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Why is free money that can be used on local search marketing being left on the table?
Up to $35 billion of co-op funds go unused every year. Wesley Young of the LSA takes a look at trends in the use of co-op funds, challenges and threats arising from digital media and opportunities to make co-op work for you.
According to a recently released white paper by the Local Search Association (LSA) on co-op advertising programs, titled, “Breaking through the Co-op Clutter,” estimates of unused or unclaimed co-op dollars range from $14 billion to $35 billion. Even on the low end of that range, that’s a lot of cash.
Estimates of the total co-op dollar amount available varies between $36 billion to $70 billion, which would place unclaimed value at between 39 and 50 percent.
What’s also revealing is how co-op dollars are being used. According to Brandmuscle’s State of Local Marketing report, 64 percent of all co-op spend is in traditional advertising such as newspapers, radio and direct mail. Yet while about the same number of businesses use digital advertising (68 percent) as traditional advertising (69 percent), digital advertising only accounts for 16 percent of co-op spend.
A survey by Manta and LSA reported a similar gap. Sixty percent of businesses that used co-op applied it to print ads, while only 47 percent said they used print advertising. On the other hand, only 37 percent of businesses used co-op for digital advertising, even though 83 percent use digital.
This traditional/digital gap is likely a product of a system that lagged behind in making changes to media adoption and helps explain why so much money is left unused. David Sigler, director of training and co-op for Gatehouse Media stated, “When I started, fewer than 25 percent of manufacturers would support digital.” Yet over the last three years, 90 percent of the brands in LSA’s co-op database have implemented digital programs and reimbursement for advertising products such as paid search.
This evolution in the co-op space is having an impact beyond more media options for local affiliates. The large amount of money at stake and the drive for innovation that comes with digital technology has brought new eyes and new players to the marketplace. Talking about recent trends in the use of LSA’s Co-op Service Bureau, Neg Norton, president of LSA, observed, “We are seeing more clients that are taking a fresh look at co-op for both new opportunities and to guard against threats and competition created by brand driven demands.”
On the flip side, the late adoption of co-op reimbursement for digital ads meant that some digital pure play agencies and services never embraced co-op. Thus, there may be a whole generation of industry professionals and business owners who don’t really know what co-op is or understand how it works.
Below I take a look at the basics of co-op, threats existing co-op providers and users must be aware of and new opportunities that all users can benefit from.
What is co-op?
Co-op refers to programs by companies, typically large national brands, which bring exposure to the brand through advertising efforts by local or regional dealers who sell the branded product or service. These programs will typically contribute funds, reimburse costs or provide some other compensation for local advertising that includes the brand, subject to certain rules.
For example, a local tire dealer might take out a half-page Yellow Pages ad and highlight in that ad that it carries Goodyear and Pirelli tires. The local tire dealer may receive as compensation from the brands a credit on its supply of tires from the manufacturer or a direct reimbursement of some or all of the ad cost if the ad is approved to meet certain criteria such as total size of the ad, size and location of the Goodyear logo in the ad, color specifications and the business category heading the ad appears in.
The co-op dollars are intended to benefit local dealers or businesses that advertise, but the value is certainly relevant for entities that help and support those businesses in marketing and advertising. Thus, co-op is relevant to agencies, publishers and media companies who work with local businesses in providing marketing services, designing marketing strategies, creating campaigns and buying advertising media.
Some opinions expressed in this article may be those of a guest author and not necessarily Marketing Land. Staff authors are listed here.