Retail SMART

Cooperative Advertising Funds - How they Work and Why!
 

By: Dennis A. Conforto
Chairman & CEO of A-Z Media Group, Inc.


One of the things that is most bothersome about the scrapbooking industry today is that there is not enough consumer advertising exposure to the category. And what consumer advertising exposure there is, is directed toward about 10% of the professed 4.5 million scrapbookers. This means that the dollars are spent on the approximately 450,000 scrapbookers that make up the combined total of subscriptions of the industry’s consumer trade magazines.

The problem with all of this is simple: there is not enough money spent in advertising the scrapbooking category to attract new consumers. The question is - How much money should be spent and by whom? It is typical for most retail categories to spend about 5% on advertising.

To understand what the industry must do to be more successful, we must look at what other industries have done as they have matured and reached the next level. Co-op advertising dollars are one of the main factors that have increased the market share in other industries like consumer electronics, home furnishings and apparel categories. Without co-op advertising, these industries would not have matured and gained more market share.

Advertising co-op funds are of equal importance to both the manufacturer and the retailer. For the manufacturer it is the only way to expand beyond a trade brand to a consumer brand. The power is not in the trade brand, it is in fact the transition to a consumer brand where real sales power begins.

Look, for example, at a home electronics retailer’s advertising. When they advertise a Sony TV, 50% of the Sony ad was paid for by Sony. This principle also applies for other manufacturers, like Panasonic, GE, Maytag, Serta and Levi’s. All these world class manufacturers used co-op funds to push their name in front of the consumer. And when they did, something else happened: more money was spent at the retail level to push each category to greater and greater market heights.

Two Types of Partnering
Let’s look at two options that a manufacturer and a retailer can partner up on.

Option 1: Discounts
The first way is for a manufacturer to simply provide a discount, let’s say they give 15% off on the partnership. It’s an easy transaction and most retailers simply need to push a little to get the discount. Once the discount is given, the partnership is complete until the retailer comes back with another purchase for 15% off the next purchase. It’s a simple process that's fast and easy to understand. However, it doesn’t address the underlying problem that retailers need more sales volume as do the manufacturers.

Option 2: Co-operative Funds
Now let’s look at the second option of a manufacturer who, instead of providing a flat 15% discount, has a partnership program based on co-op funds. Let’s say in this case the manufacturer’s partnership program is the same 15% and let’s say 10% of it is used for quantity discounts and the rest is used for co-op funds which would be 5% of the total purchase.

True partnerships are based on both parties bringing equal value to the partnership. In this case the manufacturer says I will pay for 50% of any ads that promote my products, up to 5% of the total purchases you make with us within a year. The retailer in turn spends 50% on the ad and a true partnership takes place. More important is the fact that money is being spent to promote the product category.

Now the question is simply, “Which one of these two partnership models best serves the needs of the industry?” The answer is of course the second option of co-op funds.

Now if you’re a retailer you are wondering what happens when you have 50 vendors partnered with you in such a fashion. There is no doubt that you will spend more to promote your business, and in doing so, you create more mind share. You can’t have any market share until you have had mind share, and you can’t have mind share spending only 1% on advertising that the average scrapbook retailer is spending.

The time has come for retailers and manufacturers to partner in ways that truly promote the industry. The old model of discounting for the sake of discounting alone is no longer a model that is helping the industry. In fact, I would argue that it is hurting the industry by teaching both retailer and manufacturers business principles that are not based on real earn profits. And that is what being business SMART is all about.