How to unlock the $42 billion co-op advertising opportunity

Retail media is quickly reshaping the advertising landscape and with it, the future of co-op programs. Co-op advertising once meant sharing space in a weekly circular or a banner in-store. But the strategy is evolving into sophisticated, data-driven campaigns that reach real shoppers across channels, akin to retail media.

And as co-op advertising begins to look more like retail media, the shift opens up a $42 billion market opportunity. Brands can get a slice of the $42 billion pie by leveraging retailers’ robust first-party data to more effectively reach their target audiences with highly relevant offers.

But this transformation requires more than just a new name.

It demands new infrastructure, smarter identity resolution and unified measurement.

What is co-op advertising and why it's evolving

Cooperative (co-op) advertising is a collaborative strategy in which product manufacturers and retailers share the cost of advertising the brand’s products. Traditional co-op advertising often takes the form of in-store promotions, inclusion in retailers’ circulars or basic digital advertising campaigns, but that’s evolving as retailers advance their retail media capabilities.

The shift to digital co-op advertising and retail media

As retailers realize the value of their owned media assets and work to monetize their websites, apps and other sources of valuable first-party data, many are shifting their co-op advertising offerings to include sophisticated digital campaigns for their brand partners.

For example, a brand like Neutrogena could pay some or all of the costs for Walgreens or Target to run onsite and offsite display ads for the brand’s Stubborn Acne products to in-market shoppers and then measure performance based on actual transactions.

Yet many marketers are still failing to take advantage. While more than $70 billion is spent on co-op advertising annually, just 20% of it is used on digital channels. Continued over-reliance on imprecise, non-digital channels will result in wasted ad spend and underperformance.

4 traditional challenges: Why co-op dollars go to waste

Despite the promise of retail media, many co-op programs still operate with outdated identity resolution and technology infrastructure, resulting in a few common pitfalls that hinder performance:

• Lack of precise targeting
• Underutilization of data
• Wasted ad spend
• Ineffective measurement

Lack of precise targeting

Many retailers built their co-op advertising tech stacks by selecting partners across various specializations, using one partner for onboarding, another for activation, yet another for measurement and so on.

The problem is that each of these tech partners has their own understanding of a customer that may not properly resolve across the whole tech stack. This can create gaps that erode retailers' ability to see individuals across the full shopper journey, as well as deliver accurate reporting and actionable insights to their advertising partners.

Underutilization of data

Despite having access to rich first-party data, many retailers struggle to activate it effectively in co-op advertising programs.

Much of the issue stems from legacy systems that weren’t designed for real-time personalization or omnichannel orchestration. Valuable shopper data remains trapped in silos, under-leveraged in campaign targeting and disconnected from optimization.

The result is cooperative advertising campaigns that rely on broad segments instead of personalized signals, missing the opportunity to connect with shoppers in more relevant, high-converting ways.

Wasted ad spend

Fragmented identity systems and underutilization of data lead to inefficiencies, including over-serving shoppers with redundant ads and misallocating advertising dollars.

Retailers offering more traditional co-op advertising can’t confidently connect the dots between online engagements and offline purchases—or even ensure that they’re reaching real, in-market shoppers. This often results in duplicated impressions, ads served to the wrong audiences or spend allocated to channels that aren’t moving the needle.

Ineffective measurement

Traditional co-op ad models—especially those that favor offline or legacy digital channels—can’t track performance at the SKU or shopper level.

This lack of precision makes it nearly impossible for brands to understand what’s working and what’s not. Did a shopper see an ad online before buying the product in-store? Was it the video, the email or the sponsored product ad that drove the purchase?

Without visibility into individual-level behaviors across touchpoints, brands are left guessing.

The solution: How data-driven retail media transforms the co-op opportunity

The evolution from traditional co-op advertising to retail media networks—and the more advanced tech stacks that come with modern RMNs—allows brands to take better advantage of the retailer’s first-party data.

A retailer’s buyer files are an invaluable source of transactional data, in-market purchase intent and buying power insights. This data, enhanced with identity resolution, extends the benefits of co-op advertising to include:

• Reaching more unique customers with precision
• Improving personalization
• Enhancing measurement and ROI

Reach more unique customers with precision

Traditional co-op programs often rely on rough audience segments or online approximations (like cohort modeling, demographic targeting or psychographic targeting). In contrast, modern retail media networks give brands access to real, verified shoppers, not just devices or modeled profiles.

Alexandria Garripoli, Vice President of Product Management for Epsilon Retail Media, explains, “[Brands] need partners that can help them find real shoppers. Not device IDs or accounts or modeled online approximations but real people with wallets.”

With retail media, co-op ad campaigns are no longer limited to the shoppers who self-identify online or are part of legacy audience segments. Instead, they can now extend across a retailer’s full ecosystem (including in-store traffic) and connect with all of a retailer’s individual shoppers. This means brands can confidently reach more relevant and previously unreachable audiences.

Improve personalization

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, advertisers can increase conversion and improve the overall shopper experience.

Mark Williamson, Assistant VP of Retail Media at Costco, explains that this level of personalization isn’t theoretical—it’s core to how modern retail media engages shoppers. “By the time an ad or a piece of content ends up in front of a member, it’s been pre-screened as this is an item that they would be most interested in,” he says.

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.

Enhanced measurement and ROI

Today’s advertisers need proof that their media drives real outcomes with real shoppers. But one of the biggest limitations of traditional co-op advertising is the inability to clearly measure what worked. A sizable portion of co-op funds go toward offline channels, which can’t track and measure overall impact, let alone more specific performance metrics.

Today’s retail media networks solve this by connecting ad exposure directly to transactions, whether they happen online or in-store. Advanced solutions report outcomes at the brand, product, and even SKU level. This closed-loop measurement provides brands with confidence that their media spend is driving real results, including:

• Incrementality
• Unique reach
• ROAS tied to verified transactions

Epsilon's role: Empowering brands in the retail media landscape

Epsilon’s Retail Media solution helps brands cash in on the co-op advertising opportunity by integrating persistent shopper identity into a cohesive technology solution, supported by extensive digital media expertise.

Identity drives unique reach

At the core of Epsilon’s retail media platform is COREid, the industry’s most accurate and persistent identity resolution solution. It allows brands to confidently reach real people across all devices and channels.

Clean rooms enable collaboration

Epsilon’s Clean Room enables secure, privacy-safe collaboration between retailers and brand partners. Preloaded with identity and behavioral data, it helps brands enrich first-party data and incorporate second- and third-party data into their campaign strategy to build high-performing audiences and uncover new growth opportunities.

Digital media expertise

Epsilon’s Digital Media solutions combine person-level identity with AI to reach high-value customers wherever they are (online, in-store or across connected TV, display, video and audio). Dynamic creative and real-time optimization ensure retail media dollars are spent efficiently and drive measurable business outcomes.

Seize your share of the co-op opportunity

Co-op advertising is evolving fast—don’t let your strategy stay stuck in the past. Partner with Epsilon’s dedicated Retail Media solutions to seize your share of the $42 billion pie. We’ll help you reach the right shoppers for your brand, minimize ad waste and achieve better retail media measurement.

It’s time to make every co-op dollar work harder. Connect with our experts today.

This article was originally published on January 8, 2021, and has since been updated.