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The $42 billion co-op advertising opportunity: a win-win for retailers and brands

Now, more than ever, it’s important to connect with your customers with timely, personalized content. And to think about how your marketing strategy will support the objectives of your company in the months ahead. So if someone told you that you were ignoring a $42 billion opportunity wouldn’t you want to make a change? Of course you would.

And yet, so many marketers are failing to take these hyper-personalized opportunities and leaving money on the table by missing out on the digital side of co-op advertising.

While more than $70 billion is spent on co-op advertising annually, just 20% of it is used on digital channels. As the co-op advertising model shifts to digital channels to match other areas of marketing investments, it opens up a $42 billion opportunity—one in which retailers can grow personalized display budgets, brands can reach their target audiences by leveraging the retailers’ first-party data and both can increase sales. A true win-win.

What is co-op advertising and how does it work?

Cooperative (co-op) advertising is when a manufacturer of a brand product pays for a portion or all of an advertisement (be it digital or otherwise) from a brand or business.

These partnerships can look like many things. A manufacturer may just pay for their product to be featured in a small section of the ad, or they may pay for their product to be the only one featured in the ad. 

Why retailers should care about digital co-op advertising

You may wonder if that $42 billion opportunity is realistically available to you. Is it really worth changing your strategy to pursue it?

There are three primary benefits of participating in digital co-op advertising: increased awareness and relevancy through personalized content to in-market consumers, maximized advertising dollars with measurable reporting down to the item-level, and the ability to leverage a more transparent resource than the walled gardens.

1. Increased awareness and relevancy through personalized content

Digital advertising gives brands the opportunity to leverage artificial intelligence and machine learning to scale real-time personalization at the individual level. With more relevant messages and products, you can drive better conversion. Brands that try to engage customers on their own, are left to combine limited first-party data with limited third-party buyer insights from publishers. Because retailers have more first-party data than any publisher, running co-op advertising through retailers is going to drive better performance.

As a retailer, you’re already using your own budget money to create marketing materials that sell specific brands. Partnering with those brands will optimize your spending and help you deliver more relevant, personalized content to customers. And ultimately, this will drive revenue growth for you and your brand partners.

2. Ability to measure impact down to the SKU level

A retailer’s buyer files are an invaluable source of transactional data, in-market purchase intent and buying power insights. This data gives both retailers and brands everything you need to have more robust conversations with customers. Better yet, leveraging the retailer’s first-party insights and secondary transaction insights enables you to measure performance at the most granular level.

A sizable portion of retail or co-op funds go toward offline channels which lack the ability to track and measure impact overall, let alone at the brand, product or SKU-level. Digital measurement capabilities can better ensure your ad dollars are directly driving outcomes for your brand. Epsilon’s co-op solution can even track impact to the item-level.

3. A more transparent alternative to the walled gardens

For retailers, the reality is that if you don’t capitalize on the  opportunity, someone else will. In the last year, Google and Facebook have launched co-op advertising targeted products.

Even though they offer massive reach and make digital advertising easy, the walled gardens often leave a lot to be desired when it comes to transparency and reporting. Brands are told they need to “trust” that their ads are working, but aren’t given transparency into results at a granular level.

To offer brands a compelling alternative to the likes of Amazon, Google and Facebook, you need to showcase your differentiators. Your value compared to these walled gardens lies in:

  • Customer relationships: Retailers have spent time building up more personal relationships with your customers. These personal relationships are more likely to drive conversions than mass advertising in a walled garden, giving brands greater returns on co-op spending.
  • Performance transparency: When brands spend co-op advertising dollars with retailers, you’ll have visibility into performance down to the SKU level, across both online and offline channels, into messaged distinct audiences and more.

There are many co-op advertising opportunities to go around. You just need a practical plan to get started.

Best practices for co-op advertising

If you’re early in your life stage curve, trying to capitalize on this spending opportunity can seem overwhelming. You may feel more comfortable working with traditional channels, lack visibility into performance or have a limited understanding of digital marketing in general.

But you don’t have to go from zero to 60 mph with co-op advertising. You can create a practical plan to ramp up your capabilities and take advantage of this opportunity regardless of your current digital maturity.

The following five simple steps will help you get started:

  1. Set a goal: The first step is to set clear goals for ramping up digital co-op advertising spending. It doesn’t have to be complicated. Simply saying that you want to grow from x% in co-op ad spending to y% over a certain time period can be enough.
  2. Identify a strategy and a process to execute: There’s no one-size-fits-all approach to marketing co-op and advertising. In order to minimize ad waste and move into a growing medium that helps you reach a more addressable audience that is most likely to convert, you need to outline your strategy then find a process that you can execute well. But it will essentially follow a few key principles: harness your first-party data, build profile-based audiences and campaigns, reach the target audiences with ads and report accurately with performance metrics for brand, product and SKU both online and offline.
  3. Find brand partners: Approach vendor brands that you feel are most willing to try new tactics. You don’t have to replace print spending with digital. You can use digital co-op advertising in addition to more traditional channels. In an ever-changing landscape it’s important to be innovative and do more than the status quo. Partnering more closely with your vendors will give you access to untapped monetization opportunities for you and the brand.
  4. Create win/win goals: Sell your competitive advantages based on a specific vendor’s goals, such as increasing awareness or share of mind. Explain how you can add value in pursuing those goals.
  5. Test and learn: Retailers should always be open about what works and what doesn’t. Your co-op advertising transparency is a major differentiator. Brands need to be willing to try new things, while optimizing performance based on these clear metrics.

Winning examples of the co-op advertising opportunity

The $42 billion opportunity isn’t just theoretical. Many retailers and brands are already getting out ahead of the trend and seeing results.

Epsilon partnered with a leading beauty retailer to help support their brands with more turnkey offerings. Through our longstanding relationship with this retailer and our rich profile and optimization capabilities, we were able to launch full funnel approaches at the brand levelmodeling an audience most likely to purchase specific SKUs.

As an added bonus, due to our unique relationship with this retailer, we were able to provide omnichannel results down to individual SKU sales, averaging a $5:1-$15:1 brand return on ad spend (ROAS) across campaigns within various categories. Due to the success of the campaigns, we’ve helped strengthen the retailer's relationship with brands, and solidify them as leaders in providing measurable results that directly impact brands’ businesses.

Another example is a leading pharmacy retail chain that wanted to monetize data with their smaller suppliers. We created a turnkey supplier program that helped the retailer deliver co-branded programmatic media with their suppliers to relevant customers. The suppliers gained insight into the retailer’s first-party audience data and were able to build awareness of their products. The flexibility and quick to market nature of turnkey campaigns benefitted the retailer by opening new doors that allow for more strategic relationships with their smaller suppliers.

Co-op advertising works when you have the right strategy. And that’s where Epsilon can help. If you want to see these kinds of results for your own company and brand partners, check out the detailed information about our Partner-funded solution.