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Leveraging effective co-op marketing agreements between manufacturers, distributors

By Bridget McCrea

At their core, cooperative marketing agreements (or simply, “co-ops”) sound like an excellent idea. Used by a wide variety of companies, co-op programs are usually based on the premise that a manufacturer will set aside funds for their distributors and/or retailers to use for a variety of advertising and promotional activities. Those activities include traditional ads (in print or on TV or radio, for example), company events (such as trade shows and open houses), web advertising, company newsletters and catalogs, and even promotional marketing expenses that cover items like hats, t-shirts, and magnets.

Slideshow: Co-op funds in action 

Ideally, a co-op advertising arrangement is a joint venture that both manufacturer and distributor contribute time, energy, and money to in an effort to increase sales volume. Distributors earn a percentage of the prior year’s sales to allocate towards future marketing initiatives, based on the rules and percentages set forth by the manufacturer. Those percentages range from a half-a-point to two points, with some companies requiring distributors to contribute matching amounts.

But even the best-laid plans don’t always wind up producing the desired results. And while co-ops often start out well – with both entities doing their parts and reaping the rewards – they can end badly, t-shirt and hat purchases becoming the programs’ mainstays. “Over the last few years we’ve seen more manufacturers pulling back from co-ops,” observes David Gordon, principal at Channel Marketing Group in Raleigh, N.C. “Some manufacturers don’t want to keep giving their distributors the same percentages, while others are concerned that the money is only going for t-shirts and golf balls.”

Obstacles to Success

Distributors face an interesting set of challenges when it comes to co-ops. If a company receives 1% in co-op funds on $500,000 in sales for the prior year, for example, does that $500 get distributed to and used by the individual branch or by the corporate office? While it would make sense for the bulk of the funds to go to the branch that sold the goods, in some cases that location lacks the resources and capabilities to develop and implement an effective marketing strategy.

Calling co-op or “market funds” a “tremendous growth engine for both the manufacturer and the distributor to grow and increase mutual market share and sales,” John Hoffman, executive vice president of sales and market development for Legrand in West Hartford, Conn., says that when such funds are utilized and administered properly, they can be rewarding for both parties. “Many manufacturers develop programs to help pull material through the channel and utilize the marketing fund dollars to help back these programs,” Hoffman adds.

When run successfully, co-op programs and promotions can also enhance working relationships between manufacturers and distributors, says Hoffman, and drive mutual growth. That win-win proposition can be attained when the program itself:

  • Drives the sales objectives of both organizations
  • Develops local team support
  • Trains the sales force on new products or services
  • Is administered properly and in a timely manner
  • Increases awareness of the distributor and manufacturer brands together in the market
  • Has a leader who is charged with driving the program/promotion
  • Has metrics to measure the return on investment (ROI)

Unfortunately, not all co-op programs adhere to these core foundational elements and wind up derailing quickly. Hoffman says underutilization of co-op funds is a key challenge that’s often caused by sales objectives that are not aligned across both manufacturer and distributor, and/or when the program itself is looked upon as a relationship-builder rather than a sales growth engine.  Other key challenges include the absence of a champion who can drive the execution of the program, a co-op that’s poorly administered overall, and/or one that’s too costly for the ROI that it’s delivering.

Problem Solving

Gordon says many of the issues surrounding co-ops can be resolved by including the programs in the manufacturer’s and distributor’s annual planning process, which should take place during the fall or winter of the prior year (now is the time, for example, to plan for 2013). “Identify how much co-op money you have and what it can or can’t be used for,” Gordon advises. “Then develop a marketing plan – and individual marketing activities like trade shows, print advertising, and new product launches – with your manufacturer.”

Once the co-op plan is in place you’ll want to review it regularly and update it as needed. Make it flexible enough to accommodate that unexpected product launch or a new online advertising opportunity, and don’t forget to track expenditures and results so that everyone involved can easily determine the effectiveness of the co-op program. “Make it someone’s responsibility to focus on funds identification and tracking,” Gordon advises.

The good news, says Hoffman, is that proper use of co-op funds can go a long way in energizing programs/promotions, increasing overall sales, and helping manufacturers develop excellent working relationships with their distribution networks. “Also, marketing fund support does need a measurable return on the investment,” says Hoffman. “In fact, these funds are one of the drivers for the sales growth within the channel.”

McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.

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