Co-op Advertising: Digital's Lost Opportunity

1. For the Internet Advertising Bureau (IAB) DRAFT: August 28, 2012 Rebecca Lieb AnalystDigital Advertising and Media @lieblink Co-op Advertising: Digital’s Lost Opportunity?

2. Digital advertising hits a record high in 2011: $31 billion Sources: IAB/PwC; Co-op Advertising Programs Sourcebook; NRP; and Trade Promotion Management Associates

3. Estimates for annual co-op spend in the U.S. range from $50-$520 billion,worldwide …

4. … but an estimated >1% of that projected co-op spend flows into digital channels Sources: IAB/PwC; Co-op Advertising Programs Sourcebook; NRP; and Trade Promotion Management Associates

5. Co-op Advertising An agreement between a manufacturer and a retailer to share advertising costs, while at the same time create brand name awareness.

6. Manufacturers typically underwrite from 30-50% of retailer advertising costs

7. Image by iandavidused with Attribution as directed by Creative Commons http://www.flickr.com/photos/iandavid/3532086917 The Missed Digital Opportunity © 2012 Altimeter Group

8. Online share of U.S. local ad spending forecast for 2012 at less than 20% Source: eMarketer

9. Fewer than 33% of manufacturers factor Internet advertising into co-op ad policies Sources: Advertising Checking Bureau (ACB) “Online Co-op Advertising Study,” Sept. 2011; Local Search Association database 35 of 684 co-op advertising programs forbidusing co-op dollars in online advertising Co-op Policy Excerpt: “Internet Advertising and/or website setup fees and costs are not eligible for co-op except for the official Yamaha/Boattrader.com program.”

10. Only 181 companies allow some form of Internet ads in their policies, most are limited Source: Local Search Association database

11. Image by StreetFly_JZ used with Attribution as directed by Creative Commons http://www.flickr.com/photos/streetfly_jz/2760882758 The Growth of Online Local Advertising © 2012 Altimeter Group

12. Experts predict local advertising as single most robust sector in 2012 U.S. ad market Source: eMarketer

13. Digital segment of local advertising will grow stronger through 2016 Source: BIA/Kelsey Audiences for local print and broadcast media follow steady decline Local continues to be one of the hottest sectors for growth in digital channels

14. U.S. local digital advertising revenues forecast in 2016 to rise $17B from 2011 Source: BIA/Kelsey

15. Search and Coupons © 2012 Altimeter Group

16. In 2011, Google announces that 20% of all its desktop searches are local. On mobile devices, that percentage jumps to 40%. Source: Google’s former VP of Location and Local Services Marissa Mayer

17. BIA/Kelsey predicts desktop local and mobile local search queries and ad revenues to rise Source: BIA/Kelsey

18. As print coupons decline, daily deal and group buying sites surge in popularity Source: eMarketer

19. More than half of U.S. internet users have used a daily deals site Sources: Zoomerang, William Blair & Company, and Local Offer Network Market value estimated between $1.61 billion and $2.67 billion Groupon receives 11.5 million unique monthly visitors in March 2011

20. Email helps drive local retail and e-commerce Email is particularly attractive to retailers as a low CPM channel.

21. Image by lwrused with Attribution as directed by Creative Commons http://www.flickr.com/photos/lwr/839359065 The Value of Digital Co-op © 2012 Altimeter Group

22. The online co-op market is estimated at $1.7 billion available, but with $450 million left on the table “for lack of participation.” Borrell Associates, Online Co-Op Advertising, May 2012

23. Online co-op advertising beneficiaries • Technology vendors • Agencies • Publishers and media • Online coupon/daily deal providers • Search • Mobile • Other core players: manufacturers, retailers, and e-tailers

24. Image by coreburn used with Attribution as directed by Creative Commons http://www.flickr.com/photos/coreburn/487357814 Stumbling Blocks © 2012 Altimeter Group

25. “Twenty years ago, I was running into, ‘they didn’t know how to do radio,’ from retailers. [It was] too bad if research proved radio ads were more effective for that product category. They’d done newspaper for 40 years, and that was what they were going to keep doing.” Bob Houk, ExecutiveDirector, Trade Promotion Management Associates

32. Attribution/verification: Certified proof that each campaign was actually executed The most common documentation requirements for dealer-paid search (according to ACB) are: Co-op Advertising Claim form Prior Approval form Screenshot of banner ad or PPC ad Website URL or keyword listing Invoice: costs, run dates, click-throughs and number of impressions

33. Key questions to answer What are manufacturers’ objections to expanding co-op advertising programs into digital channels? Where are the disconnects? What are the barriers to programs that permit paid search and display advertising from moving into channels such as email and social media?

38. Lack of Guidelines and Requirements New challenges that didn’t exist in traditional co-op (e.g. keyword bidding for trademarked terms in search marketing) “We’re driving each other’s bidding up. … HP’s perspective [is] we don’t think co-op is that positive if we’re all going after the same term.” Florence Su, Senior Manager of Search Engine & Mobile Marketing, HP

39. Recommendations © 2012 Altimeter Group

40. Encourage More Co-Op Spend in the Online Advertising Ecosystem Increase awareness.Manufacturers and retailers are unaware of the potential benefits of online advertisingand its related tactics for executing digital campaigns. Provide education. Once the digital advertising ecosystem is aware of co-op’s untapped revenues, motivation to self-educate will be strong. Set standards and best practices.Closer examination of how successful programs function can lead to case studies and help create templates on which broader co-op programs can be based.

41. Encourage More Co-op Spend in the Online Advertising Ecosystem Develop technology. Development of platforms that enable workflow automation would make the co-op advertising process easier for manufacturers and over-burdened merchants who run co-op campaigns. Desirable features includemechanisms to facilitate: Creative approval Verification Metrics Communications between retailer and manufacturer. Database of co-op programs and digital asset management for logos, creative executions, and brand elements

42. Encourage More Co-Op Spend in the Online Advertising Ecosystem Revamp publisher initiatives. Publishers are eliminating co-op ad specialists on the print side as traditional ad revenues shrink. It may be time to consider re-establishing the co-op ad manager rolewith an online display advertisingfocus. Cooperate with co-op ad management companies. Many legacy co-op program management companies have expanded into the digital, yet remain unconnected to mainstream publishers and industry trade groups.

43. Questions?

44. THANK YOU Rebecca Lieb rebecca@altimetergroup.com rebeccalieb.com/blog Twitter: lieblink Disclaimer: Although the information and data used in this report have been produced and processed from sources believed to be reliable, no warranty expressed or implied is made regarding the completeness, accuracy, adequacy or use of the information. The authors and contributors of the information and data shall have no liability for errors or omissions contained herein or for interpretations thereof. Reference herein to any specific product or vendor by trade name, trademark or otherwise does not constitute or imply its endorsement, recommendation or favoring by the authors or contributors and shall not be used for advertising or product endorsement purposes. The opinions expressed herein are subject to change without notice.