Cooperative advertising occurs when the costs of a locally-placed advertisement are shared by a retailer, wholesaler, and/or manufacturer. Several manufacturers in the United States have a budget line which distributes cooperative advertising funds when they become available.
Co-ops may also occur on a national level with different brands. A fast-food company, for example, might receive funds in return for advertising the fact that they sell a specific beverage at their location.
For small business owners, cooperative advertising can be a very powerful tool. It connects their targeted demographic with specific messages that they may be unable to produce if they were forced to go alone.
Any type of media, from direct mail flyers to television advertising, can be a form of cooperative advertising. Here are some of the specific advantages and disadvantages to consider.
List of the Advantages of Cooperative Advertising
1. It allows for an affordable form of self-promotion.
Marketing efforts are required for every business. No one buys the best product in the world unless they know about it, right? Through co-op advertising, it becomes possible for small businesses to extend the reach of their presence or brand in a manner that is affordable. Although they may be granted a limited amount of time or space in the advertising to promote themselves, it is a far better option than no promotion at all.
2. It allows for lower overall advertising costs.
The very nature of cooperative advertising is that it lowers the actual costs for each entity involved. Because multiple companies are sharing the cost of the advertising effort, the expenses for each company are lower. That means more money can be pumped into other areas of the business, creating multiple opportunities for growth that may not have been possible otherwise.
3. It creates positive associations with larger brands.
Many consumers stay loyal to brands when good services are consistently provided. The processes of co-op advertising make it possible for a small business to be directly tied to a brand that offers positive outcomes. That provides loyalty equity for consumers who identify with the other brand in the advertisement, which promotes a greater chance of repetitive future customers when compared to the expense of building a brand reputation solo.
4. It offers learning opportunities.
Many small businesses have a limited experience in the world of marketing and advertising. By working with other businesses in a cooperative manner to generate an outreach effort, there are numerous learning opportunities that can expand experience in this area. Small business owners can learn about the most effective channels for advertising, the formats which have generated positive results, and customer interactions that have promoted repetitive purchase opportunities.
5. It increases the exposure of all brands.
Cooperative advertising promotes added exposure in two specific ways. It will allow companies to invest more money into more advertising outlets, which increases the size of the targeted market. The smaller company will also get to benefit from the larger company’s marketing strength and economies of scale, which improves public visibility, lowers costs, and creates more brand awareness.
6. It offers an opportunity for mutual prosperity.
Positive advertising exposure with a co-op venture creates new opportunities for everyone involved. When two brands come together to form a union, the rising tide of interest from the targeted consumers raises the exposure levels of both brands equally. Instead of fighting for attention individually within the same targeted market, the combined venture improves the message consumers receive while reducing competitive messages that may turn off prospects to both brands.
7. It can be used with almost any advertising method.
Cooperative advertising can appear in virtually any format. You’ll find it on billboards, in television ads, on the radio, and in print. Some co-op programs may even reimburse up to 100% of eligible media costs, which means the exposure for a small business might even be close to free. Even Google Adwords and internet banners may qualify for some co-op advertising opportunities.
List of the Disadvantages of Cooperative Advertising
1. It limits the amount of self-promotion that is possible.
Most forms of cooperative advertising are designed to primarily promote the lead brand with the strongest outreach or following. Now if that is your business, you’re setup in a good position. For most small businesses, however, that means they are ceding most of the time or space in the advertisement to the other brands, manufacturers, or distributors involved. In some instances, the only promotion they might receive is a name, address, and phone number at the end of the advertisement.
2. It requires additional administrative work.
The amount of time it takes to process the paperwork involved with cooperative advertising often reduces the value it is able to provide. Companies taking advantage of available co-op dollars must provide evidence that they are spending the money in a manner that is authorized. Small businesses might even be required to use specific vendors or media outlets for the final product, even if that is a venue they don’t think will be effective.
3. It may require specific audience targeting.
Some cooperative advertising opportunities are only available when a business is willing to target a specific audience demographic. If that demographic is not within the primary audience for the business involved, then the advertising revenues being spent may have a minimal impact. For some small businesses, the cost to reach their preferred audience, with the inclusion of co-op dollars, may be several thousand dollars higher than if they simply agree to follow the money trail.
4. It may provide the wrong messaging to certain customers.
Cooperative advertising may create messages which go against the mission or vision of one of the companies involved. This is often seen when small businesses want to promote low product costs, while the provider of co-op dollars might wish to present a high-end image to upscale consumers. When the wrong message is directed to the consumer base, it may affect the total number of future customers which may access the brand later on.
5. It may create conflicts in the design of the advertising.
There may be different objectives in play for the different companies involved in the cooperative advertising effort. Those objectives may be different enough that only one company would benefit from the release of the marketing materials. In circumstances like this, tension is placed on the relationship between each party, which makes it more difficult to do business with one another in the future. Some co-op deals can even lead to the cancellation of vendor or manufacturing contracts.
6. It can result in funding issues that may affect certain companies.
In some co-op advertising relationships, one company may be asked to front the capital for the marketing efforts. In return, the other company provides ongoing payments to compensate for their share of the expenses. Franchisees may be asked to pay a specific percentage of their sales in an advertising royalty to gain access to co-op advertising where they may have zero control over the creative. If the structures are not equal from the very start, a contract for cooperative advertising may only benefit the company with the better financial structure in the arrangement.
7. It may be limited to one specific medium.
Many co-op advertising arrangements are limited to a medium that has been previously approved by the other brand. For a small business, that might mean they are stuck with the higher costs of television advertising, even though they feel like radio is a better option for their message. Even though there may be tangible reasons why one specific medium is preferred over others, the uniqueness of each business can be limited by the need to stick with approved resources.
These cooperative advertising advantages and disadvantages show that when everyone involved is working toward the greater good, it can be a powerful tool to use when reaching out to new consumers. If one brand is looking to generate results at the expense of another, then the relationship is often ineffective. It may even lead to reduced revenue opportunities. For that reason, every co-op advertising opportunity should be evaluated on its individual and group merits before agreeing to anything.