about it, MFM turned to LSA Recas Co-op Advertising’s Tim Brennan. He presented the association’s November Distance Learning Seminar on co-op advertising, which we scheduled as a follow-up to October’s local advertising outlook courtesy of BIA Kelsey.

Brennan has 30-plus years of experience in the field. He’s worked with all aspects of co-op advertising, from retailer to national brand to media provider. He counsels sales reps to focus on the products local businesses sell, not the business itself. “You will see hundreds of brands, all offering that store owner thousands of dollars to move their product off the shelves.”

His presentation provided MFM webinar participants with a much better understanding of what will be required if they hope to gain a greater share of the co-op ad market. Here are a few highlights that I think you will find helpful as well:  

The Retailer’s Challenge

Despite their reliance on co-op advertising, local businesses often don’t spend all of the co-op dollars available to them. Borrell Associates estimates this to be millions of unspent dollars each year. Consistent with that finding, the Brandmuscle study reported that fewer than half (45%) of the businesses it surveyed said they used all their co-op funding.

A big challenge for independently owned businesses is the time and effort required to comply with the co-op rulebook for each brand. Rules typically require purchasing a certain volume of the brand’s inventory, following very specific guidelines concerning how the brand is featured and described, complying with specifications on which forms of media will be reimbursed, and submitting the documentation required for receiving reimbursement.

“The bottom line,” says Brennan “is that application [of co-op] is a local business decision.”

The Role Of Brands’ Regional Sales Organizations

There are many critical stakeholders at the brand level. The list begins with the brand’s regional sales representative, who has front-line responsibility for educating local owners on the sales volume goals that must be met as part of qualifying for the co-op dollars. They are also expected to keep distributors abreast of the latest co-op promotions and any rulebook changes.

As Brennan points out, the number of sales representatives in the field has diminished substantially; today’s sales managers have much larger sales territories than those of their predecessors. This means they are far more likely to focus their time and attention on the outlets that move the most product.

When making an on-site sales call, these individuals are also expected to ensure the brand’s in-store marketing requirements are being satisfied as well as share the latest co-op campaign information. With all these factors in mind, it’s not surprising to learn that many local retailers say they weren’t aware of a specific promotion in time to participate. 

The Brand’s Corporate Requirements

A national brand’s marketing team develops the co-op marketing campaigns that are intended to drive its national sales goals. And, as anyone who has been on the affiliate — or customer facing — end of a brand relationship knows, they are also tasked with ensuring that branding specifications are reflected in all campaign materials. This means any creative that isn’t developed by the brand’s corporate marketing department will require a separate approval before it is eligible for co-op reimbursement.

Corporate stakeholders also include the company’s legal and finance departments. With big box retailers using co-op dollars tied to sales volumes to pass discounts along to consumers, corporate attorneys must ensure co-op practices comply with federal rules concerning anti-competitive pricing. Company CFOs must confirm the programs deliver value and that Sarbanes-Oxley and other rules governing accounting practices are being followed.

In addition to these internal players, manufacturers rely upon outside help, such as ad agencies, advertising audit organizations, and firms specializing in trade promotion optimization and asset management. Fortunately, automated solutions are helping to coalesce all these compliance requirements. Brennan shared the example of GM, which has created a comprehensive online portal that allows all parties in the co-op process to address the brand’s approval and documentation requirements.

Following The Rules

Co-op programs can sometimes involve what appear to be archaic rules, such as requiring retailers to submit notarized affidavits of their media buys. The media sales marketer who can be counted on to help a local advertiser receive reimbursement is a lot more likely to make the sale.

Understandably, the co-op process can be especially overwhelming for a TV station’s ad sales department. As Brennan points out, newspapers and some other local media organizations once maintained a full-time staff member devoted to managing the co-op advertising placed by a local retailer.

While it’s likely unreasonable to expect today’s local account reps to fill that void, some organizations may want to explore the potential ROI on creating a centralized co-op concierge position. This individual could take advantage of the growing number of web-based tools provided by organizations, such as LSA Recas, for identifying which national brands have co-op promotions and facilitating participation throughout the station group.

The Digital Media Sales Opportunity

It’s human nature to rely on so-called tried and true methods. Retailers are no exception; they use marketing tools such as direct mail and newspaper because they know them and are confident about reimbursement. Brands, meanwhile, are shifting more of their marketing dollars into digital media and social marketing promotions and they want distributors to follow suit.

Local retailers are spending money on digital, but it’s been out of their own budgets. Brennan believes the local media provider that’s first to tap into that pent-up demand is likely to create a solid repeat customer.  

Another strength for local media providers is their move into a consultancy-based approach toward media sales. By possessing the latest co-op campaign information, they can seize a near-term opportunity to bridge the needs of both the local retailer and the national brand: effective (and reimbursable) digital and social media marketing promotions.

For the longer term, with so much money at stake, MFM is looking to form a task force to address co-op marketing and reimbursement requirements. If you or someone on your team would like to participate, please let me know. Working together, we can help advertisers increase their product sales while improving media advertising sales revenues. As I’ve said before, a rising tide lifts all boats.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. She can be reached at [email protected] and via the association’s LinkedIn, Twitter or Facebook sites.