CO-OP FUNDING SUPPORT: Recovering investment money through support from trading partners

Catalog funding strategies are an integral part of the industrial distribution marketplace. For a distribution company, the catalog may be the single largest investment in non-people assets that a company makes. Therefore, ROI needs to be a measure of both increases in sales as well as decreases in operating costs. The ability to recover investment money through support from trading partners helps offset some ongoing cash flow pressure when making this significant investment.

Support Options

1. Vendor co-op programs. This is a budgeted annual expense for most vendors. Sometimes a published program is based on a percentage of their revenues; other times there is money available to support Tier 1 distributors who have a significant position in the marketplace. These programs should be negotiated based on your importance to the vendor in your particular marketplace.
2. Advertising revenues. These are monies received from vendors who place strategic ads throughout the publication. Vendors have budgets for advertising in trade publications that are independent of co-op programs. Ads can be placed on pages, covers, inserts, etc. These programs should be negotiated based on circulation and readership, longevity of a catalog, etc.
3. Product incentives, samples and rebates. These are monies generated from the resale of product samples or free demo product received from your account manager. They typically generate smaller amounts of money but can add up to a reasonable offset to the cost of your project. These should be negotiated with your manufacturer account representative.

With every co-op funding strategy "the proof needs to be in the pudding". Success is measured by meeting realistic cost reduction objectives in a manner where both the distributor wins and their vendors win. Moving from supplier/distributor relationships to trading partnerships should focus all parties on removing redundant and unnecessary costs from the supply chain by ensuring information and products move efficiently through the distribution channel.

Benefits for the distributor

• Higher profile for leading manufacturer products.
• Improved ROI from catalog programs.
• Stronger commitment to partnerships with vendors resulting in a product offering with a clear product standardization strategy.
• Inventory focused on catalog products is less reactive to non-stock customer requests.
• Stronger brand recognition and association with products being distributed.

Benefits for the vendor

• Assurance of a product focus. Distributor makes a clear commitment to the vendor and product lines.
• Less investment in marketing collateral to support distributor sales channel.
• Ensure consistency in content being presented to end-user customers.
• Increased Influence over product positioning relative to competition.
• Enhanced ability to introduce new products or test market new product features/benefits.

IMPLEMENTING AN OVERALL CO-OP MARKETING STRATEGY
The results achieved in raising co-op support from vendors is directly related to the strength of your relationship with the key decision makers, your company's significance in their go to market plans and the effort you invest in cultivating the desired response. To that end, Webcom supports its customers by helping to develop an integrated communications plan.

An overall co-op marketing strategy allows you to effectively present your catalog strategy to vendors in a way that helps them recognize the value of participating in your program as well as helps them define the payback for their investment through increased sales of their products. It is important for your vendor partners to understand that you are making a significant and measurable commitment to their products by embarking on a catalog marketing strategy. Ensuring this message is heard throughout their organization is a key component to your success.

Here are some steps you can take in establishing your co-op marketing strategy:

1. Plan! Knowing what potential you have to raise co-op support for your marketing strategies will help you set realistic expectations about the money value you are trying to recover. It is important to understand which vendors have a published co-op policy and those whom you'll have to work on to define their level of support. Spend more of your effort on those whose support you can influence and less on the ones who have published policies.
2. Draft an introductory letter defining the catalog project. It can be more effective to address this letter to the president of their company from the president of your company. Outline the scope of the project (# of copies, timelines, etc.) and reiterate the value of their partnership in the project. It does not need to define the amount of co-op money you would expect from them at this point.
3. Distribute the letter, hand signed by your president, to all vendors. Request a response.
4. Meet with your vendor sales reps. Ask them for help in identifying the mix of products they would see creating the most economic activity through a catalog program. This analysis should include the 20% of their products that make up 80% of their revenue. They will be knowledgeable about what products other distributors are successful with and therefore will be a good resource for making product based decisions. Don't forget to remind them that their financial support for the project will ensure your mutual success.
5. Develop a catalog co-op marketing brochure. Webcom will help you design this brochure, reflecting the same level of professionalism as your catalog. Typically it is designed as a 4-page folder that shows the creative styles that will be used in the catalog. Use the catalog cover on the outside, show the way pages and products will be laid out inside the catalog. At least one page should outline the entire scope of your go-to-market strategies (knowledgeable people, inventory systems, unique business processes), marketing plans (catalogs, flyers, web sites, ecommerce) and corporate identity (brand and positioning). Remember you are creating demand for space in your catalog - it is valuable real estate to vendors once they are convinced that your company represents their best option to succeed in your marketplace.
6. Begin to define the level of financial support required from vendors. Put some thought into the way you will balance the vendor's preference for exclusivity and your desire to offer your customers a wide range of products and brands. You will be asked this question somewhere in your negotiations.
7. Meet face to face with vendors. Meet with key decision makers, vendor by vendor or schedule onsite meetings with a group of your vendors. Either option will help you lay the ground work for collaboration and partnership between your companies, solidify significant goodwill between you and your vendors and generate excitement the new program being launched. Scheduling an onsite meeting with a group of your vendors gives you an opportunity to present the entire scope of your marketing strategy and co-op expectations to groups of vendors at the same time. That way they will feel more comfortable that they are all being treated equally. It may seem obvious but it is worth mentioning - these vendor meetings are best conducted with groups of non-competitive product suppliers. If you schedule a few meetings on different days then you can split up direct competitors and ensure open honest dialog and feedback.

Whether or not you meet one-on-one or with groups of vendors, be prepared to define the different ways vendors can participate. Make sure to include information on the following:

1. Cover per page costs for the space their products use in the catalog. Remember per page costs include more than just the cost of designing that page - it also includes the planning resources you supply to make the project successful, delivery costs, sales costs get the catalog to the end-user, opportunity costs that are incurred from a lot of people in your company providing input to the process, developing front matter and indexes, etc. Some of these costs are hard to quantify and justify - make it reasonable and vendors are likely to buy in - if you ask for too much they'll run and hide.
2. Advertising support. The catalog can have full page specialty advertisements, on page ads to fill space, premier location ads on the inside covers, use of logos on the cover or tab pages, reader response cards, product inserts, etc.
3. Special promotions. Promotions will support the launch of the catalog as well as contests you may want to run in order to encourage sales activity when the catalog is launched.
8. Follow-up! If you do not include disciplined follow-up as part of your co-op marketing strategy then all your efforts will generate little result. Remember you are asking for money - very few will just send in the check.
9. Include vendors in the proofing process. If vendors are engaged throughout the publishing cycle then they will be more responsive when they are asked to send in their money. Make sure you ask them to check and approve their content before your catalog is printed. If they have not approved the content then they may withhold payment.

What results are reasonable from co-op marketing programs?
It is safe to say 100% cost recovery on your catalog project is achievable. The final results can be influenced by a variety of factors, such as:

• The amount of time and effort senior people in your organization devote to the program's success.
• Relationship. Do you pay your bills on time? Are you an authorized stocking distributor for their products? What level of competency do you offer to their end-user consumer? Do you partner with them the same extent you are asking them to partner on this project?
• Proven performance. Have you executed on projects like this before or is this the first one? Do they enjoy ongoing sales growth from the association with your company?
• The thoroughness of the strategy with a clear link between participation and payback for the vendor.
• The clarity of your marketing strategy, giving vendors the confidence they need to partner in your success. Avoid single event-based marketing.
• The time you give vendors to plan and respond to your request for financial support. If vendors can plan it into their annual co-op budget by being informed early then you'll get more support than if it is an unplanned expense.
• The level of professionalism demonstrated in presenting the program and information.