Distributors, since the beginning of time, have considered marketing an optional activity and hence sought ways to solicit manufacturers to help support their efforts.
Manufacturers, at the same time, recognized that they had limited
resources to reach their desired audience(s) and even less ability to identify the audience since they were not selling directly to them.
Over time, the two sides recognized their dilemma and manufacturers sought a “cooperative” relationship where they would “help” fund distributor marketing initiatives.
And so was born the concept of co-op marketing.
The theory was that distributors would earn marketing credit, based upon their prior year purchases, develop marketing initiatives, implement them and the manufacturer would help pay for the activity. The emphasis being on “help,” as they typically paid 50% of the implementation costs.
The concept made sense, however, manufacturer finance departments got involved and identified that typically only 60% of funds were used (hence an incremental profit opportunity for the manufacturer) and the lack of administrative processes made the entire concept ripe for, shall we say, “inappropriate usage.”
Over time manufacturers have refined their programs and are now limiting what percent of funds go to different initiatives, and in many cases targeting whom to give the funds.
Parallel to this evolution, many distributors became more proficient in the development of marketing initiatives, and more creative in soliciting supplier support for their marketing efforts.
Distributors learned that marketing can be a differentiator. It can:
- Help them build their brand
- Promote products to a wide customer base
- Support the launch of new supplier products
- Engage customers to strengthen relationships
- Provide training opportunities
- Stimulate usage of services and new technologies
And much more.
In other words, marketing can be a force multiplier to help companies increase sales, grow share and differentiate a company…and perhaps the relationship it has with key suppliers.
From a funding viewpoint, distributors learned that there are essentially three funding sources for their marketing efforts:
- Partnering with manufacturers that offer co-op marketing AND co-funding the initiative
- Funding it themselves
- Developing business/marketing plans and soliciting funding from manufacturers
This last option is called “market development funds (MDF)” or some manufacturers call it “business development funds (BDF)” (for this article, we’ll call them MDF).
Manufacturers typically do not promote that they offer MDF funds or, if they do, they very clearly indicate that a plan is required for submission and prior approval, often developed in conjunction with a representative of the company. The plan must be submitted for approval and a funding decision is then made.
Manufacturers consider the funding request based upon their volume with the distributor, their growth potential, strategic relationship considerations, the initiative’s goal and the prospective return on investment (ROI).
Typically, this is not a formulaic allocation of funds (but yes, manufacturers do have rough percentages of how much is “equitable/reasonable” given a distributor’s revenue, profitability, potential and the activity/plans’ benefits).
And COVID had an effect on co-op funding. Some manufacturers eliminated co-op as a cost-savings move. Others focused efforts on digital initiatives.
The days of blindly paying for wearables, logoed items, golf events and more are gone.
Manufacturers want to invest in activities that will achieve some specific goal and/or drive revenues. Some of these goals include:
- Customer engagement (with supplier participation)
- New product launches
- Promotional initiatives and sales strategies
- Customer training
- Digital initiatives, especially as they relate to e-commerce adoption and revenue generation
- Co-branding that meets their guidelines
We’ve also seen limitations on wearables, signage and incentive programs that are not manufacturer-specific.
Manufacturers are also more focused on “use it by the end of the year or lose it” with some requiring a percentage of funds to be spent by different intervals during the year.
Manufacturer support for distributor marketing is becoming more performance-oriented. Manufacturers are correlating it to distributor sales performance, distributor strategic importance and the activity’s importance and/or ROI.
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.
In the words of one manufacturer, “I’d rather focus my marketing efforts and funds. Better bang for the buck.”
Marketing is a Team Activity
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 their marketing, sales and purchasing departments. No longer do they want distributors to “divide and conquer” where purchasing negotiates rebates, but the distributor’s sales organization is not vested into supporting the manufacturer and marketing does not have access to manufacturer marketing funding…because it had to go to fund the rebate.
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 distributor’s customers. Rebates need to support sales and marketing efforts.
Marketing with Manufacturer Support
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 other complementary manufacturers, but they don’t need to be “one of many.”
So, what is a distributor to do?
What to Do for the Remainder of the Year
By the time you read this the year is already half over and most marketing
funds need to be used, or at least claimed, in December. Time is running out.
- Identify what you earned from last year or negotiated this year. Determine what you’ve spent and what you’ve allocated. The remainder is your “rest of year budget.”
- For major suppliers, develop a plan. Work with your rep, explain the plan and prepare to implement.
For the remainder of your suppliers?
- Consider if you have the desire, and enough funds, for a manufacturer-specific activity.
- If you do not, here’s some ideas to consider:
- Perhaps a new product flyer (or email) that involves multiple suppliers? Charge each a pro-rated share of the initiative.
- Develop a sample box to send to customers (or a segment of customers). Perhaps tie it to a contest based upon answering some questions. Maybe add a sales spiff to ensure your sales organization does follow-up and asks for the order. Here again, charge a pro-rated amount to participating suppliers.
- A multi-supplier counter day or training event.
- Customers, be they contractors or consumers, like to think in terms of “applications.” Perhaps develop promotions, mailers and events around key topics—sustainability, winterization (remember, we’re talking fall promotions!), bathroom or kitchen remodeling trends, etc.
- Perhaps partner with selected customers for consumer marketing initiatives…and involve one, perhaps a few, suppliers. Purchase a list and conduct some direct marketing. Or do some joint digital advertising?
- Consider a homebuilder or renovation show and promote a range of suppliers but showcase their products (displaying a logo doesn’t generate demand or excitement).
- Some manufacturers have pre-packaged promotions that you can acquire with your funds, or new point-of-purchase material, which always helps. Also, consider reaching out to your rep or the manufacturer’s marketing personnel and say, “I’d like to do something with your company, but I only have $X in co-op, any ideas on what I can do? What have others done with similar resources?” Sometimes manufacturers share this information on their portal.
The basics of co-op have not changed. What has changed is that fewer manufacturers are offering these programs. Manufacturers are targeting their resources to those distributors, and activities, that generate sales. They have moved to a “pay for performance” mentality.
For small distributors, this can put you at a competitive disadvantage unless you decide to market yourself. There are resources that can cost-effectively help you craft, and implement, a strategy. Some will help you submit for supplier credit (and sometimes you need to do the submission).
Remember, you are marketing your company. Whether you are a distributor
or a manufacturer, your company’s needs must come first. Distributors “touch” the customer and must promote themselves and then partner with willing manufacturers who wish to grow sales.
Co-operative marketing is really co-operative selling. Whom do you want to partner with to grow sales?