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A Not-So-Radical Alternative To Co-Op And Promotional Funding

I occasionally write things in this column that result in at least a few retailers contacting me to say how much they agree. Unfortunately this will probably not be one of those occasions.

I ask that you give my suggestion consideration before rejecting it outright. Like it or not, the times they are a changin’ and you want to be as proactive as possible in what will likely become the new status quo.

Think about the manufacturers’ “marketing mix” — a term you may recall from Marketing 101 used to describe how a company spends money promoting its brands and products. This includes everything from national and local advertising, public relations, trade shows, literature and displays to co-op/promotional allowance, Internet activities and sales training.

Of all that what would you imagine is the single biggest slice of the pie? In the CE industry, it’s far and away co-op/promotional allowances, which account for anywhere from 3 percent to as much as 10 percent of a manufacturer’s sales. This is money they pay directly to retailers with varying amounts of rules, regulations and governance designed to insure that it is spent effectively.

Everyone has an opinion about how much good this does. Allow me to over-simplify what those opinions are:

Manufacturers: “Little benefit to me particularly when my retailer uses my money to advertise my product at an unacceptably low price.

Retailers: “Absolutely necessary if I am expected to promote the manufacturer’s product.”

I did say “over-simplify,” and I don’t mean to demean either view or to suggest there are not more complex nuances to both, because, in fact, there are. However, those nuances notwithstanding, I think this largely describes the situation. Hardly a win-win, and of greater importance, it doesn’t address an increasingly critical need within the CE industry.

As more and more truly awesome technologies and products come to market, so too grows the need to explain them to consumers, for without explanation the majority will simply not buy. But more than all this, the real problem is that most advertising is non-selective in terms of who the message is aimed at. It is mass market media supported by micro budgets generally sending the wrong message (“I will sell it to you for less”) to an audience that increasingly pays little or no attention to price-centric advertising. So what to do?

I propose that manufacturers and retailers work together to create destination Internet sites that provide meaningful explanations of what a product is, what it will do, and how it works, along with all the other critical information a consumer will need before deciding to purchase it. This will of course include the retailer’s message but in a much more meaningful way than simply price. Such contact will be purposely search-engine driven, meaning Yahoo, Google and other programs will get involved up front, helping the manufacture/retailers to design their sites to optimize the consumer’s search. Consumers, who increasingly say they use the Internet as a source of information for CE products, will do so even more when they get more actionable results than they can today. And guess what? When that happens they will buy.

OK, now the hard part: How to pay for this. Well it’s not really hard at all. We simply divert funds from traditional last century co-op/promotional activities to this new century communication channel. The result: a direct dialog with consumers that will aid both the retailer and manufacturer alike. This would be a meaningful communication leading to higher-margin sales and more satisfied consumers who buy what they really need and/or want rather than simply respond to the lowest price.

If you are a retailer, particularly one that gets a sizeable sum of co-op/promotional money from your manufacturers, I know how this sounds. But what is being done, what has been done as long as there has been a CE industry, needs to change. Not changing is costing you sales. If you are a manufacturer you need to take the initiative to develop new ways to talk to and with consumers. Let’s use the very technology upon which this industry is based to do that. It is time — in fact it’s overdue — and it will work.