Co-op Marketing for Building Products Manufacturers: Does it Still Work?
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Corey Halstead
Owner, HALSTEAD.
Dating as far back as the early 1980s, marketing co-op programs and marketing development funds (MDFs) have played a large role in the marketing industry. It made logical sense in previous decades for design/builds, dealers, and manufacturers to set aside a portion of their budget and resources for co-op marketing. But is it still wise to invest in this kind of marketing technique? Are co-op marketing and MDFs still an investment, or are they become solely an expense?
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Still in the 1980's?
Co-op marketing is when retailers create advertisements that include specific mentions of manufacturers that share the cost of the price of the ad. Unlike MDFs, co-op funds are allocated based on a percentage of the partner’s sales, so it rewards ads that perform well. This kind of marketing enables partners to work together to create long-scale campaigns, usually with manufacturers and investors who work with large-scale distribution.
A marketing development fund program, or MDF, is almost the same as a marketing co-op program. The major difference lies in MDF functioning as an investment based on predicted success level of the campaign whereas co-ops are funded based on historical performance.
Both of these marketing strategies started to make their mark in the early 1980s, and grew immensely in popularity around the end of the decade. Source databases started publishing marketing co-op directories, and so many small business entrepreneurs, lacking in funds, were striving for brand awareness that it only made sense to combine resources.
The ins-and-outs of co-op marketing today
Many of the benefits and general processes around cooperative marketing programs today remain the same as they were when these programs were first developed. As is the goal of most marketing techniques, increased brand awareness, locally and otherwise, is the most important outcome for manufacturers. To give you an example of how this kind of marketing might arise, a stone manufacturer might provide funds to a local hardscape supply business to mention them in advertisements.
In order to make this work, both the investor and the manufacturer need to make sure that they will have needs and requirements met through this co-op. When you are looking into partnering to help your advertising needs, you need to know that your business will receive the successful returns you are investing in. So the stone manufacturer and the hardscape supply company would both have to understand that a certain expected portion of advertisements published by the hardscape business would include specific mentions of the stone manufacturer, the technicalities of which having been thoroughly adjusted and agreed upon. The stone manufacturer would provide a settled amount of funds toward the cost of the advertisements.
In the case of our previous example, it would be smart business for the stone manufacturer to set aside funds for local businesses like the hardscape supply company — if an advertisement includes their local information, a successful reach would mean more local landscape/hardscape businesses, as well as invested homeowners, would find their way to the stone manufacturer. Hence why co-op advertising/marketing isn't going away anytime soon!
Why aren't more small businesses taking advantage of co-op marketing?
Despite the clear goals and benefits of co-op marketing like brand awareness and financial efficiency, there are some areas in which the today’s system is lacking. One of the biggest problems for both retailers and manufacturers in the design/build space is low affiliate adoption. Retailers and contractors more and more often are not interested in marketing run-of-the-mill products or campaigns seem too overwhelming to follow through. This leaves manufacturers either searching fruitlessly for retailers that will help their advertising or left up to their own devices for marketing, which could very well be fruitless, too. This issue takes a toll on the entire co-op and MDF marketing business. In order to ensure your design/build business gets the opportunities it deserves from affiliates, you need to create a unique looking co-op marketing program that is easy to understand and use. Otherwise, affiliate adoption rates go lower and lower, hurting this facet of the industry as a whole.
Why aren't more manufacturers taking advantage of co-op marketing?
Sometimes (and this only applies if the affiliate you are working with is not trained in marketing), none of the parties working together are professional marketing strategists or allocating enough time to review the campaign. So, members of each party might come up with a campaign that seems to make sense to them, but actually is not the best strategy for the businesses involved. This is particularly common on the retailer/supplier/contractor end. In these very small businesses, marketing professionals don't exist. It is often the owners or the contractors themselves who are considering the advertising campaign (be it digital or print). The manufacturer point of contact isn't dedicating enough time to review the campaign and is only focused on supplying funds or ensuring enough brand emphasis.
As a result, the campaign may be targeting the wrong demographic, utilizing the wrong marketing medium, or missing opportunities these parties aren't able to see. The best way to ensure you are using the best marketing strategies for your outdoor living business? You could look to what a manufacturer might do — hire more folks to properly manage marketing campaigns for small businesses. But that's an expensive, unnecessary choice. Instead, an easier option is to involve a professional marketing company for your co-op that will be able to help you market to the appropriate demographics with tools that make sense for your individual business. Kind of like an agent… someone who will ensure that all parties win.
Measuring results.
One of the other highly debated problems with co-op and MDF systems is that it is very difficult to accurately measure ROI from the campaigns. These marketing programs channel marketing funds in varying ways including accrual-based, proposal-based, discretionary, and performance-based efforts. But no matter the allocation system, it continuously is getting harder to produce measurable results that demonstrate to channel executives that their money isn’t being wasted. Unfortunately, this trend has left the idea that, without measurable ROI, affiliates don’t know how to spend the allocated money properly, leaving tens of thousands of dollars unused. Also, with the temporal distance between money investment and return on long-sale cycles, executives see it as not worth it to wait for a return they aren’t even sure they’ll receive.
Why is print still the main focus of co-op?
Perhaps the most glaring oversight of co-op and MDF programs for the modern age is the lack of digital tactics incorporated into the system. As they currently stand, many studies show that less than 70% of co-op brands include ANY form of digital marketing in their programs, and only 37% cover social media. In an age where about 89% of shopping begins online (source: GE), this leaves a huge gap of untapped marketing potential that is being ignored. And when up to 40% of allocated funds (according to various studies) go unused, digital marketing is where that wasted money should be going.
Many brand managers who choose to not implement digital marketing into their programs assume that the majority of retailers are not tech-savvy. Ignoring the opportunity of digital tactics in co-ops and MDFs creates a noticeable disconnect between affiliates and retailers, and even more so, retailers and consumers. Digital ads gain faster approval from brands, instead of waiting around for a proposal that sticks, because alterations can be made quickly, even after they have been published. Digital marketing ROI is significantly easier to accurately measure than traditional forms of marketing. Retailers can report tracked promotions and consumer reach straight from accessible digital data so that brand managers feel that their money is valued and being put to good use. With more accurately measured consumer engagement and ROI, targeting becomes much more exact and accurate as well. This increases brand awareness and digital traffic, as well as foot traffic due to the ability to market specifically to a local demographic. All you need is that middle company to ensure a win-win.
Co-op marketing is indeed still powerful and effective.
Despite some of the major issues associated with today’s marketing systems, co-op and MDF programs aren’t going anywhere. But if you plan to set aside a portion of your design/build company’s budget toward this kind of marketing, as was popular and profitable over the past few decades, you should do so with an approach that is going to make sense for you — one that is relevant to today's buyer and retailer. You want marketing strategists who know what works and what doesn’t, won’t make you wait ages for ad approval, and incorporate digital tactics into their co-op program. Otherwise, you’ll constantly be questioning whether your purposeful budgeting is being used wisely —whether it’s actually an investment or an expense.
