CO-OP Funds and Vendor Advertisingby Udit Jain on June 13, 2007
Many larger retailers negotiate co-op funding from the vendors. This funding traditionally covers advertising posts to market specific merchandise. These funds are restricted by the vendor and will only be paid if certain pricing and presentation rules have been met.
Other vendor funding is negotiated in other segments. It’s quite common in grocery to negotiate and receive “slotting fees” from the vendors to obtain the best “slots” on the shelving units. Fees are higher for eye level shelves near the ends of the aisles than would be charged for a bottom shelf, middle of the aisle slot.
As grocery purchases are heavily based on impulse, vendors will pay these fees to have their product seen first.
In the department store segment, buyers often negotiate guaranteed margins for certain products. The vendor commits to a minimum gross margin percent for their merchandise. If the department store is forced to sell these products at a greater discount than anticipated, the vendor will contribute enough funds to bring the gross margin of that product back to the negotiated level. In this type of arrangement, the retailer and vendor often discuss retail pricing and promotional schedules in advance. Other co-op funding for larger retailers can be found in trailing rebates of 1-3% for purchasing various volume levels of goods. In some cases vendors will purchase custom fixtures and visual displays for the retailers stores.
The problem for the mid-size retailer is a lack of leverage with the vendor, as they do not have the buying power of the multi-billion dollar retailers. Often co-op funding is limited to a single ad in a year or maybe a season. In some cases though, smaller retailers may be able to negotiate volume rebates.