Co-op programs subsidize advertisers to the tune of over $50 billion annually. Why doesn't digital marketing have a place at the table?

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Co-op Advertising:
Digital’s Lost Opportunity?
For the Internet Advertising Bureau (IAB)
DRAFT: August 28, 2012
Rebecca Lieb @lieblink
Analyst
Digital Advertising and Media

2. 2
Digital advertising
hits a record high in
2011: $31 billion
Sources: IAB/PwC; Co-op Advertising Programs Sourcebook; NRP;
© 2012 Altimeter Group and Trade Promotion Management Associates

3. 3
Estimates for annual co-op spend in the U.S.
range from $50-$520 billion, worldwide …
NRP and Trade Promotion
$520
Management Associates
Co-op Advertising Programs
$50
Sourcebook
$0 $100 $200 $300 $400 $500 $600
Estimated Spend, in Billions
© 2012 Altimeter Group

4. … but an estimated >1% of that projected
co-op spend flows into digital channels
Traditional
Channels
Digital Channels
Sources: IAB/PwC; Co-op Advertising Programs Sourcebook; NRP;
and Trade Promotion Management Associates
© 2012 Altimeter Group

5. 5
Co-op Advertising
An agreement between a manufacturer and a
retailer to share advertising costs, while at the
same time create brand name awareness.
© 2012 Altimeter Group

6. Manufacturers typically underwrite from 30-
50% of retailer advertising costs
Manufacturers:
Increased
exposure at a
Co-Op lower cost
Advertising
Benefits
Retailers:
Brand name
product
associations
and lower cost
advertising
Agencies and
Media
Companies:
Increased
billings and
ability to fill ad
inventory
© 2012 Altimeter Group

7. Image by iandavid used with Attribution as directed by Creative Commons http://www.flickr.com/photos/iandavid/3532086917
The Missed Digital Opportunity
© 2012 Altimeter Group

8. Online share of U.S. local ad spending
forecast for 2012 at less than 20%
Source: eMarketer
© 2012 Altimeter Group

9. Fewer than 33% of manufacturers factor
Internet advertising into co-op ad policies
 35 of 684 co-op advertising programs forbid using
co-op dollars in online advertising
Co-op Policy Excerpt:
“Internet Advertising and/or website setup fees
and costs are not eligible for co-op except for
the official Yamaha/Boattrader.com program.”
Sources: Advertising Checking Bureau (ACB) “Online Co-op Advertising Study,” Sept. 2011; Local Search
Association database
© 2012 Altimeter Group

10. Only 181 companies allow some form of
Internet ads in their policies, most are limited
Permitted Digital Not Permitted
Channels Digital Channels
• Display • Email
advertising • Social media
• Search • Online coupons
advertising • Mobile
advertising
Source: Local Search Association database
© 2012 Altimeter Group

11. Image by StreetFly_JZ used with Attribution as directed by Creative Commons http://www.flickr.com/photos/streetfly_jz/2760882758
The Growth of Online Local
Advertising
© 2012 Altimeter Group

12. Experts predict local advertising as single
most robust sector in 2012 U.S. ad market
Source: eMarketer
© 2012 Altimeter Group

13. Digital segment of local advertising will grow
stronger through 2016
 Audiences for local print and broadcast media
follow steady decline
 Local continues to be one of the hottest sectors
for growth in digital channels
Source: BIA/Kelsey
© 2012 Altimeter Group

14. U.S. local digital advertising revenues
forecast in 2016 to rise $17B from 2011
$45.0
$40.0
$35.0 $38.5
$30.0
$25.0
Forecasted Digital
$20.0 $21.2 Advertising
Revenue, in Billions
$15.0
$10.0
$5.0
$0.0
2011 2016 Source: BIA/Kelsey
© 2012 Altimeter Group

15. Search and Coupons
© 2012 Altimeter Group

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In 2011, Google announces that 20% of all its
desktop searches are local.
On mobile devices, that percentage
jumps to 40%.
Source: Google’s former VP of Location and Local Services Marissa Mayer
© 2012 Altimeter Group

17. BIA/Kelsey predicts desktop local and mobile
local search queries and ad revenues to rise
Source: BIA/Kelsey
© 2012 Altimeter Group

18. As print coupons decline, daily deal and
group buying sites surge in popularity
Source: eMarketer
© 2012 Altimeter Group

19. More than half of U.S. internet users have
used a daily deals site
 Market value estimated
between $1.61 billion
and $2.67 billion
 Groupon receives 11.5
million unique monthly
visitors in March 2011
Sources: Zoomerang, William Blair & Company, and Local Offer Network
© 2012 Altimeter Group

20. Email helps drive local retail and e-commerce
Email is
particularly
attractive to
retailers as a low
CPM channel.
© 2012 Altimeter Group

21. Image by lwr used with Attribution as directed by Creative Commons http://www.flickr.com/photos/lwr/839359065
The Value of Digital Co-op
© 2012 Altimeter Group

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The online co-op
market is estimated
at $1.7 billion
available, but with
$450 million left on
the table “for lack of
participation.”
Borrell Associates, Online Co-Op Advertising, May 2012
© 2012 Altimeter Group

23. Online co-op advertising beneficiaries
• Technology vendors
• Agencies
• Publishers and media
• Online coupon/daily deal providers
• Search
• Mobile
• Other core players: manufacturers, retailers,
and e-tailers
© 2012 Altimeter Group

24. Image by coreburn used with Attribution as directed by Creative Commons http://www.flickr.com/photos/coreburn/487357814
Stumbling Blocks
© 2012 Altimeter Group

25. “Twenty years ago, I was running into,
„they didn‟t know how to do radio,‟ from retailers.
[It was] too bad if research proved radio ads
were more effective for that product category.
They‟d done newspaper for 40 years, and that
was what they were going to keep doing.”
Bob Houk, Executive Director,
Trade Promotion Management Associates
© 2012 Altimeter Group

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Perceived barriers to online
co-op advertising
Campaign
Resistance Innovation Attribution/ve
pre-approval E-tail
to change and creativity rification
requirements
© 2012 Altimeter Group

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Perceived barriers to online
co-op advertising
Campaign
Resistance Innovation Attribution/ve
pre-approval E-tail
to change and creativity rification
requirements
Manufacturers
and merchants
© 2012 Altimeter Group

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Perceived barriers to online
co-op advertising
Campaign
Resistance Innovation Attribution/ve
pre-approval E-tail
to change and creativity rification
requirements
Up to half of all
available co-op
Manufacturers funds are un-
and merchants used annually
due to this
burden
© 2012 Altimeter Group

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Perceived barriers to online
co-op advertising
Campaign
Resistance Innovation Attribution/ve
pre-approval E-tail
to change and creativity rification
requirements
Up to half of all Difficulty in
available co-op finding online
Manufacturers funds are un- corollaries for
and merchants used annually offline co-op
due to this advertising
burden products
© 2012 Altimeter Group

30. 30
Perceived barriers to online
co-op advertising
Campaign
Resistance Innovation Attribution/ve
pre-approval E-tail
to change and creativity rification
requirements
Manufacturers
Up to half of all Difficulty in
are unable to
available co-op finding online
support e-tailer
Manufacturers funds are un- corollaries for
programs
and merchants used annually offline co-op
that are
due to this advertising
not limited by
burden products
location
© 2012 Altimeter Group

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Perceived barriers to online
co-op advertising
Campaign
Resistance Innovation Attribution/ve
pre-approval E-tail
to change and creativity rification
requirements
Manufacturers
Up to half of all Difficulty in
are unable to
available co-op finding online
support e-tailer
Manufacturers funds are un- corollaries for
programs
and merchants used annually offline co-op
that are
due to this advertising
not limited by
burden products
location
© 2012 Altimeter Group

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Attribution/verification: Certified proof that
each campaign was actually executed
 The most common documentation requirements
for dealer-paid search (according to ACB) are:
• Co-op Advertising Claim form
• Prior Approval form
• Screenshot of banner ad or PPC ad
• Website URL or keyword listing
• Invoice: costs, run dates,
click-throughs and number of impressions
© 2012 Altimeter Group

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Key questions to answer
 What are manufacturers’ objections to
expanding co-op advertising programs into
digital channels?
 Where are the disconnects?
 What are the barriers to programs that permit
paid search and display advertising from moving
into channels such as email and social media?
© 2012 Altimeter Group

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Actual barriers to online
co-op advertising
Complexity and
Lack of infrastructure Lack of guidelines and
multiplicity of digital
in co-op ad industry requirements
channels
© 2012 Altimeter Group

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Actual barriers to online
co-op advertising
Complexity and
Lack of infrastructure in Lack of guidelines and
multiplicity of digital
co-op ad industry requirements
channels
The sheer amount of
knowledge required to
advertise in digital
channels
© 2012 Altimeter Group

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Actual barriers to online
co-op advertising
Complexity and
Lack of infrastructure in Lack of guidelines and
multiplicity of digital
co-op ad industry requirements
channels
Co-op often tasked to
The sheer amount of either sales or the
knowledge required to finance
advertise in digital department, areas
channels unlikely to be versed in
digital marketing
© 2012 Altimeter Group

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Actual barriers to online
co-op advertising
Complexity and
Lack of infrastructure in Lack of guidelines and
multiplicity of digital
co-op ad industry requirements
channels
Co-op often tasked to
The sheer amount of either sales or the
knowledge required to finance
advertise in digital department, areas
channels unlikely to be versed in
digital marketing
© 2012 Altimeter Group

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Lack of Guidelines and Requirements
 New challenges that didn’t exist in traditional
co-op (e.g. keyword bidding for trademarked
terms in search marketing)
“We‟re driving each other‟s bidding up.
… HP‟s perspective [is] we don‟t think
co-op is that positive if we‟re all going
after the same term.”
Florence Su, Senior Manager of
Search Engine & Mobile Marketing, HP
© 2012 Altimeter Group

39. Recommendations
© 2012 Altimeter Group

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Encourage More Co-Op Spend in the Online
Advertising Ecosystem
1. Increase awareness. Manufacturers and retailers are
unaware of the potential benefits of online advertising
and its related tactics for executing
digital campaigns.
2. Provide education. Once the digital advertising
ecosystem is aware of co-op’s untapped revenues,
motivation to self-educate will be strong.
3. Set standards and best practices. Closer examination
of how successful programs function can lead to case
studies and help create templates on which broader co-
op programs can be based.
© 2012 Altimeter Group

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Encourage More Co-op Spend in the Online
Advertising Ecosystem
4. Develop technology. Development of platforms that
enable workflow automation would make the co-op
advertising process easier for manufacturers and over-
burdened merchants who run co-op campaigns.
Desirable features include mechanisms to facilitate:
• Creative approval
• Verification
• Metrics
• Communications between retailer and manufacturer.
• Database of co-op programs and digital asset management for
logos, creative executions, and brand elements
© 2012 Altimeter Group

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Encourage More Co-Op Spend in the Online
Advertising Ecosystem
5. Revamp publisher initiatives. Publishers are
eliminating co-op ad specialists on the print side as
traditional ad revenues shrink. It may be time to
consider re-establishing the co-op ad manager role
with an online display advertising focus.
6. Cooperate with co-op ad management
companies. Many legacy co-op program
management companies have expanded into the
digital, yet remain unconnected to mainstream
publishers and industry trade groups.
© 2012 Altimeter Group

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Questions?
© 2012 Altimeter Group

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THANK YOU
Rebecca Lieb
rebecca@altimetergroup.com
rebeccalieb.com/blog
Twitter: lieblink
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© 2012 Altimeter Group