Dave MarinEvery year, manufacturers hand retailers $50 billion  - yes, you read that right, $50 billion - to underwrite advertising their products in local media.

Who's not getting a penny of this ocean of money? We aren't. Not e-commerce merchants, not email service providers, not search marketers, not display advertisers. Nothing. Nada. Zip.

Ever wonder why you never hear about coop advertising online? For all intents and purposes, it doesn't exist. Online retailers who advertise only on the web have clauses in their contracts with suppliers specifically prohibiting them from getting co-op dollars from their manufacturers.

Fifty billion dollars is a lot of money to leave sitting on the table, so we asked Dave Morin, a 20 year veteran of traditional co-op advertising, for some insight on why online isn't getting its share of these ad dollars.

Could it really be that online isn't accountable enough?

Nobody’s ever talked about co-op advertising in this space. I learned only recently it’s likely because so many manufacturers explicitly prohibit online co-op advertising. Could you provide a rundown  of the background and history of coop advertising as it relates to the Web?

Co-op in general is not and hasn't been run by the top marketing brains on the manufacturers’ side. It’s usually viewed as an administrative function. Or else they hire outside companies to take care of the administration of co-op programs. I don’t think manufacturers look at co-op as a key component to their marketing mix. They’re doing national advertising and all this traditional stuff, then there’s this co-op program. It’s not going to change very much year to year.

In local markets the money goes to newspaper advertising and radio. Television not so much. By far the biggest spend is on newspaper ads. Why manufacturers might be a little hesitant to get into the digital space - and this is my opinion - is proof of performance. That’s a very important component of how manufacturers determine what they’re going to pay their retailers. You need legitimate proof that you ran an ad. In newspapers that’s really easy. You get an invoice, a copy of a tear sheet. They’re going to submit that claim to the manufacturer or some auditing bureau.

I think it could be possible that in the world of banner ads and e-mail campaigns and AdWords that there could be a legitimate proof of performance. But I don’t think people running co-op programs are necessarily looking to stir things up. Something to keep in mind is it’s not a level playing field. The largest retailers, the Wal-Marts of the world, are not submitting a claim with tear sheets the same way Bob’s Pet Supplies is. So if we take those big players out of the equation it leaves you with thousands and thousands of smaller local retailers who may not have the marketing savvy to know how to spend those co-op dollars.

How big is the industry?

It’s typically a $50B industry. Way back when, "Intel Inside" was a very famous co-op program. That alone was known to be a $100 million co-op program. That gives you an idea. It adds up; add up every manufacturer, every brand sold in a Wal-Mart, and every retailer.

So when you take the big guys out of the equation, you’re left with smaller guys.  If you look at it from the manufacturer’s point of view, not every mom and pop retailer knows AdWords, knows what to do online. They’re comfortable running their ad in their local “Pennysaver.”

What about smaller online retailers with no physical presence at all? They’re just cut completely out of the equation, aren’t they?

I think it’s an uphill battle at this point for these guys to get manufacturers to play. But things are changing.

So this is a $50 billion industry that’s pouring the money almost exclusively into newspapers at a time when circulation is withering on the vine? Aren’t they taking that into account?

I think they should be. From a retailer’s point of view I should be thinking about different places to advertise because people aren’t reading newspapers anymore. If I were a manufacturer I’d be thinking, “What can I do to join the Internet bandwagon?” These people have to wise up pretty quickly.

There are industries that can more closely control the advertising a local retailer does. Think of “tri-state Honda dealers,” in automotive, for example. You may see changes quicker in industries where manufacturers control things a bit more.

Search is a special animal with an auction marketplace and trademark issues. But then there’s display, there’s e-mail and all kinds of other channels. Why aren't these dollars aren’t flowing online?

That’s where the proof of performance issue rears its ugly head. Bob’s Pet Supply does an email campaign. What is the legitimate third-party proof-of-performance that Bob could submit to manufacturer X that proves Bob did what he said he did? Bob’s going to type up his own invoice saying “I did this and sent it to so many recipients.” It becomes a grey area. 

But for the sake of argument, Bob is using a third-party email service provider who can document the creative, the send, the list, the date and time, the open and response rates. You can mail in a newspaper tear sheet, but without something like couponing you can’t document anything more, can you? Online you can document virtually everything, so proof of performance is actually a very weak argument.

If the retailer wants to spend the money to hire someone to do that work on their behalf. A lot of retailers don’t have the money to hire an agency to do that work for them. If they’re really big they don’t submit tear sheets and proof of performance and claim co-op dollars like everyone else does. That leaves you with the rest of the universe: the smaller guys.

What’s the solution? How does this get fixed? Should it get fixed?

Manufacturers need to open their eyes and address the digital space and address search and e-mail. When you run an ad on the radio there’s the Radio Advertising Bureau (RAB). They created certified “tear sheet” that verifies the spot ran, and when and where it ran. That’s part of the proof of performance that an auditing bureau is looking for. For outdoor billboards there’s an independent outdoor advertising bureau that’s probably involved in documenting billboard advertising. Whether or not such a third party is involved in internet advertising I don’t know.

There is.

Well, they’re not involved co-op advertising or proof of performance. They need to come up with some verifiable, third party proof of performance that they stand behind, and make retailers follow those rules.

This sounds pretty easy to fix.

It should be. Local retailers should be jumping on the bandwagon and using these dollars. A huge chunk of this money gets left on the table every year. The retailers are not spending it.

In co-op advertising there’s a dealer listing ad. For example, an appliance manufacturer lists all the local dealers who carry the brand. Your name would be part of a full-page ad in a local paper. You could probably do things like that online: pay your money and you’re listed, or you take your turn in having your name pop up. There are creative ways to do things. But co-op advertising hasn’t historically been the home of very creative people.

Another problem is you just never know where co-op falls under at a manufacturer. It can fall under marketing, sales or often, finance. When it falls under finance you’re really in trouble. They simply don’t want it to get spent.

Rebecca Lieb

Published 25 January, 2010 by Rebecca Lieb

Rebecca Lieb oversees Econsultancy's North American operations.

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Comments (6)

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Awesome post, and well i know of several agencies that have business models built around taking this money and well doing what they wish with it...

Agreed that the ROI that manufactures get is also nothing compared to if they controlled the marketing and directed it to be better spent atleast with some ROI metrics in place.

If agencies can get access to this manufacturing money, they are also in a unique position that no other agency or advertiser can compete.  I can see that $50 billion increasing in 2010 as manufactures work to get every single sale possible, but will get let down by their agencies.

over 8 years ago

Lee Cash

Lee Cash, Senior Business Development Manager at Qubit

Interesting article... I hate to think of large advertising budgets being spent the same way they always have just to prevent any hiccups in the administration of funds allocation.

Sounds to me like the Affiliate Marketing sector could move quickly to help utilise some of these funds effectively online. At least this way the Manufacturers need only pay out on performance which could surely be a much better deal all round? It should also mean that the Finance guys are more than happy to spend these budgets. Am I missing an important point somewhere which prevents this fundamental switch from occuring?

over 8 years ago


Tara Bellorin

I am the Co-op Coordinator for MediaOne of Utah, a MediaNew Group publication. I have been involved in Co-op advertising for 10 years now and I am finding that this year, I have had more manufactures open to the idea of me sending an online proposal to them. In one case, I have had success in that a manufacturer created an online co-op policy for our retailer. I know it is not the norm, but our newspapers here have all the tracking information available to send at the end of the month along with any proof of ad scedule, payment and reimbursement information requested with any traditional co-op advertising claim. I have found that if you put together a great proposal with all of the proof of run before you ask the manufacturer to move thier funding to an online campaign, you will have a better chance of helping to change the industry and start building an online Co-op acceptability.

over 8 years ago


Mark McCulloch

Great blog that you have here,,

The quality of your information is second to none.

Mark McCulloch

over 8 years ago


Jon Pape

I know HP specifically earmarks money for online co-op. 

Most co-op money is put back into COGS; "I'll sell this product for 10% and put it on my homepage and you give me a 15% discount" for example. 

Additionally, there are now a number of services that facilitate co-op indirectly for retailers; manufactures paying for richmedia on websites; manufacturers bidding for product position in site categories (sort of like supermarket shelf space). 

Also, I know of a few examples of manufacturers paying for contests that retailers run and credit card companies paying for shipping ifcustomers are encouraged to make purchases with there credit card ("free shipping when you use your XXXXX card").

over 8 years ago


ken hammer

Interesting topic. I believe that co-op advertising dollars would be more easily given to online companies if the stores were to sell at MSRP and/or be authorized dealers of that particular brand, The insurmountable issue on the web from what I gather is that products usually sell for far less than MSRP and the authorized dealers that are restricted in discounting the brand tend to suffer due to the competition. Consumers these days are savvy enough to weed out the lowest price on the web for a particular product and because of this, it would be a steep uphill battle for companies to spend co-op advertising dollars. In brick and mortar stores, shoppers continue to flock to the locations due to convenience, selection and the in-store buying experience as a whole. For that reason, co-op advertising dollars would be spent because manufacturer's believe a sale would be more likely at that point. Just my 2 cents (I own an online retail electronic and watch company with 20 million dollars in sales annually.)

over 8 years ago

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