Misalignment Between Brands and Local Affiliates May Be Wasting Massive Amounts of Co-op Funds
National brands rely on a complex web of local affiliates for representation, distribution, and channel marketing and sales. In these sometimes shaky partnerships, it turns out that massive resources in the form of co-op and market development fund (MDF) programs either go unused or get misdirected, largely due to misalignment between brands and their affiliates. That’s the finding of a new study from Gleanster Research (for which Street Fight is a publication partner) and a closely related report by local marketing automation platform Brandmuscle (which sponsored the Gleanster study).
For those not familiar the terms of art, co-op and MDF programs are “promotional allowances designed to drive sales in distributed sales and marketing environments.” Co-op funds are awarded based on performance, while MDF funds are awarded in anticipation of results.
These programs represent big money: The average promotional allowance for co-op and MDF is $7.6 million, according to the Gleanster study, which adds up to an estimated $70 billion in annual co-op investments. However, almost half (48 percent) of available funds — totaling an estimated $33 billion — go unused. “Our report shows a disconnect between brands and small businesses when it comes to co-op and MDF programs,” said Gleanster principal analyst and managing director Ian Michiels in a statement accompanying the Brandmuscle report. “Brand marketers are still investing heavily in traditional channels while local marketers report the vast majority of their sales are influenced online and in social media.”
This disconnect is the focus of Brandmuscle’s annual State of Local Marketing Report, now in its second year. According to the report, national brands providing co-op marketing funds to local channel partners tend to push those funds toward traditional marketing tactics, while overlooking tactics that local partners rate higher and which are more cost-effective.
Traditional tactics absorbed nearly two-thirds (64 percent) of co-op funds even though they received the second-lowest satisfaction scores from local agents, dealers, and distributors. For example, 77 percent of respondents continue to advertise via the Yellow Pages, even though they finished second-to-last in overall satisfaction.
Local events and sponsorships, although accounting for a distant second in terms of spending, saw the highest utilization rate and satisfaction scores. As might be expected, respondents found face-to-face communication with customers valuable for building trust and ultimately closing sales.
Despite high satisfaction scores, Brandmuscle detected a reluctance among local affiliates to engage in digital tactics. Many respondents perceived digital marketing as too complex and time-consuming, findings that echo recent Street Fight Insights studies. Brandmuscle broke out social media separately, but the challenges there, with the exception of Facebook, were largely consistent with digital marketing in general. Social media ranked last among the four tactical categories for both usage and satisfaction.
Ultimately, the report found, the problem with co-op and MDF programs runs deeper than tactics, extending to marketing activity in general. The report found nearly half (48 percent) of local affiliates spent less than $5,000 per year on marketing. For more than half (57 percent) of these local businesses, marketing budgets either stayed the same or decreased year-over-year, despite the fact that 63 percent of affiliates were eligible for co-op or MDF funds. But perhaps the biggest issue is that most spent a minimal portion of their time on marketing: 71 percent of respondents admitted spending 30 percent or less of their time on such activities.
It’s hard to win when you’re not playing the game.
Noah Elkin is Street Fight’s managing editor.