Should You Pay Co-op Dollars for Placement?

This can be a sensitive subject to both suppliers and resellers, so I will endeavor to tread lightly.

In CE retail, co-op promotional costs are largely the norm. That’s where the supplier supports their dealers’ sales efforts with measures that can range from subsidizing advertising costs, to sell-through credits, to paying for product placement in-store.

In fact, buying in-store product placement has grown markedly in recent years. The “store within a store” concept is nothing new; I was merchandising and managing leased out brand-specific outlets inside department stores twenty years ago. But recently the eventual end-game: where a big box store is full of smaller branded marquees, each one paid for by a vendor, and where the retailer doesn’t own anything looms closer than ever.

So, this is the world we live in. For the biggest big box stores, it’s been a successful model. And that’s understandable: Getting suppliers to pay you to put their merchandise in your stores reduces overhead and grows operating revenue. It’s that success at the big box level that’s inspired smaller players like regional chains and independents to look to that model and adapt it to themselves.

But at the regional and local level, does it make sense to apply an exact copy of what works at the national level?
I’m extremely sympathetic to what dealers have to work with and it’s in suppliers’ best interests to support them. Just taking their orders and shipping their product isn’t enough. As a supplier, you have an imperative to help your dealers sell more of your stuff.

It’s neither unkind nor inaccurate to point out that the biggest difference between national dealers and their regional and independent rivals is scale. Like it or not, the big box stores move more volume and it’s unrealistic to expect smaller dealers to do the same.

That means that co-op promo spending that big brand spend with national dealers just doesn’t scale down well.
To understand that, consider VIRs — Volume Incentive Rebates. VIR has been the norm for national CE for a long time. And it’s one of the factors that have driven down store-level gross profit: The end-user pays less at point of sale, and at the end of the financial period the dealer gets a rebate back from the supplier, shoring up their margins.

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Just because it’s a common practice doesn’t make it popular. More than one acquaintance of mine has characterized it as an interest-free loan the dealer provides the supplier. Like a tax refund, it’s hard to get excited when you realize it was your money all along.

Getting back on track here, the challenge of co-op spending programs at the regional or independent level is precisely one of scale: The numbers have to add up. If the up-front co-op cost to position your brand’s products with the dealer is a fixed dollar cost up front, then how much sales volume do they have to do for you in order for you to break even with the program? How much to turn a profit?

It’s not always something your dealer is going to want to hear, but it often makes more sense to come up with more creative solutions for supporting the profitability of their sales efforts, whether through sell-through credits (which differ from VIR in that they’re given on units sold, rather than on inventory purchased) or stock balancing returns on unsold inventory once a promotional period has ended.

As a supplier you want to support your resellers’ efforts to generate sales and do it profitably, but it has to make sense and be profitable for you as well. To that end, when presented with your dealer’s upcoming marketing plan, it can be in both your interests to not just say “Yes” to their proposed co-op costs, but counter with “No, but here’s what else we can do to support you…”