Collaborate to Accumulate: Retailers, Revenue and Digital Co-op Marketing

By Nikolai Lien

|

August 1, 2019

Retailers and brands are missing out on potential revenue and efficiency by not pursuing opportunities in Co-op marketing. This article explains why Co-op is increasingly garnering attention among the top online retailers. It also explores some of the challenges that retailers and brands face when they engage in online co-op marketing.

Let’s start with the basics. What do we mean when we say Co-op marketing? The practice has been around for a long time. It’s a simple concept: a manufacturer of a product buys in on a retailer’s marketing efforts in exchange for increased exposure. This has a series of advantages for both parties.

How does digital Co-op benefit retailers?

The retailer will typically engage in marketing efforts regardless of their brands’ willingness to share those costs. They sell products for a variety of brands, attempting to persuade would-be customers to take a look at their catalog. Hopefully, they then decide to buy something. Barring considerations of margin, price, and stock levels, the retailer will not be too bothered which of their products the customer decides to purchase.  

Let’s say a brand wants to share some of the retailer’s marketing costs (in exchange for skewing the marketing message toward a specific section of their catalog). The retailer faces a relatively cheap trade-off. They take less risk upon themselves, and give up relatively little.

How does digital Co-op benefit brands?

However, Co-op benefits more than just the retailers involved. Brands have plenty of incentives to engage in such activities too.

Given the extremely competitive atmosphere in today’s global, online retail economy, it can be very challenging to stand out among the crowd. Plenty of great products have been abandoned, not because they were pointless or deficient, but because they did not find their audience. Having the spotlight of a prolific retailer shone at your products can be a powerful way of raising awareness. It can also help brands overcome gaps in experience; gaps that the retailer may be better equipped to tackle. For brands seeking to sell their products across regions or globally, it can be difficult to find the right messaging for each respective local market.

The costs associated with conducting market research, hiring local experts, and formulating a cohesive, consistent strategy should not be overlooked. By working with retailers already familiar with these markets, the brand can spend their marketing budgets more efficiently. After all, they can rely on those retailers’ established teams and experience.

This sounds all well and good. What are the numbers?

For a lot of companies, the sole concern of whether something is worth pursuing rests on how it will affect their bottom lines. So let’s see what’s going on in the industry. Estimators put the global Co-op market at around $70 billion dollars*. This amounts to roughly 12 percent of all marketing spend. The fact that Co-op isn’t channel specific means we can already see tremendous room for growth. Diving deeper, more than 80 percent of this amount takes place via offline channels (think billboards, TV commercials, offline media, and in-store media). With retailers devoting more and more of their focus towards online channels, it is only a matter of time until we see Co-op efforts move further in this direction, too. Early adopters are already ingesting some of the advantages related to marketing efficiency. They are also uniquely poised to define the practices and expectations for Co-op marketing in an increasingly online world of commerce.

Online Co-op has its own set of challenges and opportunities.

As the nature of marketing has evolved and shifted towards measurability and performance, so has Co-op. The days where all a brand expected in return for their cheque was a photo of their shiny, shared billboard looming over a busy city street are long gone. Online retail has ushered in a new world of measurement, in which professionals operate with data and metrics. If you can’t measure it, it’s not worth pursuing. That is the mantra of the digital marketing space, and that is where Co-op marketing has a lot of catching up to do. While other forms of online marketing activities have been remarkably standardized and commoditized, Co-op marketing remains largely ad-hoc. Those pursuing it do so in wildly differing ways. Generally speaking, processes, success metrics, reporting expectations and execution remain defined on a per-deal basis.

Billboard - Co-op advertising
Your ad here? The days of brands accepting merely a shared billboard in exchange for their ad dollars are long gone.

This lack of pervasive best-practices may render the outcome of campaigns more unpredictable. However, in some ways, this can prove an advantage. Brands pursuing specific goals need not worry about having their vision or expectations dampened by tired retorts. “This is just how it’s done” or “This is how we’ve always done it” will become less frequent. In online marketing, Co-op is an emerging strategy. The final textbook has not been written. We’re barely on the first draft. This means brands will have an easier time convincing retailers to agree on highly individualized campaigns that truly complement a brand’s needs.

Retailers and brands are already in a prime position to overcome Co-op’s challenges.

There’s no getting around the fact that measurement is a real issue for any party interested in Co-op. Other channels have their path laid out bare for all to see. If you run SEM on Google Ads, it tracks your conversions. Both the advertiser and Google can see that it occurred. In Co-op, this is not as clear cut. The retailer must strike a balance between its own ability to measure, attribute, and report, and the brand’s expectations to see the efficacy of their joint campaigns. Compounding the trickiness of this balancing act are the retailer’s own concerns for data safety, and their desired level of transparency and effort.

This may be tricky challenge. But it is not an insurmountable one. A big advantage here comes in the form of trust and communication. And to some extent this comes built-in already: both parties already do business together. The already cooperate along the supply chain, and earn millions (or more) worth of revenue together, year after year. It requires no cold calling, nor slogging through awkward introductory phases in an attempt to get a seat at the table. The brand and retailer already pass money and goods back and forth, meaning the foundation for the bridge of Co-op marketing is already in place. Trust remains essential when giving another company money to advertise within the world of online marketing. There is no tangible billboard to photograph, and no boxes of fliers to show off.

If a true tracking option is not a feasible solution, the brand must trust the retailer to  do what was promised with the funds they are granted. They must trust that the execution was as intended and that they report back legitimate numbers.

Likewise, the retailer must trust that the brand will not adversely affect the retailer’s image or reputation in the market. Ultimately, the retailer has already qualified the brand as meeting their company values and positioning by opting sell their products. This trust has also largely already been established before talks of Co-op marketing  begins. There could hardly be a more ideal scenario from which to build out a lucrative and mutually beneficial partnership.

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