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Can Coop Build Brands?
Don Peppers 1:1 Marketing
Integrating Co-op into the Marketing Mix

Can Coop Build Brands?
by Shannon McIntire, NAPAA Newsletter Staff
Source: 1998 Winter NAPAA Newsletter

In the survey of promotional allowance programs, conducted for NAPAA last spring by Trade One Marketing, 65.3% of the companies responding indicated they think co-op helps build brand name recognition. This finding suggests that manufacturers are moving away from the conventional wisdom that co-op only aids sell-through and has no role in brand building. Can co-op be effective in building brands?

According to Tim Cornillie, Vice President of National Marketing for the Television Bureau of Advertising, "Éif a co-op ad includes positioning messages about the product, it builds the brand by reinforcing overall brand messages. In contrast, ads that are only price-oriented are geared only for short-term results, and can actually harm the brand. It's essential that all marketing and sales activity work together."

According to Cornillie, "Brand building is a long-term process of conveying to the consumer all the reasons why a certain product is what we claim it is; often many of the product's benefits are emotional. When a manufacturer goes through the trouble to brand its products, it must stick by them in everything they do. And if they do, they will convince their customers that their products are worth what they charge for them, and the manufacturer will reap higher margins. If they allow price-item advertising, it undercuts their efforts to prove their brand's quality.

"The consumer has had many opportunities to choose against brands. In the early 1980's, retailers introduced generic products and private label goods, and they attracted some consumers. But the importance of brands to most consumers has stood out as a long-term trend. People want to know what they're buying, and they believe in manufacturers that offer them those assurances."

The change in attitude reflected in the recent NAPAA survey comes with the growth of Market Development Funs (MDF) in addition to accrual-based co-op programs. While accrual programs tended to support simple, straightforward promotions with little involvement between the retailer and the manufacturer, MDF programs initiate creative partnership marketing that is much more conducive to brand support. "Instead of just selling the product by the caseload, MDF programs have given the manufacturer the opportunity to work directly with the retailer to create a retail environment that best supports brand positioning. It can be a win-win solution for both sides, where the manufacturer's brand builds on the public trust of the retailer's brand. And they share the effort necessary to bring their message to their consumers," Cornillie suggested.

"There have been many examples of successful MDF programs among the retailers we monitor," Cornillie reported. "Virtually every identity campaign is supported, at least in part, by their brands. The retailers are very selective on who they work with and how, and the results have been outstanding for both sides. And for the manufacturers, it represents an outstanding way to get local market advertising coverage that few brands could afford by themselves."

An Interview with Don Peppers
The co-author of "The One-to-One Future: Building Relationships One Customer at a Time" reveals a future rich in potential for new kinds of relationships between co-op administrators, retailers, and consumers.
Source: Spring 1995 NAPAA Newsletter, Issue 13

NAPAA Newsletter: How would you explain the one-to-one future to someone who's never heard of it?

Peppers: Because of information technology, people in all types of business are beginning to compete along a different dimension; not just faster marketing or more targeted marketing. It's a different dimension of marketing. It's a dimension that's based on the customer rather than the product.

In a nutshell, the traditional marketer focuses on one product at a time and tries to sell that product to as many customers as he can in a particular selling period. But the one-to-one marketer focuses on one customer at a time and tries to find as many products and services for that product as possible over the entire lifetime of that customer's patronage.

To do that, you use interactive communications technology to communicate with the customer, to receive specifications as well as communicate relevant things. You use information technology to track what the customer has done and is doing and how it compares to other customers, what the customer has told you he might like, and what kind of interactions you've had. You also use computers to control the manufacturing and logistical processes so that you get the customer what he wants, when he wants it, and where he wants it. Those three issues are all driven by this revolution in information processing that's affecting all of our lives. But it's really changing the dimension of marketing.

NAPAA Newsletter: What will happen to the traditional manufacturer/retailer relationship in the one-to-one future?

Peppers: What's interesting about this whole thing is that the relationship between a customer and the marketer can actually be made extremely tight if the marketer is careful and strategic about it. What all marketers are going to be doing is fashioning highly collaborative relationships with their customers. If their customers are retailers they have an even greater opportunity to fashion collaborative relationships than if their customers are end-user consumers.

In a collaborative relationship the way I suggest you visualize it is the customer is teaching you what he wants. He's teaching you one thing at a time: how he likes it, when he likes it, where he wants it. The more the customer teaches you, the more he's invested time and energy in his relationship with you. And now, provided that you've remembered everything he's taught you, even if your competitor offers the same level of customization and detail that you do, for the customer to get back to the level of service that he's already getting he has to reteach the competitor what he's already taught you. It's a lot of trouble.

I say to people in the audience, visualize your life as a consumer. There's some store that you like to go into because they know what your interests are, they know what you like. Maybe it's a record store, or a tie shop, or a butcher, or a dry cleaner; they get it right always just for you. They do little things for you that are right because they know you. Imagine you're in that store and there's some kind of screw up, and you leave and you're thinking, "If it was any other store I'd take my business elsewhere." But you don't go elsewhere, do you? It's a lot of trouble bringing someone else up your learning curve. It's a lot of trouble teaching someone else what you've spent months or years teaching this person. That's the lesson of one-to-one marketing. Give your customers the opportunity to teach you what they want. Remember, and give it back to them, and you're going to have their business forever.

NAPAA Newsletter: Does that give the retailer or the big chains too much power in the relationship?

Peppers: I don't think so. Right now they are the ones who are driving this collaborative relationship. If the manufacturers want to get into the driver's seat, they've got to do for the other chains what Walmart has already done. Which is they've got to create collaborative interactions with their customers so that they're offering more than commodities.

If they want to de-commoditize their business then they've got to offer a lot more than good products. Products are not what they're selling. Anyone can do products. Store people can outsource products real easily. What no one else can do is provide service and give attention to individual detail and so forth, fashioning a highly customized relationship with an individual retailer that's different from the relationship with all the other retailers. A relationship that's based to a very large extent on what that retailer has indicated in the past.

NAPAA Newsletter: How can a co-op advertising manager apply these principles?

Peppers: You take it down to the level of interfacing with your customers. Your customer is the chain or the store that's spending the co-op dollars. That kind of relationship is much more rich and much more complex than the relationship that my friend has with his florist, or that a hotel-stayer has with the Ritz-Carlton, or that a frequent flyer has with an airline. I look at a relationship this way. The more complex the relationship is, the more suitable this kind of collaborative marketing really is because your customers are much more different. They have different needs, different seasons, different selling strategies, different people making decisions, different criteria. What you need to do is create the largest bandwidth of interface between you and the customer as possible. Get as much information exchange going on between you and the customer as you can. But remember the information. Remember all the data that the customer gives you. And never ask the customer to tell you the same thing twice.

NAPAA Newsletter: How do you customize relationships in a regulatory environment?

Peppers: The way you customize a relationship in a regulatory environment is very similar to a phone regulatory environment where you are almost a common carrier. What you do is have a lot of different options for people to customize themselves. But then, once the customer has gone to the trouble of specifying how he likes it one time he doesn't have to do that again. Next year he wants more of the same.

Another aspect of the one-to-one future which I think has great import for co-op advertising is the whole role of advertising itself. In an increasingly interactive age, advertising is going to be less and less important as a purchase motivator. More and more goods are going to be sold on a relationship basis. We're going to see a lot of media companies getting into the match-making business instead of simply providing a platform for funneling a series of messages to an undifferentiated audience. You're going see a lot of media companies providing a platform that says "Hey, we've got a place for your customers to meet online. We're going to make matches between this half million people here and the 50 thousand or so who are likely to be your customers already. We'll provide a platform for interacting with them. We'll provide a host computer to remember the contents of previous dialogues." In that kind of environment, the role of co-op advertising is kind of funny. Who's going to own this relationship with the end-user? Is it going to be the retailer or is it going to be the manufacturer? I think that's the $64,000 question of interactivity.

NAPAA Newsletter: What are the competitive challenges for marketers using online technology?

Peppers: One of the biggest questions to concern yourself with here is the relationship that the end-user consumer has with the store versus the manufacturer. The marketing organization that owns the relationship with the customer is going to be in a much stronger position in an interactive universe than he was in an advertising universe because the customer is going to be teaching the marketer what he wants.

I can either teach the grocery store what groceries to deliver to me or I can teach Kellogg's to put nuts and raisins in my corn flakes. There are lots of customization opportunities available. Store interactivity, a kiosk or cash register, where I ask for certain kinds of coupons and information - that kind of interactivity is brand neutral. The store doesn't care if I buy more Diet Pepsi or more Diet Coke, it just wants me to buy more diet soda.

On the other hand, you can look at interactivity at home. Peapod is a grocery delivery service in Chicago that's online. You have to have a PC and modem. You pay $30 for the software disk and then you pay $5 a month. To go grocery shopping you call up a list of groceries on your computer and you click on the groceries you want in your shopping basket. It gives you a running total, and you specify a delivery time with them. They deliver the groceries to your home. The second week that you go grocery shopping, you don't start with the whole thing; you start with last week's grocery list and make changes, additions and deletions. After four to five weeks of shopping through Peapod, when you get ready to order your groceries, the computer may remind you to check your inventory of paper towels. It's a real convenience. If you get your groceries delivered from Peapod, what store do they come from?

NAPAA Newsletter: It doesn't matter.

Peppers: Exactly. In the home, interactivity is store-neutral. I haven't worked the whole thing out; I'd be rich if I had, but I think we're talking about some serious conflicts between the co-op advertisers and the retailers who are their primary customers.

If Kellogg's were to deliver the corn flakes to me directly, they'd be taken off the store shelves in retailer stores around the country right away. That would be a violation of the unwritten truce for coexistence. Therefore Kellogg's doesn't need to manufacture corn flakes to my specifications. They can continue to manufacture corn flakes that are OK for most people.

What if Peapod were to say, "We have 18 varieties of corn flakes. Tell us how you want your corn flakes?" And they subcontract it out to somebody who has mass customization capability. They're going totally around the distribution network. By doing so, they're cutting the throat of the manufacturer or ties to that distribution system. So there are mega questions like this that are hanging in the balance of interactivity. The more you customize a product, the more you undercut the current distribution system. It is that distribution system upon which co-op advertising is based.

NAPAA Newsletter: What should co-op administrators be doing now to prepare for the future?

Peppers: My honest opinion is that if I had a packaged goods company or somebody that was heavily into co-op advertising, if it was my money, I'd be investing like heck trying to figure out how to go direct. I'd be setting up separate subsidiaries, delivery services. I'd be looking carefully at mass customization and I'd be trying to make direct connections with individual customers. I'd be looking to take my couponing regime outside the retailers' bailiwick all together.

If you read our book, you saw the 900 coupon number idea. Right now 900 numbers exist for this purpose. You call a number and we charge you for providing information. We charge you by collecting on your phone bill; $1.99 minute to get weather reports, for instance. What if you reverse that transaction? What if we paid you for providing us information? What if you were to go to the store and buy a big box of Frosted Flakes and inside the box is a proof of purchase number? There would be a different number in every box. You go to the phone and you dial 1-900-KELLOGG, punch in the proof of purchase number and we credit your phone bill $1.50. That's your coupon. Oh, this is the first time you've redeemed a coupon for Frosted Flakes. We know because we know the number you're calling from. We credit your phone bill $5. Have the first box on us. While we have you on the line, for an extra 50 cents would you answer three questions using your touch tone?

That kind of interactivity has been possible for two years now. You've got to ask yourself the question, why haven't packaged goods companies been jumping all over themselves to this? I don't know the answer to that. I suspect it is because packaged goods companies do not view me as their customer. They view the retailer as their customer. My suggestion is if they want to survive as more than just commodity producers into the next century, they are going to have to start looking at me as their customer, not just the retailer. The retailer is the intermediary.

Don Peppers was a keynote presenter at the NAPAA Spring Conference, April 30-May 4, 1995, Atlanta, GA.

Integrating Co-op into the Marketing Mix
by Vicki Lins, Adlink
Source: Summer 1997 NAPAA Newsletter

In today's marketing environment, it is important to maximize the use of marketing tools that deliver cost-effective communication to consumers. This is one reason why more companies are leveraging co-op budgets to support overall marketing plans and integrating co-op spending into the marketing mix. Co-op dollars can enhance the effectiveness of marketing programs and increase their reach through partnering with distribution channels.

Co-op can be used to support and facilitate the success of the existing marketing mix. However, the most success is achieved when co-op is used to deliver the right message or the most impact in places where the overall marketing efforts and budgets may fall short.

Consider the decrease in brand loyalty since 1970. In that year, customers were very brand loyal with only 7% of purchasing decisions made at the point of sale. In 1980, 47% of purchasing decisions were made at the point of sale. In 1990 the percentage of point of sale decisions rose to 56%, and in 1995, 65% of all purchasing decisions were made at the point of sale. Obviously, the best opportunity to communicate to the consumer and affect their buying behavior is at the point of sale.

As a result of this trend, sales promotions have become an integral part of the marketing mix. Well-planned and well-executed sales promotions can take over where advertising leaves off and thus create a stronger impact for the consumer. Advertising creates positioning and generates public awareness. Sales promotion then extends the marketing to the point of sale, while strengthening the distribution channel sales objectives.

When considering co-op as part of the marketing mix, it makes sense to depart from traditional co-op expenditures. Instead of putting co-op dollars into advertising that is intended to drive traffic into retail locations, let the overall brand advertising address that need by listing all participating retail and dealer locations. Then direct co-op expenditures into integrated sales promotions that provide retail locations with strong point-of-sale displays and merchandising in an effort to capture the consumers at the point where they are most likely to make their buying decision.

Additional benefits may be derived from this approach. Obviously, by combining efforts with the co-op spenders or channel partners, cost savings result for both parties--the co-op providers and the co-op spenders. Time can also be saved if materials and/or templates are produced and distributed for the channels--much more efficient than multiple claims coming in for various programs. Legal language can be standardized and approved at the corporate level, often saving multiple approval processes and debates (or, at a minimum, making the lawyers happy).

Of course, the most important result is the presentation of an integrated sales promotion that fits into both the company's marketing mix and the marketing plan, coordinating key messages with the preferred brand "look and feel." This integration allows retailers to capitalize on the strength of the brand by extending it into their stores to directly impact the customer, reaching the consumer more directly than the company's mass advertising efforts.

In my experience, well-planned sales promotions increased involvement at the dealer and agent level, maintaining participant interest. Coupling a sales promotion with a co-op bonus or internal incentive program surrounding the sales promotion is additionally effective in enhancing the potential for increased participation and, of course, increased exposure for the promotion, resulting in increased sales. And these sales are instantly measurable, allowing analysis of the effectiveness of co-op spending and consequently funnel it to the most successful areas.

Externally, sales promotions can be used to create additional awareness, motivate the public to buy, to buy more or more often. These promotions create a change in marketing from the consumer manipulation of advertising to consumer involvement in the promotion. Additional value is derived from the relationship the interactive nature of sales promotion creates between the consumer and the product or company.

In the current market, it is increasingly difficult to reach consumers and to differentiate product; focusing co-op funds at the key point of impact is smart planning and spending both for your company and for co-op partners. Putting co-op in a marketing role allows you to use co-op funds as a lever to motivate displays, drive sales, focus on specific promotional offers or key selling periods, and boost sales in targeted channels. It also highlights the importance of the role of the co-op manager, making you an integral marketing manager for your company and reinforcing the value of co-op programs.

As we all know, demonstrating the value of co-op is not an easy thing to do. When co-op becomes an integral part of the marketing mix and effectively contributes to the success of the marketing plan and the achievement of the sales goals co-op can be recognized for the powerful tool it really is.

Vicki Lins is Director of Marketing for Adlink, a cable television marketing company in Los Angeles. She was also a presenter at the 1997 NAPAA Spring Conference in Tampa.

Updated as of 09/01/2006