Co-Op Advertising - An Underutilized Resource

I am a great fan of co-op advertising.

When it works smoothly, a co-op advertising program is a classic "win-win" proposition. It extends the manufacturer's advertising budget, and helps dealers compete in their local markets. On the other hand, I can tell you from experience that co-op can become an administrative nightmare for both parties if the rules are not spelled out clearly and followed thoroughly.

The most important thing is to have a written plan, which states the rules for eligibility, reimbursement, qualifying media, reimbursement, approvals and documentation.

Let's dissect a typical co-op plan.

Company X sells its Brand X widgets through a national dealer network. The company agrees to reimburse authorized dealers 50 percent of qualified advertising costs up to 2 percent of the dealer's annual purchases of Brand X widgets. At the beginning of each year, the company's co-op ad manager computes the amount in each dealer's co-op account, based on the previous year's sales volume. Co-op reimbursements are made in cash, until the account is depleted, providing that the dealer's account status is in good standing. The dealers must "use it or lose it." Amounts do not carry forward into the next year.

The co-op program covers magazine and newspaper ads, direct mailers and flyers, yellow page display ads, radio and television. Company X reimburses up to one-half of the actual costs incurred by the dealer, but only for that portion of the ad medium actually promoting Brand X. For instance, if an ad features three different products, the dealer is only reimbursed for one-sixth of the actual cost -- total cost divided by three, then divided by two. (I'm sure you've seen ads that have a dozen different logos - in those cases the dealer only gets reimbursed for that portion of the ad featuring the Brand X logo.)

For yellow pages, only "display ads" showing the Brand X logo qualify. Simple listings do not count.

The co-op plan extends only to retail dealers. Two-step distributors are reimbursed at a flat rate for featuring Brand X in their catalogs.

Company X also provides co-op funding for trade shows. Dealers are reimbursed for 50 percent of actual booth fees (space only). If the dealer shows products from other manufacturers, the reimbursement is pro-rated accordingly.

All advertisements must be approved by Company X prior to publication. The plan includes guidelines for the proper use of Brand X trademarks and logos. To ensure consistency and quality control, Company X furnishes dealers with pre-approved ad blanks and templates. All the dealers need to do is strip in their names and contact information in the space provided. The selling messages and ad layouts dovetail with the company's own national advertising campaigns.

Good record-keeping is a must. Dealers must submit complete documentation, including invoices and "tear sheets." Company X provides dealers with standard forms to compute reimbursements and submit claims.

My experience is that with co-op advertising the old familiar 80-20 rule applies - 20 percent of the dealers typically generate 80 percent of the co-op claims. In other words, dealers who use co-op tend to use it a lot, while the rest seldom use it at all. It always amazes me that more dealers do not take advantage of this subsidized advertising opportunity.

So my message to manufacturers is this - if you don't have a co-op plan, you should write one. Make sure it is comprehensive and thorough. Be specific, and don't leave any room for interpretation. Encourage your dealers to use it. Most importantly, reimburse their claims promptly and cheerfully, as long as they follow the rules.

And to dealers - if you're not using co-op ad dollars, you're missing a great opportunity. Contact your manufacturers and ask about the availability of co-op money.