It’s planning season and we’re engaging long-term distributor clients; new and prospective ones and a recurring theme is occurring … they are commenting on the lack of co-op marketing funds.
Unfortunately, this isn’t a surprise as it has been a trend over the years. Manufacturers have been making their co-op marketing programs more restrictive and, when competitively feasible, eliminating their co-op programs.
This doesn’t mean that marketing funds are not available. It means that manufacturers are not “peanut buttering” these funds across all distributors and are targeting them to those whom they feel will be able to generate the greatest ROI with those funds.
Or, in other words, less premiums (logoed items), less wearables and less non-valued events, especially for smaller accounts that have nominal growth potential. More manufacturers are saying “distributors have a responsibility to market their business and our offering. We can help, but they need to take the initiative.” And more progressive distributors are stepping up as they recognize marketing is a business differentiator and helps them get their message to their customers.
Why is this occurring?
- Historically manufacturers only utilized 63% of their allocated co-op marketing funds. At the end of the year, unused funds reverted to Finance (who renamed it “profit”.)
- Companies have also done analysis regarding co-op spending by account and correlated it to sales performance. Guess what? For many accounts there was no ROI.
- When manufacturers analyzed the usage of funds, they asked, “is this what we want to fund?”
- Yes, co-op is another casualty of COVID. Especially in the first year of COVID when manufacturers either 1) sought to reduce discretionary expenses, they reduced / eliminated co-op and 2) without the events, and expense, sales did not decline significantly (and in many cases rose). This continued into year two. Net result? Why have an embedded cost. Manufacturers still did joint marketing with distributors. They selected / supported key distributors who are important to them in a market and/or who approached them with targeted initiatives.
- The effects of consolidation means that the medium and large sized distributors are getting larger and desiring (demanding?) greater support from manufacturers … and receiving it. They also have invested into marketing departments, eCommerce, RDCs, data analytics and more.
- Speaking of consolidation, we’ve had a few conversations with distributors seeking to sell, as well as with acquirers. The distributors are asking “is it time”, “know anyone who is selling” or “can you help”. The answer to all is yes (and we can help companies by doing a valuation, making recommendations on how to optimize the business’ profitability, and reviewing possible growth strategies so they can make a “sell / hold” decision.) And we know prospective buyers to introduce people to.
- Regarding consolidation, we understand that part of the association scenario planning is that the industry will have 60-80 key distributors longer-term. If you are a manufacturer, and maybe heard this or have done your own planning, wouldn’t you consider adjusting your strategies?
- Co-op marketing initiatives can be expensive for a manufacturer to administer, hence an embedded cost that can detract from available marketing funds (and in many cases requires “people”, which brings up another issue … people availability.)
In the words of one manufacturer “I’d rather focus my marketing efforts and funds. Better bang for the buck”.
Marketing Funds Are Available
Given that co-op marketing funds are slowly going away, there are marketing funds available. Distributors just need to work for them.
Manufacturers now call this MDF or BDF (Market Development Funds or Business Development Funds). If they call it anything. Sometimes you need to ask. (and if you don’t ask, you don’t get!)
Typically, this is not a formulaic allocation of funds (but yes, manufacturers do have rough percentages of how much is “equitable / reasonable” given a distributors revenue, profitability, potential and the activity / plans’ benefits).
Obtaining, or earning, these funds require a plan from the distributor. This then, ideally, becomes “joint planning, joint marketing and/or joint investing.” An investment of time is required.
Either there needs to be an ROI or it is an investment in something that the manufacturer sees value in (another definition of ROI). Some of these investments relate to eCommerce and data analytics / access to information. Sometimes it is preference or training. It can also be “goodwill.”
Manufacturers are expecting distributors to make an investment. It is no longer “Mr. Manufacturer, I will only do X if you pay for it.”
Manufacturers are expecting that distributors have intentional coordination between Marketing, Sales and Purchasing. No longer “divide and conquer” (they’ve gotten smarter to this). They want the distributor to live up to their word. They want their investments to support their rebates, influence purchases where there is discretion, and gain salesforce support for interaction with the manufacturer salesforce and the distributors customers. They know it won’t happen “all the time” because it has to be the right fit for the end-user. They want “win-win” opportunities.
Manufacturers want more activities that are demand generation-oriented. Branding has value, but not if there are 40 manufacturers on the same piece of literature. They understand application selling and grouping them with some complementary manufacturers, but they don’t need to be “one of many.”
Logoed items have a role, and maybe wearables do also, but there is a limit to what percent of the budget it is … and the distributor needs some skin in the game as their name is on it also. Otherwise, the manufacturer can fund their own logoed items.
And the latest NAED PAR report (2021 sales) shows distributors with a very healthy net profit. Yes it is pandemic fortified as well as distributors had the benefit of price increases with a lower increase in costs (and higher rebate income). The 6%+ net reinforces to manufacturers that marketing should be a distributor, or shared, expense versus the manufacturer solely being “the bank.”
As an aside, we’re seeing manufacturers reallocating their marketing spend to more controllable activities … meaning activities that they control and where they can reach the end-user with their message to influence demand or generate brand preference. Some are also recognizing that they should do more marketing with their reps … and some reps have added marketing staff to support reaching end-users more effectively.
At the end of the day, co-op is going away, but this doesn’t mean that marketing funds are going away for everyone. They will be more targeted. Manufacturers will be more intentional on where they want to grow. Earning monies to invest in marketing will require a plan. Manufacturers will invest where there are opportunities for market share growth (or retention) as well as an ROI.
Marketing will take work.
Questions
- Do you think this is the “right” approach for a manufacturer? Why?
- How does this “change” marketing for distributors?
- What types of activities / plans should manufacturers support distributors?
- What makes “a good plan”?
- Are you seeing this?
And, if you’re a distributor and need support in developing a 2023 marketing plan … give us a call? A rep developing a territory marketing plan to support your manufacturer, give us a call.
Interested in other co-op / marketing articles?
- Manufacturer Marketing Co-op Feedback
- Manufacturer Marketing Support, Does it Exist?
- Channel Marketing and Funding … but for eCommerce Initiatives?
- Distributor Co-op Attitudes
- Understanding Distributor Marketing Tool Usage & Effectiveness
1 Comment
David,
Thank you for this very thorough and highly accurate summary of the evolution of coop (also BDF/MDF) funding over the past few years. We have certainly seen a shift in how these funds are allocated and a tightening of reimbursement requirements. We’ve also seen some of our larger manufactures allocate funds by “buckets” meaning you’re required to spend a minimum of 20% on digital marketing, 10% on training, 30% on promotions, with the remaining 40% in a general fund, for example. Also, more manufacturers are asking for pre-approval to counter past abuses.
Conceptually, and from the manufacturers’ perspective, these requirements make sense. I especially appreciate the nudge toward more digital marketing. Unfortunately, our customers are often lagging behind and not ready to accept the digital tools we have to offer, so making it a requirement can be restrictive.
I also have seen and appreciate the focus on planning, joint marketing, and joint investing — key word being “joint.” That means we must benefit close to equally from any marketing activity. As director of marketing for a distributor, I want to develop a plan and schedule programs and promotions on my timetable that benefit my company and my customers. But often, it seems like manufacturers and reps want to set the agenda, promotion, and timing.
This is why we have a planning session at the beginning of the year with our key vendors. Does the plan change? Of course, but manufacturers and reps need to be aware that we’re working with 30+ vendors, trying to reduce overlap, manage 30+ different coop funds all with different guidelines, and get them all scheduled in a year. It’s like playing Jenga. (I think it is; I’ve never played Jenga.)
Yes, Marketing, Purchasing and Sales need to work together and this will give distributors an advantage not just with manufacturers, but in the marketplace and certainly in marketing planning.
We, as distributors, also must get out of the mindset of giving swag away for no reason, or because a contractor walked into our counter with a competitor’s shirt on. I’m convinced they do this intentionally to get more shirts. If we all quit doing it, they’ll learn they have to buy something to get something; and that’s what our manufacturers want anyway.
Marketing should be accountable for generating a return on investment, and we need to be better about measuring and tracking it. It’s an age-old problem. We like to compare sales during a previous 3-month promotion to the previous 3-month period, and also to the same 3-month period during the previous year. Ideally, we’d account for “organic” growth year over year and factor that in as well. But measuring anything is better than measuring nothing. Are we cannibalizing from another, similar manufacturer when we run specific promotions? Probably, but the goal of that promotion was to sell that manufacturer’s product, so if we see an increase, the promotion was successful and we can demonstrate that to the manufacturer whose coop we used to fund it.
I’ve been wanting to write an article called “Whose money is it anyway?” because I, as a distributor, think it’s mine, because I earned it. But often, the manufacturer sees it as theirs. In reality, it’s “ours” to use together to generate sales for the brand and for the distributor.
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