Companies are dreaming up new ways to spend co-op advertising dollars -- and reaping the rewards of greater exposure.
Mention co-op advertising and eyes glaze over at the thought of monotonous pages in a newspaper filled with pictures of barbecue grills, screen doors, and pork chops -- or of ads for steel-belted radials with the names of a dozen local dealers at the bottom. Although these images illustrate conventional co-op advertising -- an arrangement in which a manufacturer underwrites a percentage of ad costs if a retailer features its product -- companies are finding new approaches to co-op that aie stimulating local sales.
Although no one knows exactly how much is available in co-op funds, estimates by such media trade associations as the Newspaper Advertising Bureau and the Radio Advertising Bureau, range from $6 billion to $8 billion; out of that, they say, at least $2.5 billion to $3 billion go unused.
But many manufacturers, goaded into action by a tough economy, are trying to decrease that $3 billion figure. In order to encourage retailers to use advertising funds that accrue with purchases, they are simplifying co-op plans, which are sometimes criticized by retailers for their length and complicated language. Certain manufacturers, and a number of distributors, are helping their dealers track co-op accruals by sending regular statements recording co-op activity. Others are supplying retailers with better ad materials, including radio and TV scripts, and allowing retailers to use a variety of media, including magazines, direct mail, billboards, and even hot-air balloons.
When Straus Co., a men's clothing retailer in Fargo, N. Dak., approached Sedgefield Sportswear Co., of Greensboro, N.C., to help pay a $500 entry fee to a hot-air-balloon race, Sedgefield's director of marketing, Bob Stec, readily agreed to split the cost. "Sure it's tough to measure the results of promoting via a hot-air balloon," admits Stec, whose company is a manufacturer of jeans, "but it was a unique promotion that cut through the clutter [of traditional media]." Straus, with gross sales of more than $3.5 million in 1982, allocated about 3% of that sum for advertising, at least one-third of which is spent on some form of co-op.
While most manufacturers limit their co-op funds based on the value or unit volume of products purchased by a retailer -- usually 1% to 5% of annual purchases -- in certain cases, manufacturers put no cap on the fund at all. For example, since 1982, Mercury Marine, of Fond du Lac, Wis., has offered to split co-op ad costs with its retailers, with no limit on the dollar amount of advertising it will underwrite. For Dick Lowe, owner of Lakewood Marine in Belmont, N.C., Mercury's program convinced him to increase his own advertising expenditures from $5,000 in 1981 to more than $14,000 in 1982, with Mercury chipping in an additional $9,800. Lakewood Marine, with sales of less than $1 million, doesn't have an ad agency and likes to use newspaper artwork and radio scripts supplied by a manufacturer. "Whatever I come up with is schlocky by comparison," says Lowe.
More and more, however, retailers like Straus Co. are coming up with their own advertising and getting reimbursed for it by manufacturers. One innovative user of co-op funds is retailer Jack Mitchell, president of Ed Mitchell Inc., a family-owned retail clothing store in Westport, Conn. When he recently ran a magazine ad for Lord Jeff sweaters, Mitchell photographed his brother's family wearing the manufacturer's sweaters in front of a local museum. Behind the group, he parked a Ferrari from Bob Sharp Motors in nearby Danbury. Not only did the setting attract attention, but by including the Ferrari, Mitchell also reduced his costs by sharing the media bill with Bob Sharp and Lord Jeff.
In another ad, Jack's son wore a Halston suit as he browsed through Westport's Computerworks store. Says the president of Computerworks, Seymour Merrin: "As a new retailer, we were trying to establish an image as a quality shop in our industry." Merrin paid $1,250 toward the cost of the ad, which he believes gave Computerworks credibility by association with Ed Mitchell.
The most innovative and flexible co-op plans are currently offered by high-technology companies. Many of these companies, competing fiercely with one another for retail shelf space, offer generous co-op terms that usually cover at least 75% of media costs.
Rick Inatome, founder of Inacomp Inc. of Troy, Mich., which operates Computer Mart, a chain of 15 retail computer stores, had never heard of co-op advertising until a local radio salesman explained the concept to him. Inatome, whose seven-year-old business grossed more than $26.4 million in the fiscal year ended last February, liked what he tried. When he retained an ad agency two years ago, he stipulated that it track and use every cent of co-op available.
Since hiring an agency, Computer Mart has created all of its own radio and print advertising. "If we ran the ads supplied by vendors," says Inatome, "we'd be doing as much good for our competitors as for ourselves." Recently, Computer Mart photographed an Apple computer with a mortar board to promote the company's training classes. Last Christmas, it advertised the "Computer Mart Christmas Apple." (Apple Computer Inc. agreed to underwrite 75% of the media cost as specified in its co-op plan.) "We let the manufacturers give consumers reasons to buy their products through national advertising," says C. Thomas Scholl, president of Computer Mart's ad agency, CTS Associates Inc. in Detroit. "Then we come in at the local level with reasons to buy that product from one retailer. People can buy an Apple from many retailers, but there is only one place they can buy a Computer Mart Apple."
Bill Kimball of the Elm Group, an Ann Arbor, Mich., manufacturer's representative for Apple Computer, VisiCorp, Maxell, and Androbot, notes that many high-tech companies are using co-op to support a lot more than traditional media costs. "They know there are a lot of different things that cause people to buy products, so they're starting to pay for expenses like room rentals for seminars, entry costs to trade shows, even shelving for products."
"What's stated in a co-op plan isn't all that a manufacturer is willing to offer," adds Inatome, who has found that some manufacturers have special funds he can tap for dealer promotions. Computer Mart recently produced a videotape for selected suppliers, including Apple Computer Osborne Computer, Commodore International, and Epson America. The 15-minute tape, produced with the help of local TV station WDIV, promoted a three-store opening, and each vendor was asked to contribute $5,000 to $20,000 toward TV advertising for the event.