When we developed the concept of co-marketing in 1992, the original thought was to provide a new way for brand marketers and retailers to collaborate on a strategic level.
 The objective was not to provide another tactical way to build profitable sales but to find ways to utilize retailers as communications vehicles to help build brand equity.
The co-marketing idea is based on the premise that as the consumer becomes harder and more costly to reach through traditional direct-to-consumer advertising and promotion vehicles -- and as the trade continues to commandeer more and more of the CPG brand marketer's Advertising and Promotion budget -- it makes sense for brand marketers to seek ways to convert as many trade dollars as possible to equity-building initiatives.
If one studies the 2001 Cannondale Associates report on Trade Promotion Spending and Merchandising, the interesting statistic is not that trade promotion spending as a percentage of Advertising and Promotion budgets is now a whopping 61 percent but that co-marketing spending is still only 10 percent -- up only 1 percent since 1997. Given the opportunities that brand marketers have to leverage the exposure and multitudinous contact points that mega-retailers have with consumers on an everyday basis, the question is why brand marketers have not been more aggressive in exploring and exploiting the co-marketing opportunity on a strategic vs. tactical level.
Typical of the problem associated with the implementation of co-marketing is the following example. In 1995, we presented a completely costed and projected annual co-marketing program to one of America's leading dry grocery suppliers. Because our audience was top management -- and because they immediately grasped the strategic benefits of the program -- they jumped at the opportunity.
When the program got down to the field level, however, and when the account teams were asked to convert some of their trade promotion spending/MDF dollars to building co-marketing initiatives with their mega-retailers, the whining and wailing would have filled a stadium. The issues, which still apply in all but a handful of CPG manufacturers today, were as follows:
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- The account teams were not trained to identify, evaluate and exploit potential equity-building opportunities through retailers -- much less evaluate the ROI on specific types of equity-building vehicles.
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- The account teams' incentive plans focused their attentions exclusively on generating measurable incremental "profitable sales."
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- The account teams were not empowered to spend over and above their originally-allocated trade promotion budgets. To fund potential equity-building initiatives through a particular retailer, the account teams would have to go directly to the brand groups who themselves were not trained (or inclined) to recognize the value of these types of opportunities.
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- At the time (1995), this company's top management was not inclined to blow up the organization to change all of this.
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Consolidation and technology advances now offer CPG manufacturers the opportunity to revisit co-marketing in earnest. Far from presenting leading CPG manufacturers with "problems," consolidation now offers many what was not practically available before: a potentially cost-effective means of using leading retailers as vehicles to help build brand equity in addition to the tried and true traditional direct-to-consumer vehicles of Advertising and Promotion.
In a nutshell, what the M&A activity of the last five years has done for manufacturers is to compress the entire CPG universe into a manageable group of 30 accounts which, by our calculations, currently control approximately 57 percent of the entire U.S. retail CPG business.
To capitalize on this opportunity, the vast majority of CPG manufacturers are going to have to change the ways in which they plan and implement their go-to-market strategies. These changes will require a combination of redefining core job responsibilities, retraining and some restructuring. While the specifics of this are obviously beyond the scope of this brief primer, here are some suggestions to shortcut this process and get on-stream quickly and efficiently. Effectiveness will build with experience.
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- Change protocols to make co-marketing planning an integral part of the annual Brand Planning process. To do this, the typical brand group will have to expand its purview to become familiar with the marketing and merchandising practices of 5-6 mega-retailers (at most).
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- Add a line to each brand's Advertising and Promotion budget called "co-marketing" -- defined for this purpose as any activity done in conjunction with a retailer for the specific purpose of building brand equity (separately from funds earmarked for generating "profitable sales").
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- Maintain the strategic integrity of the co-marketing budget by limiting spending to image-based (as opposed to price-based) activities that simultaneously enhance both brand equity and store equity. Define the types of activities that fit this definition and train your account teams to recognize and evaluate these.
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- Empower your account teams by giving them a priori discretion to fund these activities. Ideally, this is handled as a part of funding their mega-retailers' annual Account Business Plans but -- if necessary, on an ad hoc basis as the opportunity arises. The point is that these funds will have already been budgeted and allocated separately from trade marketing or MDF funds.
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By taking these steps, CPG brand marketers who have been struggling with this concept will achieve the following:
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- Clear the air by creating a new Advertising and Promotion definition and spending category that acknowledges the realities of the current retail marketplace.
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- Get the brand groups involved in mega-retailer account planning from the start -- a fact that we are sure every CPG Sales Department will welcome.
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- Eliminate the current accounting gymnastics and missed opportunities that result from forcing account teams to make funding exception requests to the brand groups every time a co-marketing opportunity arises.
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- Accomplish all of the above without blowing up your organization in the process.
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Chris Hoyt is President of Hoyt & Company LLC, a packaged goods training and consulting organization based in Scottsdale, AZ. He may be reached via his web site at www.hoytnet.com
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