The Next Generation of Co-op Advertising

Co-op Today

For brands that sell in stores, advertising locally available products has long been an important way to drive sales. However, directly creating and managing localized advertisements for every place a brand may sell through is logistically impossible.

As a result, many brands adopted a co-operative (“co-op”) model in which the brands spend up to $70 billion in co-op dollars to directly fund or reimburse their end retailers for locally advertising their goods.

• Large retailers negotiate co-op ad dollars from brands and use that money to fund advertising.
• Small retailers earn a co-op allotment that qualifies them for reimbursement on qualifying ads.

So, What’s the Problem?

In theory, the co-op model sounds like the perfect solution. However, in reality, it poses numerous problems for both brands and retailers.

• Control: Brands have very little control over ad quality and limited insight on how effectively co-op funding is being used
• Consistency: Because each retailer is creating their own ads, the performance, brand integrity and messaging can wildly vary
• Measurement: it is difficult and expensive to aggregate data across retailers and nearly impossible to apply central optimizations

Even if brands do have strict requirements around quality and reporting, they can quickly become burdensome. As much as 40% of co-op funds go unused, locking up funds that could have gone to something else.

What about Digital?

Although in theory digital mediums should make it possible to automate and streamline some of these issues, in reality the problems become even more acute. Despite a massive consumer shift to digital, many retailers still simply aren’t equipped to effectively digitally advertise at the local level.

• Although 80% of shoppers search online before buying in-store, only around 1/3 of retailers put inventory on their websites
• While 90% of retail sales occur in stores, many retailers only have a basic store finder and don’t run any localized digital advertising
• Despite a 5x growth in “buy near me” searches the last 2 years, SEO and PPC spending is almost entirely focused on e-commerce.

The Untapped Opportunity

With new digital advances, brands have a golden opportunity to cut out the middle man and reach the local customer directly. How?

Instead of relying on their end retailers, brands can stand up their own digital infrastructure and use it to directly market to local shoppers looking for products sold in store. As a result, local ad targeting, content delivery, tracking, reporting and optimization can be streamlined and bundled into a single brand-managed system. This is accomplished by adding several key local assets to the brand’s digital presence:

Local Microsites:

Combine branded content with local business information for each store and location where the brand is sold to give shoppers a localized experience through which they can browse all of a brand’s products carried in a given store.

• Enable ads to be localized to a specific product and store
• Give the customer the tools needed to buy the brand’s products nearby, but also serve as destinations.

Local Search Presence:

• Allows the brand to rank in organic results for local searches
• Enhance existing store locators and find nearby tools to include local product stock

Local Tracking and Reporting:

• Measure how shoppers are engaging with the brand in each region and location
• Unlocks ad optimization, but also helps answer other critical business questions such as what lines, products and promotions are most effective in each region, and how specific content and campaigns work differently across regions.

New Technology = New funding Models

Arguably the best part about the new co-op model is the new way funds can be deployed. Since the brand can now directly implement co-op ads on behalf of the retailer, new deployment options are available. Brands can choose to keep the existing reimbursement system, but then deploy unused funds after a designated amount of time. They can allocate some of the money to direct digital ads and keep some in existing co-op programs or spend all of the money on localized ads.

The End Result

With their own local web infrastructure, local ad targeting, content delivery, tracking, reporting and optimization can be streamlined and bundled into a single brand-managed system that covers every store they sell into. Instead of dozens or hundreds of retailers independently running and managing localized ads (or not running anything at all), the brand gets:

• Better control, consistency and coverage across geographies
• Direct local insights into how clients find and buy from you locally
• Dramatically improve return on ad spend by making messaging contextually relevant

It’s a win-win for brands and retailers.

To learn more about the next generation of co-op advertising, contact Lastmile Retail or request your free white paper by clicking here