Co-op Funds Stretch Your Ad Budget, Help Preserve Cash Flow
Monday October 20, 2014
- Given that co-op reimbursements from OEMs start at 30% – but can go as high as 100% – you can substantially increase your digital ad spend for CPO and New car to reach more shoppers across multiple devices for a real competitive advantage.
- While deserved or not, OEMs sometimes have a reputation among dealers for being challenging to work with in terms of qualifying for co-op reimbursement. Third-party sites like Autotrader make the process easier for dealers by partnering with OEMs to create solutions that maximize product co-op eligibility, including managing graphics and approval, and providing turnkey billing options.
Co-op advertising, that 19th-century invention where manufacturer and retailer share advertising costs and both benefit from building brand awareness, is cool again. Once the domain of traditional advertising, OEMs made it positively difficult or impossible to use co-op dollars to cover digital advertising expenses. As a result, millions of co-op dollars – ergo millions of opportunities to reach consumers online – went unspent.
The tide has turned, though, for both dealer and OEM. According to the 2014 Automotive Buyer Influence Study, 4 out of 5 consumers use the Internet during their car-shopping process, where they allocate 75% of their total shopping time. Audiences for broadcast media and print – especially at the local level – have declined at the expense of soaring digital consumption. In fact, multi-device usage is projected to increase to 80% by 2020.1 OEMs are now recognizing that supporting digital co-op is critical to driving consumers to the dealers that sell their cars.
The Role of Co-op Advertising
Co-op advertising is part of a three-prong marketing strategy that ends at the dealership. For every vehicle a dealer invoices, money is allotted by the OEM for marketing and advertising support. Think of it as a consumer decision journey with multiple opportunities to bring brand, selection and vehicle together. The first leg of the journey is national advertising. National advertising (Tier 1) creates broad awareness and brand image. It helps manufacturers build familiarity with a brand in even the smallest communities where their brand is sold. Moving down the road, Regional advertising (Tier 2/Regional) reinforces brand positioning, delivers key product features and strengths, and includes “Buy now” messages. At the end of the journey is local advertising (Tier 3). Local advertising is targeted to in-market shoppers with price, incentives and “reasons to buy now” messages. Although programs differ by OEM, the purpose of co-op is to offset a dealer’s cost for Tier 2, Regional and Tier 3 local marketing and advertising initiatives.
Typically, the creative for each tier is independent of each other and there’s no cohesive message. That may be changing, though. Results from the Kelley Blue Book’s 2014 Tier 1-3 Effectiveness Study on the impact of advertising on vehicle preference found that 82% of consumers respond more positively to a cohesive experience across all three tiers (national, regional and local). The study also found that a single, off-brand ad (i.e., locally produced with no cohesive look or feel to the OEM’s messaging) drove down consumer preference by 50%. Regardless, the dealer is eligible for co-op reimbursement if he follows the manufacturer’s guidelines.
How Does Co-op Work?
Dealers accrue funds based on varying criteria that may include:
- Percentage of MSRP/invoice of New vehicles purchased from OEM
- Percentage of sale of New and/or CPO vehicles
- Key Performance Indicators (KPI) evaluation
- Dealer sales performance warranties and other products
Dealers submit claims through their compliance agency for reimbursement. Requirements vary from one OEM to the next, but typically include documentation that validates approved display type, cost, activity and run dates.
Use Co-op to Substantially Increase Your Advertising Effectiveness for CPO and New Car
Dealers are now spending more than a quarter of their advertising budget on digital media.2 Given that co-op reimbursements from OEMs start at 30% – but can go as high as 100% – you can substantially increase your digital ad spend for CPO and New car to reach more shoppers across multiple devices for a real competitive advantage.
Deserved or not, OEMs have a reputation among dealers for being challenging to work with in terms of qualifying for co-op reimbursement. Again, that’s loosened up a bit because OEMs understand that car shoppers can now be won or lost at any point along their consideration journey, which is mostly conducted online. Nevertheless, standards are still strict. From an OEM standpoint, those standards have to be strict. They’ve invested millions building their brands and need to ensure a consistent brand experience across every touch point. The key is gaining pre-approval, even if it’s not required.
Third-party sites like Autotrader make the process easier by partnering with OEMs to create solutions that maximize product co-op eligibility, including managing graphics and approval, and providing turnkey billing options. Autotrader, for example, helps its dealer customers with OEM compliance because it actively works with OEMs to understand their standards. The company even has teams that help dealers produce OEM-compliant ads that qualify for co-op reimbursement.
Regardless, it’s important for you to understand co-op and what you need to do to be successful with it. Here, some tips:
- OEMs work hard to ensure a consistent brand experience for consumers and co-op is a lever to ensure compliance. Therefore, co-op reimbursement is based on the specific rules that your OEM requires for compliance that includes corporate logos, approved typefaces and visual treatments. Refer to your OEM co-op program for details.
- If you don’t use an ad agency that ensures OEM compliance and handles co-op submissions, check your OEM’s website to verify sales events, logo changes and other requirements related to the brand and co-op program. You should also have an assigned OEM zone rep who can answer questions regarding brand/co-op requirements and reimbursement.
- Even if you don’t submit an ad for co-op reimbursement, it still needs to be compliant with your OEM’s brand standards.
- Use OEM-supplied templates. Consumers react best to cohesive messages. It’s in your better business interest and you also save on creative expenses.
- Don’t mix makes or messages (e.g., Lincoln and Buick) in the same ad. You won’t be reimbursed and both OEMs will ding you for not adhering to their standards.
- Submit requests for reimbursement as soon as possible.
- Once again, err to the side of caution and submit your ad(s) for pre-approval. Although pre-approval is not required by all OEMs, get it pre-approved. This ensures the compliance agency makes recommendations for corrections and/or approves graphics before the ad(s) runs.
- To ensure compliance and the most available reimbursement, take advantage of third-party sites like Autotrader, which has OEM-approved co-op programs. Autotrader also has a dedicated co-op support team that’s available to help dealers understand their programs and manage processes.
It’s your money; don’t leave your co-op dollars on the table. Take a look at your co-op accruals now so you can spend what you’ve got and plan for the coming year. Learn more at https://agameautotrader.com/co-op.
- Source: 2014 Autotrader projection
- Source: eMarketer, March 21, 2014; NADA