Co-op Advertising: Digital's Lost Opportunity

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For the Internet Advertising Bureau (IAB)DRAFT: August 28, 2012

Rebecca LiebAnalystDigital Advertising and Media

@lieblink

Co-op Advertising: Digital’s Lost Opportunity?

© 2012 Altimeter Group

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Digital advertising hits a record high in

2011: $31 billion

Sources: IAB/PwC; Co-op Advertising Programs Sourcebook; NRP; and Trade Promotion Management Associates


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Co-op Advertising Programs Sourcebook

NRP and Trade Promotion Management Associates

$0 $200 $400 $600

$50

$520

Estimated Spend, in Billions

Estimates for annual co-op spend in the U.S. range from $50-$520 billion, worldwide …


… but an estimated >1% of that projected co-op spend flows into digital channels

Sources: IAB/PwC; Co-op Advertising Programs Sourcebook; NRP; and Trade Promotion Management Associates

Traditional ChannelsDigital Channels


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Co-op Advertising An agreement between a manufacturer and a retailer to share advertising costs, while at the

same time create brand name awareness.


Manufacturers typically underwrite from 30-50% of retailer advertising costs

Co-Op Advertising

Benefits

Manufacturers: Increased

exposure at a lower cost

Retailers: Brand name

product associations

and lower cost advertising

Agencies and Media

Companies: Increased

billings and ability to fill ad

inventory


Image by iandavid used with Attribution as directed by Creative Commons http://www.flickr.com/photos/iandavid/3532086917


The Missed Digital Opportunity


Online share of U.S. local ad spending forecast for 2012 at less than 20%

Source: eMarketer


Fewer than 33% of manufacturers factor Internet advertising into co-op ad policies

Sources: Advertising Checking Bureau (ACB) “Online Co-op Advertising Study,” Sept. 2011; Local Search Association database

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.”


Only 181 companies allow some form of Internet ads in their policies, most are limited

Source: Local Search Association database

Permitted Digital Channels

• Display advertising

• Search advertising

Not Permitted Digital Channels

• Email• Social media• Online coupons• Mobile

advertising


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


Experts predict local advertising as single most robust sector in 2012 U.S. ad market

Source: eMarketer


Digital segment of local advertising will grow stronger through 2016

Source: BIA/Kelsey

Audiences for local print and broadcast media follow steady decline

Local continues to be one of the hottest sectors for growth in digital channels


U.S. local digital advertising revenues forecast in 2016 to rise $17B from 2011

Source: BIA/Kelsey2011 2016$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

$45.0

$21.2

$38.5

Forecasted Digital Advertising Revenue, in Billions

© 2012 Altimeter Group© 2012 Altimeter Group

Search and Coupons


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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


BIA/Kelsey predicts desktop local and mobile local search queries and ad revenues to rise

Source: BIA/Kelsey


As print coupons decline, daily deal and group buying sites surge in popularity

Source: eMarketer


More than half of U.S. internet users have used a daily deals site

Sources: Zoomerang, William Blair & Company, and Local Offer Network

Market value estimated between $1.61 billion and $2.67 billion

Groupon receives 11.5 million unique monthly visitors in March 2011


Email helps drive local retail and e-commerce

Email is particularly attractive to

retailers as a low CPM channel.


Image by lwr used with Attribution as directed by Creative Commons http://www.flickr.com/photos/lwr/839359065


The Value of Digital Co-op


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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


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


Image by coreburn used with Attribution as directed by Creative Commons http://www.flickr.com/photos/coreburn/487357814


Stumbling Blocks


“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


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Perceived barriers to online co-op advertising

Resistance to change

Campaign pre-approval requirement

s

Innovation and

creativityE-tail Attribution/

verification


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Manufacturers and merchants

Campaign pre-approval requirement

s

Innovation and


verification


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Campaign pre-approval requirementsUp to half of all available co-op funds are un-used annually

due to this burden

Innovation and


verification


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due to this burden

Innovation and creativityDifficulty in finding online corollaries for offline co-op advertising products

E-tail Attribution/verification


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due to this burden


E-tailManufacturers are unable to

support e-tailer programs that are

not limited by location

Attribution/verification


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due to this burden


E-tailManufacturers are unable to

support e-tailer programs that are

not limited by location

Attribution/verification


Attribution/verification: Certified proof that each campaign was actually executed

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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


Key questions to answer33

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?


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Actual barriers to online co-op advertising

Complexity and multiplicity of digital

channels

Lack of infrastructure in co-op ad industry

Lack of guidelines and requirements


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channelsThe sheer amount of

knowledge required to advertise in digital

channels

Lack of infrastructure in co-op ad industry



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channels

Lack of infrastructure in co-op ad industryCo-op often tasked to either sales or the

finance department, areas unlikely to be

versed in digital marketing



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channels

Lack of infrastructure in co-op ad industryCo-op often tasked to either sales or the

finance department, areas unlikely to be

versed in digital marketing



Lack of Guidelines and Requirements38

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© 2012 Altimeter Group

Recommendations


Encourage More Co-Op Spend in the Online Advertising Ecosystem

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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.


Encourage More Co-op Spend in the Online Advertising Ecosystem

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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


Encourage More Co-Op Spend in the Online Advertising Ecosystem

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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.

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Questions?


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Rebecca [email protected]/blogTwitter: lieblink

THANK YOU

Disclaimer: Although the information and data used in this report have been produced and processed from sources believed to be reliable, no warranty expressed or implied is made regarding the completeness, accuracy, adequacy or use of the information. The authors and contributors of the information and data shall have no liability for errors or omissions contained herein or for interpretations thereof. Reference herein to any specific product or vendor by trade name, trademark or otherwise does not constitute or imply its endorsement, recommendation or favoring by the authors or contributors and shall not be used for advertising or product endorsement purposes. The opinions expressed herein are subject to change without notice.

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Co-op Advertising: Digital's Lost Opportunity