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.